4.00 Understand business operations management. NC CTE 4.02: Implement purchasing activities to obtain business supplies, equipment and services.

The nature and scope of purchasing Activities involved in purchasing Purchasing - The buying of goods and services for a business. The purchasing process is much more streamlined in small companies than in larger businesses, especially when the businesses are still fairly new. The owner usually decides what to buy, when to buy, where to buy, and how much to buy. By selecting one person to manage all of the business's purchasing activities, you will decrease the risk of duplicating orders for the same materials The purchasing process used by businesses to obtain materials, equipment, and supplies used in their operation. Purchasing Process - A series of sequential steps taken by purchasing specialists to buy goods and services for a business. to provide an uninterrupted flaw of materials and services for company operations to find reliable alternative sources of supply to buy at the most economic order quantities to buy the best value: a combination of right quality at the best price with the best supplier service to maintain good relations with vendors

Place orders/reorders Purchasing Order - The form that a business fills out to order goods; may be the same as a purchase agreement or purchase contract. Factors to consider when placing orders/reorders. how to determine the firm's purchasing needs finding a supplier who will best satisfy purchasing needs negotiating and making the purchase communicating the purchase decision to the supplier and to relevant personnel within your firm, and Do a follow-up procedure for evaluating your purchasing decisions Components of purchase orders. They should include information such as the type of product or service you are ordering, the quantity desired, price and delivery terms. The orders should also have an area for any additional information. Purchase orders should also include your company name, address, telephone and fax numbers, and logo.  Purchase orders should have at least three parts: a vendor copy, an internal file copy, and an accounting copy.

The Purchasing Cycle Identify the needs for goods and/or services. Research the market to establish a profile. Telephone minimum of 3 suppliers to obtain prices to supply goods and/or services using an identical specification, terms, and conditions. Obtain written confirmation from suppliers of verbal quote(s) and keep a file to file with office copy of the purchase order. Compare all prices on a “like for like” basis. Identify which offer most closely matches Cost per Unit (Unit of Expenses) requirements. Issue purchase order to supplier. File quotations received with hard copy of purchase order and retain in office. After goods are received and/or services performed to required standard, supplier’s delivery note signed and invoice paid.

Calculating a Reorder Point The reorder point (or reorder level) is the inventory level at which a company would place a new order or start a new manufacturing run. The following two formulas are used for the calculation of a reorder point or level maximum daily or weekly or monthly usage × Lead time Example: CMS uses 1000 cases of paper daily. Its supplier takes a week to deliver the order. At what quantity should the inventory manager place his/her next order? The inventory manager should place an order before the inventories drop below 7,000 units (1000 units of daily usage multiplied with 7 days of lead time) in order to avoid a stock-out. Formula: 1000 x 7 = 7,000 cases of paper maximum daily or weekly or monthly usage × Lead time + Safety stock Example: CMS has decided to hold a safety stock equivalent to average usage of 5 days. Calculate the reorder level.   Safety stock which CMS has decided to hold equals of 5,000 cases (1000 cases of daily usage multiplied by 5 days). In this scenario reorder level would be 12,000 cases (5,000 of safety stock plus 7,000 units based on 7 days of lead time). Formula: 1,000 x 5 = 5,000 + 7,000 = 12,000 cases of paper