PurchasingPurchasingChapter 23Chapter 23

Where do businesses get the Where do businesses get the supplies that they need?supplies that they need?

Just like us businesses have to figure out Just like us businesses have to figure out what the company needs. what the company needs.

This involves answering questions about, This involves answering questions about, what to buy, how much to buy, and when what to buy, how much to buy, and when and where to buy?and where to buy?

Organizational BuyersOrganizational Buyers – buy goods for – buy goods for business purposes, usually in much business purposes, usually in much greater quantities than the average greater quantities than the average consumer. They need to have technical consumer. They need to have technical knowledge and a firm understanding of knowledge and a firm understanding of the companies operationsthe companies operations. .

Types of MarketsTypes of Markets

Industrial MarketIndustrial Market – Companies that produce – Companies that produce goods/services. Need to know how much goods/services. Need to know how much material you need to produce a specific material you need to produce a specific quantity of a good, when is the best time to quantity of a good, when is the best time to purchase, the capacity of the manufacturing purchase, the capacity of the manufacturing plant etc…plant etc…

Reseller MarketReseller Market – wholesaling and retailing – wholesaling and retailing operations. Purchase good for resale.operations. Purchase good for resale.

Wholesale and Retail buyerWholesale and Retail buyer – forecast customers’ – forecast customers’ needs and buy the necessary products. Have to plan needs and buy the necessary products. Have to plan in advance of the selling season. in advance of the selling season.

Centralized vs. Decentralized Centralized vs. Decentralized BuyingBuying

Buying for all branches in a chain store Buying for all branches in a chain store operation is usually done in a central operation is usually done in a central location and is called location and is called centralized buyingcentralized buying.. Chain stores use centralized buying in order Chain stores use centralized buying in order

to create a unified image for the chain. to create a unified image for the chain. Customers can find the same goods in every Customers can find the same goods in every branch.branch.

Decentralized buyingDecentralized buying is when authority is when authority for retail decisions is made at low levels for retail decisions is made at low levels in the organizationin the organization Allows managers to make special purchases Allows managers to make special purchases

for their individual stores. for their individual stores.

Which to choose?Which to choose?

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

Other marketsOther markets

Government Markets – Government Markets – The federal, state, or local agencies that are The federal, state, or local agencies that are

responsible for purchasing goods and responsible for purchasing goods and services for their specific markets. services for their specific markets.

Ex: Federal Aviation Administration (FAA), the Ex: Federal Aviation Administration (FAA), the Department of sanitation, the Public Library, or the Department of sanitation, the Public Library, or the local school board.local school board.

Institutions/Non-profitsInstitutions/Non-profits Ex: hospitals, churches, colleges, civic clubs, and Ex: hospitals, churches, colleges, civic clubs, and

foundationsfoundations Often have unique buying needsOften have unique buying needs

Selecting SuppliersSelecting Suppliers

Criteria for selecting suppliers:Criteria for selecting suppliers:

Production CapabilitiesProduction Capabilities

Past ExperiencePast Experience

Product and Buying arrangementsProduct and Buying arrangements

Special ServicesSpecial Services

Production CapabilitiesProduction Capabilities

When dealing with a supplier for the first time, When dealing with a supplier for the first time, buyers may request specific information about the buyers may request specific information about the supplier’s production capabilitiessupplier’s production capabilities

May even visit a facility in person to see its May even visit a facility in person to see its operation. operation.

May ask for references May ask for references

May decide not to deal with May decide not to deal with sweatshopssweatshops, which are , which are factories characterized by poor working conditions factories characterized by poor working conditions and negligent treatment of employees. and negligent treatment of employees.

Past ExperiencesPast Experiences

Companies keep detailed records about Companies keep detailed records about previous supplier’s product offerings, previous supplier’s product offerings, prices, delivery and dating terms, and prices, delivery and dating terms, and the names of sales reps. the names of sales reps.

The quality of goods offered is a major The quality of goods offered is a major factor in selecting a supplierfactor in selecting a supplier

If a company starts seeing a lot of If a company starts seeing a lot of returns for a specific product line, they returns for a specific product line, they may drop that supplier. may drop that supplier.

Special Buying ArrangementsSpecial Buying Arrangements

Consignment buyingConsignment buying – goods are paid for only – goods are paid for only after they are purchased by the final customer. after they are purchased by the final customer. This special arrangement is applicable to This special arrangement is applicable to wholesale and reatial buying situations. wholesale and reatial buying situations. Good: testing out new product linesGood: testing out new product lines Bad: Who is responsible for damaged/stolen goods.Bad: Who is responsible for damaged/stolen goods.

Memorandum buyingMemorandum buying – occurs when the – occurs when the supplier agrees to take back in unsold goods by supplier agrees to take back in unsold goods by a certain pre-established date. The buyer pays a certain pre-established date. The buyer pays for all goods purchased, but is later reimbursed for all goods purchased, but is later reimbursed for all goods returned for all goods returned

Special ServicesSpecial Services

Businesses today demand more than just return Businesses today demand more than just return policies from their supplierspolicies from their suppliers Ex: asking suppliers to put Universal Product Codes Ex: asking suppliers to put Universal Product Codes

(UPC’s) on their merchandise. This saves the retailer (UPC’s) on their merchandise. This saves the retailer time and moneytime and money

Retailers have to stay on top of these services Retailers have to stay on top of these services in order to stay competitive.in order to stay competitive.

Negotiating TermsNegotiating Terms

To evaluate suppliers buyers must negotiate:To evaluate suppliers buyers must negotiate: PricesPrices Dating termsDating terms Delivery arrangementsDelivery arrangements DiscountsDiscounts

Ex: Dating terms involves when a bill must be Ex: Dating terms involves when a bill must be paid and the discount permitted for paying early. paid and the discount permitted for paying early. Terms such as (2/10, net 30) means that the buyer Terms such as (2/10, net 30) means that the buyer

would get a 2% discount on their purchase if they pay would get a 2% discount on their purchase if they pay within 10 days of the invoice date, and no matter what within 10 days of the invoice date, and no matter what the payment is due within in 30 days. the payment is due within in 30 days.

Internet PurchasingInternet Purchasing

Invention of the internet has Invention of the internet has revolutionized how businesses operate. revolutionized how businesses operate. Estimates for online trade among businesses Estimates for online trade among businesses

range from $2.7 trillion to $7.3 trillion by 2004range from $2.7 trillion to $7.3 trillion by 2004

Advantages of using the internet include:Advantages of using the internet include: Abundance of information on potential Abundance of information on potential

suppliers.suppliers. Transaction speedTransaction speed Reducing marketing and other costsReducing marketing and other costs Centralized websites that bring buyers and Centralized websites that bring buyers and

sellers together.sellers together.