1. Describe types of purchase orders (OP:250)
5.02 Implement purchasing activities to obtain business supplies, equipment, and services.
Describe types of purchase orders (OP:250)

2. Describe benefits of using purchase orders.
A purchase order (PO) system has distinct advantages for both large and small business. For anything that you need to buy, assign it a unique number so that you can track it through your system.
Ordering Items
When ordering supplies from a business, use a unique PO number along with an employee number or name. This will allow you to keep tabs on who is ordering items, when they are being ordered and how long they are taking to get to your business. Most businesses that buy and sell from distant vendors use this system to keep orderly records of purchases.
Getting Lost
A PO number can help you when you are tracking a wayward shipment. If you have given a PO number to the seller, they can use that unique number more easily in their system to locate your items.
This number can be of help when trying to find out what happened to a missing order. This PO number and the shipping details can be cross-indexed easily. This indexing makes it simple to find out which order was shipped, when it was shipped and how.
Accountability
Tracking the PO number and employee ID in a simple spreadsheet can help eliminate "he said, she said" as far as ordering goes. Who ordered what and when will be right in front of you in the spreadsheet.
Inventory
Use the PO to track your inventory. A PO number can be used to see how commodities are being used in your business and by whom. You can use the PO number from ordering to consumption to show you where your resources are going.
Common Frame of Reference
PO numbers create common language. Rather than having to explain that you wanted XYZ widgets and not ZYX gadgets, use a PO to refer to the item.

3. Identify common components of purchase orders.
A purchase order is usually a numbered document issued by a buyer to a seller.
The details of the purchase are listed specifically as to item, PO number, quantity, price per item, Shipping date, expected delivery date, Billing address, Shipping address, Requested terms, and a not-to-exceed-total.
The company person who has the authority to make purchases places the order. This document can be used by either party (buyer or seller) to cover them in the case of a dispute.
It is therefore important that all pertinent information be included in the PO (purchase order).

4. Discuss situations in which single-use purchase orders are appropriate.
Single-use purchase orders are usually used by retail stores.
The purpose of a single-use purchase order is to keep track of a single order from a vendor until all items have been received from that order.
Once all items have been received, that purchase order number can no longer be used.

5. Explain purposes of blanket purchase orders
A Blanket Purchase Order is a type of purchase order designed to consolidate repetitive small purchases from a single supplier.
It is essentially a form of open account which is limited in terms of the things which can be ordered, who can place the orders, the period for which it is to be open, and the total amount which can be ordered.
These are typically used by organizations to keep track of money that was spent for a particular department or for a specific project (such as IT equipment upgrade).

6. Explain standards used for electronic purchase orders
Many companies now use electronic purchase orders following specific standards, such as the United Nations rules on Electronic Data Interchange For Administration, Commerce, and Transport (EDIFACT) or those of Rosetta Net, a non-profit consortium aimed at establishing standard processes for the sharing of business information.
In 1979, the American National Standards Institute (ANSI) chartered the Accredited Standards Committee (ASC) X12 to develop uniform standards for inter-industry electronic exchange of business transactions-electronic data interchange (EDI)
In 1986, the United Nations Economic Commission for Europe (UN/ECE) approved the acronym "UN/EDIFACT," which translates to United Nations Electronic Data Interchange for Administration, Commerce and Transport. UN/EDIFACT is an international EDI standard designed to meet the needs of both government and private industry.
X12 is used in the USA but most of the rest of the world uses the EDIFACT transaction sets.
ANSI
More than 1600 vendors are currently using our electronic purchase order application. This application:
Shortens your order lead time. Suppliers have the ability to access Ace Purchase Orders the same day they are created.
Provides a direct interface with your order processing system.
Improves order accuracy by eliminating manual entry problems.
UN/EDIFACT format can be used to specify details for goods or services ordered under conditions agreed upon between the seller and the buyer.
A buyer may order one or more goods items or services.
A purchase order may refer to goods items or services related to one or more delivery schedules, call-offs, etc
A purchase order for cross-border transactions may contain additional information for customs and/or statistical purposes.
A purchase order may contain details for transport and destination as well as delivery patterns.
Rosetta Net develops universal standards for the global supply chain. Rosetta Net delivers efficient ways to affect collaborative commerce for organizations of any size, in any part of the world. In a dozen industries, spanning hundreds of companies, and the entire globe, our standards enable automation of business processes, and lower technical and financial barriers to global commerce.

7. Manage the bid process in purchasing (OP:160)
5.02 Implement purchasing activities to obtain business supplies, equipment, and services.
Manage the bid process in purchasing (OP:160)

8. Explain the purposes of the bid process.
Once you have selected a few qualified suppliers, the best method to determine if an offer is competitive is to request a written bid. Bidding will allow you to verify the pricing provided by the supplier, tell the supplier you are seeking competition, delineate your expectations of the supplier and his/her expectations of WHOI and, when needed, can form the basis for a legally binding contract.
The bidding process begins with the development of a set of specifications or objectives. To be able to define the requirements exactly requires doing your homework. The resources to assist you in this include colleagues, trade manuals, the Procurement Team and the suppliers themselves. Try to make your specifications as generic as possible allowing the suppliers to use their expertise to find the best solution to your needs.

9. Describe different types of bidding
English Auction: This is an open, ascending auction where each winner pays his/her bid. When people speak of auctions, they usually mean this one. Sotheby's and Christie's use this method for auctioning fine art.
Sealed Bid: This is a closed version of the English auction. All bidders submit their sealed (secret) bids. When the bidding period is over, all the bids are opened. The high bidder wins and pays what he/she bid. The strategy for a sealed bid auction is different from the strategy in an English.
Classic Dutch Auction: This is an open, descending auction. The name is derived from the old Dutch practice of auctioning flower bulbs (tulips). The auctioneer starts at a very high price and at specific time intervals drops the price by a fixed amount. The process continues until a bidder indicates a buy signal, at which time that bidder wins the lot.
Reverse Auction: This term is used inconsistently. In most cases and in auction theory, this refers to a one-buyer, many-seller auction (as opposed to the traditional one-seller, many-buyer auction). Some sites use this term to refer to any descending price auction, including the Classic Dutch.

10. Discuss general information typically included in bid conditions and specifications.
Specifications must permit fair consideration of all known sources qualified to bid. Since the order goes to the lowest bid meeting specifications, the specifications need to be accurate. Every feature or condition that will be used in making the selection must be included on the requisition. These will become the bid specifications.
Below are some suggestions on what to include in specifications. The buyer will include these features or conditions as part of the bid specifications to vendors:
Use generic specifications whenever possible. Citing a brand name and model number is acceptable, but bids are also accepted for "or equal" products. Include any accessories needed.
Attach additional page for features, drawings, and performance specifications.
If ordering multiple items, will the award be "all or none "or "as a package?" Or will each item be ordered from the low bidder?
Are samples required with the bid?
Are installation, training, manuals, etc. required?
Is used or demo equipment acceptable?
Is a trial period or demonstration required?
Does the price quote need to be valid for a specified period of time?
Request warranty information and cost of maintenance agreement or service as called for.
Will the item be used in the United States or transferred abroad?
Is local servicing of equipment required?
What is the cost of supplies for the equipment?
Is cleanup of the delivery site required?
Are multiple or scheduled shipments required?
Does the facility impose limitations to the type of delivery, e.g.3rd floor - no elevator?
Is a specific delivery date required or is delivery on a weekend or off hours required?

11. Discuss procedures for preparing bid invitations/requests for proposals.
Here are some tips on preparing a bid: You will need sufficient time to prepare and
evaluate the bid. The suppliers will need sufficient time to respond (usually two to
four weeks depending on the complexity).
All suppliers should receive identical copies of your bid documents and any subsequent changes.
Sometimes it may be more cost effective to use WHOI's own assets to manufacture an item or perform a service. Whenever practical, every effort should be made to include our internal shops and departments in the bidding process.
Specify a deadline for receipt of bids. If you extend this deadline for one, you must extend it for all.
If the bid is quite complicated and will generate a host of questions or require a site visit from the suppliers before they can bid, it may be most expedient to hold a pre-bid meeting with all parties present.
Make sure the person who is submitting the response is appropriate. All bids should be signed by an officer of the supplier's company with authority to commit the company's resources.
All bids are confidential and should not be used as a bargaining tool among suppliers.

12. Discuss methods used to locate potential suppliers prior to soliciting bids.
Trade shows alone offer multiple opportunities for you to not only spot upcoming trends, but also to network with potential suppliers and hopefully find just the right product source. The New York International Gift Fair, for instance, attracts thousands of exhibitors, organized by type of product. Attending a trade show also gives you the opportunity to demonstrate you mean business.
Trade magazines, meanwhile, can be an inexpensive way to find companies with which you want to correspond. Scour them frequently for mentions of any companies that might offer the products you need, then try to find out whether they'll be exhibiting at any upcoming trade shows you can attend.
Trade organizations or industry associations related to the products you're interested in are yet another potential source of valuable contacts, including international companies.

13. Explain methods used to publicize bid invitations/requests for proposals.
The first step in soliciting bids is to decide whether you will use an informal competitive procedure for small purchase procedures or formal method such as competitive sealed bidding or competitive negotiation. When you select a formal procedure, you will need to advertise.
To solicit sealed bids, post a public notice of the intended purchase on bulletin boards and advertise in the newspaper. Also, social media, news stations, and word of mouth. Public notice should include the following:
name of the school district
brief description of the equipment
date and time of bid opening
name of contact person
where bid documents can be obtained
legal authority

14. Identify situations in which a pre-bid meeting with suppliers may be necessary.
Pre-bid meetings are worthwhile to clarify points for contractors and identify areas where additional or revised information or revised information required before bids are received. They provide an opportunity to alleviate confusion and provide useful discussion concerning contract construction issues and goals.

15. Explain benefits of holding a pre-bid meeting with suppliers.
Find out how long the supplier has been in business.
Find out who are the supplier's primary customers and ask for and check references.
Investigate a supplier's financial stability.
Check bank references.
Tour the supplier's facilities, if possible.
Is the supplier really interested in doing business with the University?
Does the supplier use state-of-the art technology?
Does the supplier offer an educational discount?

16. Student Activity
Purchase Order example
Each student should contact a local business or business partner to determine what types of purchase orders are used to obtain specific goods and services for the company. Each student should determine reasons why the business uses different types of purchase orders to acquire different items. Students should share their findings with the class.
Demonstrate methods to manage the bid process in purchasing.

17. Discuss types of inventory (OP:336)
5.02 Implement purchasing activities to obtain business supplies, equipment, and services.
Discuss types of inventory (OP:336)

18. Identify common types of inventory
raw materials
work-in-process
finished goods
Maintenance, repair, and operating (MRO) goods
transit inventory

19. Describe inventory items that are typically categorized as raw materials
Raw materials are inventory items that are used in the manufacturer's conversion process to produce components, subassemblies, or finished products.
These inventory items may be commodities or extracted materials that the firm or its subsidiary has produced or extracted.
They also may be objects or elements that the firm has purchased from outside the organization.
Even if the item is partially assembled or is considered a finished good to the supplier, the purchaser may classify it as a raw material if his or her firm had no input into its production.
Typically, raw materials are commodities such as ore, grain, minerals, petroleum, chemicals, paper, wood, paint, steel, and food items.
However, items such as nuts and bolts, ball bearings, key stock, casters, seats, wheels, and even engines may be regarded as raw materials if they are purchased from outside the firm.

20. Explain the benefits and disadvantages of keeping raw materials on hand.
The purpose of maintaining raw material inventory is to separate the production function from the purchasing function so that any problem in shipment of raw materials do not cause production delays.

21. Discuss inventory items that are typically categorized as work-in-process.
Work-in-process (WIP) is made up of all the materials, parts (components), assemblies, and subassemblies that are being processed or are waiting to be processed within the system.
This generally includes all material—from raw material that has been released for initial processing up to material that has been completely processed and is awaiting final inspection and acceptance before inclusion in finished goods.

22. Explain the importance of keeping work-in-process inventory to a minimum.
Its purpose is to uncouple the various operations in the production process so that machine failures and work stoppages in one operation will not affect the other operations.
In addition to the raw materials, the work in process inventory includes the cost of the labor directly doing the work and manufacturing overhead. Manufacturing overhead is a catchall phrase for any other expenses the leather crafting business has that indirectly relate to making the products. A good example is depreciation of leather making fixed assets.

23. Describe inventory items that are typically categorized as finished goods.
A finished good is a completed part that is ready for a customer order. Therefore, finished goods inventory is the stock of completed products.
These goods have been inspected and have passed final inspection requirements so that they can be transferred out of work-in-process and into finished goods inventory.
From this point, finished goods can be sold directly to their final user, sold to retailers, sold to wholesalers, sent to distribution centers, or held in anticipation of a customer order.

24. Describe inventory items that are typically categorized as maintenance, repair, and operating (MRO) goods.
Maintenance, repair, and operating supplies, or MRO goods, are items that are used to support and maintain the production process and its infrastructure.
These goods are usually consumed as a result of the production process but are not directly a part of the finished product.
Examples of MRO goods include oils, lubricants, coolants, janitorial supplies, uniforms, gloves, packing material, tools, nuts, bolts, screws, shim stock, and key stock.
Even office supplies such as staples, pens and pencils, copier paper, and toner are considered part of MRO goods inventory.

25. Describe the importance of MRO goods inventory.
Inventories play a major role in the economy and businesses.
From the firm’s view point, inventories represent an investment in capital; capital is required to store materials at any stage of completion.
Thus the proper balance must be struck to maintain proper inventory level with the minimum financial impact to the organization.
Inventory management, or inventory control, is an attempt to balance inventory needs and requirements with the need to minimize costs resulting from obtaining and holding inventory.

26. Discuss items that are considered to be part of a transit inventory.
Transit inventories result from the need to transport items or material from one location to another, and from the fact that there is some transportation time involved in getting from one location to another.
Sometimes this is referred to as pipeline inventory. Merchandise shipped by truck or rail can sometimes take days or even weeks to go from a regional warehouse to a retail facility.
Some large firms, such as automobile manufacturers, employ freight consolidators to pool their transit inventories coming from various locations into one shipping source in order to take advantage of economies of scale. Of course, this can greatly increase the transit time for these inventories, hence an increase in the size of the inventory in transit.

27. Explain benefits and disadvantages of maintaining a buffer inventory.
Inventory is sometimes used to protect against the uncertainties of supply and demand, as well as unpredictable events such as poor delivery reliability or poor quality of a supplier's products.
These inventory cushions are often referred to as safety stock. Safety stock or buffer inventory is any amount held on hand that is over and above that currently needed to meet demand.
Generally, the higher the level of buffer inventory, the better the firm's customer service. This occurs because the firm suffers fewer "stock-outs" (when a customer's order cannot be immediately filled from existing inventory) and has less need to backorder the item, make the customer wait until the next order cycle, or even worse, cause the customer to leave empty-handed to find another supplier.
Obviously, the better the customer service the greater the likelihood of customer satisfaction.

28. Describe reasons to build up anticipation inventory.
Oftentimes, firms will purchase and hold inventory that is in excess of their current need in anticipation of a possible future event. Such events may include a price increase, a seasonal increase in demand, or even an impending labor strike.
This tactic is commonly used by retailers, who routinely build up inventory months before the demand for their products will be unusually high (i.e., at Halloween, Christmas, or the back-to-school season).
For manufacturers, anticipation inventory allows them to build up inventory when demand is low (also keeping workers busy during slack times) so that when demand picks up the increased inventory will be slowly depleted and the firm does not have to react by increasing production time (along with the subsequent increase in hiring, training, and other associated labor costs).
Therefore, the firm has avoided both excessive overtime due to increased demand and hiring costs due to increased demand. It also has avoided layoff costs associated with production cut-backs, or worse, the idling or shutting down of facilities.
This process is sometimes called "smoothing" because it smoothes the peaks and valleys in demand, allowing the firm to maintain a constant level of output and a stable workforce.

29. Explain decoupling inventory’s role in avoiding production irregularities.
Very rarely, if ever, will one see a production facility where every machine in the process produces at exactly the same rate. In fact, one machine may process parts several times faster than the machines in front of or behind it. Yet, if one walks through the plant it may seem that all machines are running smoothly at the same time. It also could be possible that while passing through the plant, one notices several machines are under repair or are undergoing some form of preventive maintenance. Even so, this does not seem to interrupt the flow of work-in-process through the system. The reason for this is the existence of an inventory of parts between machines, a decoupling inventory that serves as a shock absorber, cushioning the system against production irregularities. As such it "decouples" or disengages the plant's dependence upon the sequential requirements of the system (i.e., one machine feeds parts to the next machine).
The more inventory a firm carries as a decoupling inventory between the various stages in its manufacturing system (or even distribution system), the less coordination is needed to keep the system running smoothly.
Naturally, logic would dictate that an infinite amount of decoupling inventory would not keep the system running in peak form.
A balance can be reached that will allow the plant to run relatively smoothly without maintaining an absurd level of inventory.
The cost of efficiency must be weighed against the cost of carrying excess inventory so that there is an optimum balance between inventory level and coordination within the system.

30. Discuss circumstances that may result in cycle inventory.
Those who are familiar with the concept of economic order quantity (EOQ) know that the EOQ is an attempt to balance inventory holding or carrying costs with the costs incurred from ordering or setting up machinery.
When large quantities are ordered or produced, inventory holding costs are increased, but ordering/setup costs decrease.
Conversely, when lot sizes decrease, inventory holding/carrying costs decrease, but the cost of ordering/setup increases since more orders/setups are required to meet demand.
When the two costs are equal (holding/carrying costs and ordering/setup costs) the total cost (the sum of the two costs) is minimized.
Cycle inventories, sometimes called lot-size inventories, result from this process.
Usually, excess material is ordered and, consequently, held in inventory in an effort to reach this minimization point. Hence, cycle inventory results from ordering in batches or lot sizes rather than ordering material strictly as needed.

31. Student Activity
Student should select a local manufacturing plant to identify and describe the different types of inventory that the facility keeps on hand.
Each student should write a half-page report that details the types of inventory that the manufacturing plant maintains and reasons that it does so.

32. 5.02 Implement purchasing activities to obtain business supplies, equipment, and services.
Select vendors (OP:161)

33. Describe factors to consider when selecting vendors.
Capability: As a small business owner, you cannot compromise on the quality of work as the competition is intense. Most of the vendors you will shortlist for your outsourcing requirements will offer their services as experts in their field. It is important to know the specific skills of the vendor in terms of your project requirements. You can ask for certifications from concerned authorities and proof of previous projects completed by the vendor. Vendors should also provide you with samples and project estimates regarding their specialization areas. The focus of a vendor's work should be on providing the exact requirements of your project to the best of their abilities.
Costing: To get a project done from an outsourcing vendor you should be absolutely clear about the overall cost of the project. While the hourly rates might look attractive, you should not proceed with a deal without knowing about the full cost of a project. This can be further clarified with proper documentation from the vendor that shows services provided and the total costs applicable for those services in the complete duration of the project. Many times, projects might get delayed because of technical or human factors and you should be clear with the vendor about the payment structure in case of late delivery or unsatisfactory delivery of the project. For small businesses, the best bet is to have flexible pricing model based on the amount of services you utilize. If you have a defined scope of the project, it's always advisable to ask your vendor for the total cost to avoid future conflicts.
Customization: The only thing most dear to small business owners is their ability to be swift when the time needs them to change. This requires a greater effort from the outsourcing vendor to offer services that can be modified and ramped-up/ramped-down to accommodate the changing needs of a small business. A higher level of customization and flexibility is required. You must make sure that the vendor is not rigid with what it has to offer. Your provider must understand YOUR needs and align its services in order to meet them.

34. Explain reasons for analyzing vendors.
Limiting responses to qualified companies - identifying the core products and services that are desired can help avoid receiving proposals from companies that will not ultimately meet the needs of the plan.
Providing an apples-to-apples comparison - it can be difficult to compare proposals that offer different products and services. By identifying core products and services desired in the request for proposal process (RFP), the plan sponsor is less likely to have to compare proposals that are vastly different.
Helping vendors provide quality proposals - by identifying the core products and services in the RFP, the plan sponsor is providing useful guidance to the vendors. It is important to recognize that most companies will strive to meet all the goals of the plan, but they will stand a better chance of hitting the mark if they know what the goals are.

35. Cite reasons that a business may want to select more than one vendor.
First vendor fails to meet the requirements and is eliminated after service
Price bidding on projects
Split orders among various vendors to cut loses if orders do not make deadlines

36. Compute weighted scores for vendor selection.
While knowledge of industry standards is of use during the scoring, evaluators can compare the vendors against each other in order to award the scores.
In awarding points, questions or groups of questions are typically assigned to the specific evaluation criteria categories. Many evaluators have found that using a numerical system for evaluating responses helps them translate 'merit' into points, such as the rating system that follows:
     Unresponsive to Questions = 0      Does Not Meet Criteria = 1      Meets Criteria = 3      Exceeds Criteria = 5

37. Develop grading scales for criteria selected for evaluation.
Some organizations prefer to use a letter scoring methodology (A, B, C, etc.) for responses.
Regardless of the ranking method, each can be converted to a numerical score based on the evaluation criteria weighting.

38. Explain guidelines for selecting vendors.
Step #1: Analyze Business Requirements The toughest part of the vendor selection process is analyzing the business requirements. This guide will show you how to accomplish this and gain consensus across all the stakeholders before you begin the vendor selection process.
Step #2: Vendor Search The second part of the vendor selection process is to perform a comprehensive vendor search and create a "short list" of vendors to pursue. Done correctly, this will position your business to find the right vendor and create a competitive atmosphere between competing vendors. This guide will show you how.
Step #3: Request for Proposal (RFP) and Request for Quotation (RFQ) The third part of the vendor selection process is to write a Request for Proposal (RFP) or Request for Quotation (RFQ). A well written RFP or RFQ is the critical success factor in the entire vendor selection process. This guide will show you how to create a document that will detail the needs and expectations of your company.
Step #4: Proposal Evaluation and Vendor Selection In the vendor selection process, this is the most crucial step of all. Lack of preparation and not paying attention to detail can lead your vendor selection team to recommend the wrong vendor for your company. This guide will help you organize your selection process and lead your team to a unified vendor selection decision.
Step #5: Contract Negotiation Strategies The final stage in the vendor selection process is developing a contract negotiation strategy. Successful contract negotiation means that both sides will gain from coming to an agreement. This guide will show you how to plan a successful contract negotiation strategy.

39. Student Activity
Create a list of several vendors who offer similar products/services, students should participate in a small-group activity to develop a rating scale listing criteria for making a vendor selection. Each group should select one vendor and report the findings to the class. Each group should provide a rationale for its decisions.

40. Negotiate terms with vendors in business (OP:337)
5.02 Implement purchasing activities to obtain business supplies, equipment, and services.
Negotiate terms with vendors in business (OP:337)

41. Describe factors that should be negotiated with vendors.
Scope of Services If a request for proposal (RFP) was used to define the requirements to a vendor, this document and the vendor’s response should be incorporated as part of the agreement. You may also want to state that any representation of the product made in sales presentations becomes part of the product’s “capabilities” and, therefore, part of the contract.
Performance Standards Once the scope of services is defined, performance standards should also be developed for the delivery of services. Any defined performance standards should have specific penalties in place if they are not met, based on the degree of severity. It is important to establish the penalties within the contract. Trying to recover any damages without having them defined is very difficult.
Security, Controls and Confidentiality Much emphasis has been placed on security and confidentiality of client and bank information as required by the Gramm-Leach-Bliley Act Section 501(b). The terms and conditions for the contract will vary based on whether the vendor is providing an outsourced service or you are acquiring a system to run in-house. Consider writing terms into the contract that identify that it is the vendor’s responsibility to resolve any major system-related deficiencies found as a result of the IT controls review. Tie the resolution to the deficiencies found in the controls review to a time frame and require the deficiency to be remediated by the vendor prior to final payment of a certain percentage of the contract.

42. Identify types of discounts that can be negotiated.
One way to set the terms is simply defacto. Pay the bill when it is convenient for you to do so, regardless of what the bill says. As long as you are not paying late, then you can create the payment cycle
For large payments where you would like to spread the payment out over time, there are two ways to negotiate.
First, you can specify the payments match deliverables.
Second, you can simply say that you need x amount of time to pay, and ask the vendor to agree to this. In this case, it is important to put the payment schedule in writing, as often the accounting department will assume you are paying late, unless they know you have special terms.
Finally, if you want to pay bills only once a month, on the first of the month, for example, inform every vendor that you will be paying at that rate, no matter when the bill comes in.
If you are more interested in cutting your expenses than in streamlining accounting, you can also ask for a discount on the invoice for early payment. However, this may end up costing you, as you then are on the hook for paying as soon as the bill comes in, rather than being able to control your payment cycle.

43. Explain guidelines for negotiating terms with vendors.
Try to keep in mind that you are really negotiating for two things--price and value.
The lowest price with a vendor or supplier may not get you the best value for your needs. So think over exactly what you are trying to achieve prior to going in to negotiations. Your preparedness is really what gives you the upper hand (or at least helps you stand on solid footing).
If you are really interested in paying a low price, then this should be your focus.
If you are interested in getting both a good price and the best value and service-- keep this in mind as you negotiate--you may find the vendor or supplier willing to compromise and provide additional product or services (thereby increasing the value of your exchange) if you are willing to pay a little more.
The vendor or supplier may be so focused on getting the best price that they are willing to give more on other items up for negotiation.

44. Maintain vendor/supplier relationships (OP:241)

45. Explain the importance of good vendor/supplier relationships.
vendors and buyers are both better served when they come together to form strong, mutually beneficial, and secure business relationships for non- commodity type goods and services.
When these relationships exist, they can drive the growth and profitability of both organization and prevent purchasing and execution problems.
Vendors and supplies provide a critical service for any business.. One thing is clear: all parties need to receive mutual benefit form the relationship. This is an important dynamic to understand since, in the long run, a healthy vendor and supplier relationship will be a competitive advantage.

46. Identify barriers to good vendor/supplier relationships.
A good vendor or supplier relationship will be able to withstand some amount of conflict as long as both parties want to resolve the conflict in a productive way.
Too often, a vendor or supplier relationship will turn south when one of the parties decides to take advantage of the other. Taking unfair advantage of a situation is a short sided approach to building a lasting business. Again, it’s fine to negotiate hard get the best deal but it’s also wise to understand the implications.
Warning signs:
People quit coming to meetings
Missed dates without prior explanation
One word answers to questions
Issues quickly escalate into crises
Issues resolved at the wrong level; people bring in the big guns to shoot an ant
Conversations have a “blame” connotation (“who did it?”)
People don’t follow through with promises
One side overburdens the other with innumerable issues

47. Describe techniques for maintaining vendor/supplier relationships.
The establishment of common goals and desired outcomes
Agreed-upon methods for running meetings and conducting business
Established methods for conflict resolution and appeal
A checklist to identify when the relationship is deteriorating
Regular team building sessions to share mutual, interpersonal feedback
Tight agreements regarding confidentiality – which information is to be shared, which is to be held in confidence

48. Evaluate vendor performance (OP:162)

49. Explain reasons for evaluating the performance of vendors.
At many companies, supplier scorecards and performance monitoring have become ends, rather than a means to increase the value gained from suppliers.
A common approach is to use metrics retroactively, to apply penalties in cases of sub-par performance to offer incentives for future improvement, or to use metrics to deselect suppliers that fail to meet performance benchmarks – to fix supply problems by changing suppliers.
Usually the hope is that the threat of penalties or of switching will encourage suppliers to perform well. While this is true to some extent, it is also true that an uncertain environment discourages investment.
Metrics should also be used to provide early warnings of potential trouble, and to facilitate the resolution of problems.
The first step in enhancing supplier performance measurement is to think systematically about the different ways that metrics can be used as part of an overall supplier relationship management system, and to define clearly the fundamental purposes of any and all supplier metrics.

50. Identify aspects of vendor performance to evaluate.
Any procurement executive will emphasize that price is only one measure of cost, and cost is only one element of assessing the attractiveness of a supplier. Nonetheless, the reality is that price-related metrics dominate the way most companies view and manage interactions with their supply base.
The other dimension of measurement might be termed the operational dimension – quality measures such as parts per million defect rates, service level measures such as time to respond to enquiries, and the like. Most companies focus on measures of suppliers’ operational performance because these are relatively straightforward to track, and because most companies, especially those in manufactured goods industries, have developed reasonably robust electronic systems (usually at the plant level) for capturing data on defect rates, on-time delivery, inventory levels, and so on.
Perhaps the most overlooked category of measurement is that of relationship quality – the nature and efficiency of interactions between a company and its suppliers. As a category of measurement, this involves looking not at what we are doing together, but how; these are procedural measures of our relationship rather than substantive ones. Such metrics are joint or bilateral – they involve assessment of the customer by the supplier as well as the reverse.

51. Describe guidelines for evaluating the performance of vendors.
It’s best to keep this process as simple as possible.
a 1-to-5 scale or a letter-grade method or a True/False test against the basic requirements, followed by an overall rating of the product.
The core requirements should drive the decision process. Beware of overvaluing a product that scores well on all the extra features while scoring poorly against the key business requirements.
Based on literature and the document analysis, quality, delivery, total cost and service are the core criteria that should be evaluated in the supplier matrix.
The criteria should be well defined, and not subjective to the interpretation of the user or evaluator. In order to have consistency among buyer in an organization, subjectivity needs to be kept to a minimum.
Supplier evaluations should rate the performance of all suppliers equally; therefore it is important the criteria be measured as objectively as possible.

52. Student Activity
Given a series of scenarios about purchasing, students should identify actions that would result in positive relationships and those that would result in negative relationships. Discuss what actions could be taken to prevent the negative situations.  
Students should participate in a school-based enterprise activity to examine the vendors’ performance. Students should look at the consistency of products purchased from vendors, the vendors’ ability to supply the needed quantities of materials, the stability of the vendors, and the quality and extent of service previously provided by the vendors. Students should rate each vendor to determine whether the school-based enterprise should continue to buy from the vendor.