1. Managing Purchasing and Inventory 1 PROCUREMENT

2. Managing Purchasing and Inventory 2 Describe the importance of planning purchases. Identify factors that affect purchasing. Section 15.1 Purchase Planning and Management 15.1

3. Managing Purchasing and Inventory 3 Businesses need to get the best possible products or materials for the price. Making smart spending decisions can result in better values for customers and larger profits for the business. Section 15.1 Purchase Planning and Management 15.1

4. Managing Purchasing and Inventory 4 Planning Purchases Purchasing decisions mean the difference between success and failure for the entrepreneur. purchasing also known as procurement, the buying of all the materials needed by the organization Section 15.1 Purchase Planning and Management

5. Managing Purchasing and Inventory 5 Developing a Model Inventory When you are in business, you can rely on regular input from vendors. vendors businesses that sell inventory to merchants Section 15.1 Purchase Planning and Management

6. Managing Purchases Section 15.1 Purchase Planning and Management 6 Key Factors That Affect Purchasing Selecting Buying Timing Choosing Getting Receiving Selecting the right quality Buying the right quantity Timing your purchases Choosing the right vendors Getting the right price Receiving and following up on purchases

7. Choosing the Right Vendors 7 Considerations in Vendor Selection Reliability DistanceService Section 15.1 Purchase Planning and Management

8. Managing Purchasing and Inventory 8 Getting the Right Price Contact several vendors to find the best price. A purchase discount, such as a trade discount, can affect prices. trade discount a discount from the list price of an item allowed by a manufacturer or wholesaler to a merchant Section 15.1 Purchase Planning and Management

9. Managing Purchasing and Inventory 9 Getting the Right Price An entrepreneur may be able to take advantage of a quantity discount or a cash discount. quantity discount a discount that a vendor gives to a buyer who places large orders Section 15.1 Purchase Planning and Management cash discount an amount deducted from the selling price for payment within a specified time period

10. Getting the Right Price Section 15.1 Purchase Planning and Management 10 Dating Terms Early payment Advance dating Extra dating End-of- month (EOM) dating Receipt-of- goods (ROG) dating

11. Managing Purchasing and Inventory 11 Getting the Right Price Until you establish a good working relationship, your new vendor may request secured funds. secured funds a form of guaranteed payment, such as a credit card, a cashier’s check, a wire transfer, or cash Section 15.1 Purchase Planning and Management

12. Managing Purchasing and Inventory 12 Receiving and Following Up on Purchases When you receive a shipment from a vendor, it should be accompanied by an invoice, indicating size, cost, selling price, and other similar information. invoice an itemized statement of money owed for goods shipped or services rendered Section 15.1 Purchase Planning and Management

13. Managing Purchasing and Inventory 13 An entrepreneur’s main profit stems from the sale of inventory. He or she needs to keep careful control over this valuable asset. Section 15.2 Inventory Management 15.2

14. Managing Purchasing and Inventory 14 Inventory Management When you keep too much inventory on hand, the cost of inventory can increase by as much as 25 percent. Added costs include: Section 15.2 Inventory Management financing opportunity storage insurance shrinkage obsolescence

15. Managing Purchasing and Inventory 15 Inventory Management Financing cost on excess inventory can impact the prices businesses charge customers. financing cost the cost of interest paid to borrow money Section 15.2 Inventory Management

16. Managing Purchasing and Inventory 16 Inventory Management A business can incur opportunity cost and storage cost by keeping too much inventory. opportunity cost the cost associated with giving up the use of money tied up in inventory Section 15.2 Inventory Management storage cost the cost associated with renting or buying space needed to store inventory

17. Managing Purchasing and Inventory 17 Inventory Management A business with sound inventory procedures can reduce insurance cost and shrinkage cost. insurance cost the cost associated with insuring inventory Section 15.2 Inventory Management shrinkage cost the cost associated with the loss of inventory items that are broken, damaged, spoiled, or stolen

18. Managing Purchasing and Inventory 18 Inventory Management A business must closely monitor inventory turnover rates in order to control obsolescence cost on items that remain in inventory too long. obsolescence cost the cost associated with products or materials that become obsolete while in inventory Section 15.2 Inventory Management

19. Managing Purchasing and Inventory 19 Planning Inventory There are two steps involved in determining the amount of inventory you need: Section 15.2 Inventory Management 1.Calculate the supply you need. 2.Calculate the inventory investment.

20. Managing Purchasing and Inventory 20 Inventory Control Inventory control systems include: Section 15.2 Inventory Management visual inventory system perpetual inventory system partial inventory system just-in-time (JIT) inventory system

21. Managing Purchasing and Inventory 21 Warehousing Warehousing operations can occur in dedicated structure or an assigned space within a structure. warehousing the act of holding and handling goods in a warehouse Section 15.2 Inventory Management

22. Warehousing Section 15.2 Inventory Management 22 Warehouse Operations Areas Receiving and shipping docks Bulk storage areas Staging areas Assembly areas Packing areas Picking rows Management office and lockers

23. Managing Purchasing and Inventory 23 Reordering To maintain proper inventory levels, you need to decide when and how much to reorder. The type of inventory you keep determines which reordering system is best for you: Section 15.2 Inventory Management periodic reordering nonperiodic reordering

24. Managing Purchasing and Inventory 24 Reordering Products or raw materials that are inexpensive, used often, and easy to get should be reordered periodically. A sandwich shop might restock bread daily. Section 15.2 Inventory Management

25. Managing Purchasing and Inventory 25 Reordering Lead time must be considered for inventory that is suited to nonperiodic reordering. lead time the gap in time between placing an order and receiving delivery Section 15.2 Inventory Management

26. Managing Purchasing and Inventory 26 Reordering When using a nonperiodic reordering system, inventory needs must be projected so that usage rate can be calculated and safety stock is available. usage rate how quickly inventory will be used in a given period of time Section 15.2 Inventory Management safety stock a cushion of products or materials that prevents a business from running out of inventory while waiting for an order

27. Managing Purchasing and Inventory 27 Section 15.2 Inventory Management 27 Online purchasing communities allow businesses to bid on or sell products and services and negotiate for the best possible prices. E-procurement, business-to-business communities, and public and private exchanges have changed business purchasing procedures. Internet Purchasing

28. Managing Purchasing and Inventory 28 Section 15.2 Inventory Management 28 Tech Terms B2B community an electronic marketplace where companies can bid on products and services or offer their services up for bid e-procurement the business-to-business purchase and sale of supplies and services over the Internet

29. Managing Purchasing and Inventory 29 Section 15.2 Inventory Management 29 Tech Terms private exchange an exchange that is operated for exclusive use of a single company, for example a company that sets up an exchange to deal with vendors for all the parts and services it uses each day public exchange a business-to-business network open to any company that wants to take part; there is usually a fee to join the exchange