Purchasing Chapter 23

Where do businesses get the supplies that they need? Just like us businesses have to figure out what the company needs. This involves answering questions about, what to buy, how much to buy, and when and where to buy? Organizational Buyers – buy goods for business purposes, usually in much greater quantities than the average consumer. They need to have technical knowledge and a firm understanding of the companies operations.

Types of Markets Industrial Market – Companies that produce goods/services. Need to know how much material you need to produce a specific quantity of a good, when is the best time to purchase, the capacity of the manufacturing plant etc… Reseller Market – wholesaling and retailing operations. Purchase good for resale. Wholesale and Retail buyer – forecast customers’ needs and buy the necessary products. Have to plan in advance of the selling season.

Centralized vs. Decentralized Buying Buying for all branches in a chain store operation is usually done in a central location and is called centralized buying. Chain stores use centralized buying in order to create a unified image for the chain. Customers can find the same goods in every branch. Decentralized buying is when authority for retail decisions is made at low levels in the organization Allows managers to make special purchases for their individual stores.

Which to choose? Each approach for coordinating buying has limitations. Retailers constantly make trade-offs between the efficiency gained through centralized buying and the greater sales potential obtained through decentralized buying decisions that tailor merchandise to local markets

Other markets Government Markets – Institutions/Non-profits The federal, state, or local agencies that are responsible for purchasing goods and services for their specific markets. Ex: Federal Aviation Administration (FAA), the Department of sanitation, the Public Library, or the local school board. Institutions/Non-profits Ex: hospitals, churches, colleges, civic clubs, and foundations Often have unique buying needs

Selecting Suppliers Criteria for selecting suppliers: Production Capabilities Past Experience Product and Buying arrangements Special Services

Production Capabilities When dealing with a supplier for the first time, buyers may request specific information about the supplier’s production capabilities May even visit a facility in person to see its operation. May ask for references May decide not to deal with sweatshops, which are factories characterized by poor working conditions and negligent treatment of employees.

Past Experiences Companies keep detailed records about previous supplier’s product offerings, prices, delivery and dating terms, and the names of sales reps. The quality of goods offered is a major factor in selecting a supplier If a company starts seeing a lot of returns for a specific product line, they may drop that supplier.

Special Buying Arrangements Consignment buying – goods are paid for only after they are purchased by the final customer. This special arrangement is applicable to wholesale and reatial buying situations. Good: testing out new product lines Bad: Who is responsible for damaged/stolen goods. Memorandum buying – occurs when the supplier agrees to take back in unsold goods by a certain pre-established date. The buyer pays for all goods purchased, but is later reimbursed for all goods returned

Special Services Businesses today demand more than just return policies from their suppliers Ex: asking suppliers to put Universal Product Codes (UPC’s) on their merchandise. This saves the retailer time and money Retailers have to stay on top of these services in order to stay competitive.

Negotiating Terms To evaluate suppliers buyers must negotiate: Prices Dating terms Delivery arrangements Discounts Ex: Dating terms involves when a bill must be paid and the discount permitted for paying early. Terms such as (2/10, net 30) means that the buyer would get a 2% discount on their purchase if they pay within 10 days of the invoice date, and no matter what the payment is due within in 30 days.

Internet Purchasing Invention of the internet has revolutionized how businesses operate. Estimates for online trade among businesses range from $2.7 trillion to $7.3 trillion by 2004 Advantages of using the internet include: Abundance of information on potential suppliers. Transaction speed Reducing marketing and other costs Centralized websites that bring buyers and sellers together.