Types of purchase

Type of purchase

• Capital equipment• Raw materials• Original equipment part (OEP)• Maintenance, repair and operating (MRO)• Services

Discuss

• Describe the types of goods IBM purchased for its operations?

Types Items

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2

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4

Purchase of capital equipment

• Item may be physically large

• May be in single or multiple units

• The way it is handled is not affected by accounting classification

• Usually need approval from top management

Purchase of OEP

• Usually a standardized component of a finished product

• Needed continuously in manufacturing• Components likely to remain the same over

years• Same items may be purchased over many

years and for different purpose• High volume

Pricing of OEP

• Usually substantially Low • Factors that influence pricing– Quality– Delivery– Packaging– Additional features

Discuss

• Can IBM leverage on its power for its purchase of OEP? Explain

Purchase of MRO

• Usually purchase in low volume, sometimes in one or two pieces

• In low value– But a repair item may require the entire plant to

shut down, causing thousands of dollars, for the repair work

• Frequency: Can be low, maybe once in a life time of the machine

MRO buyers

• Under pressure to meet urgent needs• Not too concerned about pricing• The objective: To satisfy the requestor• Most cost is with placing the order and

documentation• Modern purchasing use EDI or system

contracts to reduce cost of transaction

Small value purchase

• Delegate order placement to users• Methods– Telephone orders– Petty cash purchase– Standing order, e.g. Electric fitting contractor

• Stockless buying

Discuss

• Recommend the efficient purchasing system for the following: – a) Standard ‘Original Equipment Parts’ orders; – b) MRO items (small orders)