CHAPTER 23 Purchasing - … plan and ... glencoe.com Chapter 23 — Purchasing 485 ... As the buyer...

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C H A P T E R 23

Chapter ObjectivesAfter reading this chapter, you should be able to:

• Defi ne the terms used to describe organizational buyers

• Explain how planning purchases differs between an industrial market and a resellers’ market

• Describe the six-month merchandise plan and explain its calculations

• Explain the concept of chain store buying

• List the three types of purchase situations

• Explain the criteria for selecting suppliers

• Name the factors involved in negotiating terms of a sale

• Describe the various Internet purchasing methods

Purchasing

Market Talk Buyers in the fl orist industry

budget and plan purchases weekly. They

often go to wholesale fl ower marts early in the

morning to get the best choice.

Quick Think What are some sources of

information about suppliers of products,

materials, and services?

EXPLORE THE PHOTO

Ariel Skelly/Blend Images/Getty Images

glencoe.com Chapter 23 — Purchasing 481

ROLE PLAY Check your understanding of DECA performance indicators with the DECA activity in this chapter’s review. For more information and DECA Prep practice, go to the Marketing Essentials OLC through glencoe.com.

DECA Events These acronyms represent DECA com-petitive events that involve concepts in this chapter:AAMACTADCASM*BLMDM BMDM*

BSMFMALFMDMFMML*EMDMHLM

HMDM MMSQSRM RFSM RMSSEM

SMDMTMDMTSE

Performance Indicators The performance indicators represent key skills and knowledge. Relating them to the concepts explained in this chapter is your key to success in DECA competitive events. Keep this in mind as you read, and write notes when you fi nd mate-rial that helps you master a key skill. In these DECA competitive events, you should follow these perfor-mance indicators:• Explain the nature and scope of purchasing• Place orders/reordersThe events with an asterisk also include:• Choose vendors• Negotiate terms with vendorsSome events include these performance indicators:ASM Evaluate performance of vendorsEMDM Explain the impact of the Internet on purchasingFMAL Explain the nature of the buying processFMML Evaluate performance of vendorsQSRM Follow-up ordersTMDM Negotiate favorable rates with travel suppliers

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Market Notes

Industrial

Resellers

Government

Institutional


Planning PurchasesOrganizational buyers purchase goods for business pur-

poses, usually in much greater quantities than the average con-sumer. Much of what they buy requires technical knowledge and knowledge of the operations of the firm, especially in man-ufacturing and service operations. Having a handle on the busi-ness trends that affect their industry is also important, especially when buying for resale purposes.

Go to the OLC through glencoe.com for printable graphic organizers, Academic Vocabulary definitions, and more.

READING GUIDE

THE MAIN IDEAThe purchasing function in business is important. This is because the costs of running a business are affected by the buyer and by the services needed to run the business.

GRAPHIC ORGANIZERDraw this chart to write two or three sentences describing the following markets: industrial, resellers, government, and institutional.

OBJECT IVES• Define the terms used to

describe organizational buyers

• Explain how planning purchases differs between an industrial market and a resellers’ market

• Describe the six-month merchandising plan and explain its calculations

• Explain the concept of chain store buying

KEY TERMS• organizational buyers

• wholesale and retail buyers

• six-month merchandise plan

• open-to-buy (OTB)

• centralized buying

• decentralized buying

ACADEMIC VOCABULARYYou will find these words in your reading and on your tests. Make sure you know their meanings.• technical

• predict

Predict What do you already know about the role of the buyer?

SECTION 23.1

BEFORE YOU READ

The Role of the Buyer

ACADEMIC STANDARDSEnglish Language ArtsNCTE 1 Read texts to acquire new information.

MathNCTM Algebra Use mathematical models to represent and understand quantitative relationships.

Compare List

the similarities and

differences of the four

markets listed above.


Chapter 23 — Purchasing 483

Industrial MarketsIn manufacturing and service businesses,

the people responsible for purchasing may be called purchasing managers, industrial buy-ers, or procurement managers. Although the job titles may differ, the key function is to buy goods and services for use in the business.

In manufacturing businesses, planning pur-chases often requires industrial buyers to be directly involved with production planning. To get an idea of the responsibilities involved,

consider the case of a purchasing manager for an outerwear apparel manufacturer.

The purchasing manager would review the company’s master production schedule for details of production needed to meet sales requirements. Let’s say that the marketing department predicts the company will sell 500 Style No. 1900 jackets in the coming sea-son. The purchasing manager must know how much fabricz, insulation, and thread and how many zippers it takes to produce one Style

• BUY to SELL Purchasing and inventory control go hand in hand. Buyers need to know what sells and what does not. Companies need to figure out their projected sales to order the correct quantities of merchandise.

What can happen if a store’s shelves run out of a popular item?

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glencoe.com484 UNIT 7 — DISTRIBUTION

No. 1900 jacket. This is called a bill of materi-als. The total of all the materials necessary to make one jacket can be multiplied by 500 to determine exactly what needs to be purchased to meet the sales goal.

To determine when to buy those items, the purchasing manager would be responsible for materials requirement planning (MRP). MRP includes an analysis of when to make the purchases so they are available when needed according to the production schedule. The

purchasing manager must therefore know the capacity of the manufacturing facility. He or she must be sure the company has room for the supplies, raw materials, and inventory of finished goods.

Time lines and delivery of all supplies must be followed and checked on a regu-lar basis to maintain the master production schedule. This ensures that everything is as it should be for manufacturing to progress at an appropriate rate.

Maximizing Purchasing Power

Trader Joe’s, a specialty grocer based in California, has 278 U.S. stores. It had estimated sales of $5 billion in 2006, double the sales three years prior. The company operates differently from most grocers, selling only about 2,500 different items rather than the 40,000 a large chain supermarket carries. Buyers search for bargains around the world. When they find high-quality items at especially low prices, they buy large quantities, lowering the price further with volume discounts. Trader Joe’s buys only from producers, not from wholesalers. Of its products, 20 to 25 percent are imported, and it has developed its own brands for about 80 percent of its products.

Guten Appetit!

Joe Coulombe began the business in 1958 as a chain of neighborhood convenience stores. He later expanded store space and began selling gourmet cheeses and wines at much lower prices than other food retailers. In 1979, the company was bought by Theo Albrecht, co-owner of the German Aldi food store chain, whose purchasing and marketing strategy is similar, focusing on a few items (about 700 in Aldi stores) and emphasizing store brands. Aldi sells to the low end of the market, focusing on budget items. Trader Joe’s targets sophisticated buyers who still want to save money.

From a purchasing standpoint, how can it benefit Trader Joe’s to be owned by a German company? With a 13 percent increase in sales from 2006 to 2007, how much of an increase in purchases would you advise in a merchandise plan for Trader Joe’s?

Go to the Marketing Essentials OLC through glencoe.com to find an activity about purchasing and the grocery business.

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Chapter 23 — Purchasing 485glencoe.com

Resellers’ MarketsThe resellers’ market is found in wholesal-

ing and retailing operations where the person responsible for purchasing is simply called a “buyer.” Wholesale and retail buyers purchase goods for resale; they forecast cus-tomers’ needs and buy the necessary prod-ucts. All buyers must plan far in advance of the selling season to know how much of each item to purchase.

Six-Month Merchandise PlanBuyers plan their purchases by preparing a

six-month merchandise plan, the bud-get that estimates planned purchases for a six-month period.

The first figure calculated on a merchandise plan is the planned sales figure. In most cases, this is determined by using the previous year’s monthly sales figures and adjusting them to reflect the firm’s current-year sales goal.

Suppose sales for a particular month last year were $100,000, and this year’s goal is to increase sales by 10 percent. This year’s planned sales for the month would be calcu-lated as follows:

Desired increase: $100,000 � .10 � $10,000Planned sales: $100,000 � $10,000 �

$110,000

You could also reach the same result in a single step:

$100,000 � 1.10 � $110,000

The company goal for the current year is derived from a study of last year’s sales, cur-rent market and economic conditions, and an analysis of the competition. Projection of accurate planned sales figures is important because all other figures on the merchandise plan are computed on the basis of this figure.

How to Choose a B2B?

Internet B2B suppliers have greatly increased in number as e-commerce has become mainstream. How can a purchaser wisely choose a vendor from the many thousands available? There are hun-dreds of directories listing B2Bs that simply provide links to their Web sites with no commentary. Services that provide directories, list the kinds of transactions vendors provide, and rate them on their performance are more helpful—and they do exist.

Online InformationPurchasinga2z is a Web site providing news reports about purchasing issues, research and ratings of B2B businesses and links to other sources of information. VerticalZOOM is another such service. It also features customer feedback on spe-cific vendors, giving buyers an extra piece of the puzzle. The Internet may make pur-chasing easier, but it takes research to identify the right supplier when there are so many possibilities.

As the buyer for a new hip-hop fashion boutique, how will you find sources or know if a quoted price is reasonable?

Go to the Marketing Essentials OLC through glencoe.com to find activities about purchasing and the Internet.




Buyers must ensure that there is enough stock to accommodate the sales volume planned. This is also known as beginning-of-the-month (BOM) inventory. To project this fig-ure, a buyer checks the previous year’s records for how much stock was needed in relation to monthly sales. Sales were $40,000 in a given month and the BOM stock for that month was $120,000; therefore, the stock-to-sales ratio is 3 to 1. The buyer can apply that same ratio to the planned figure for another month if both economic and market conditions are similar.

Here is how the BOM figure on the mer-chandise plan would be calculated. Suppose the stock-to-sales ratio is 2:1 (usually reported as 2). This means that to accommodate a given sales volume, it is necessary to keep twice that amount of stock on hand. BOM inventory should be twice the amount of anticipated sales; if sales are $5,000, then the BOM would be $10,000.

The end-of-the-month (EOM) stock figure is closely related to the BOM stock figure. The BOM stock figure for any given month is the EOM stock figure for the previous month.

Planned retail reductions take into account reductions in the selling price, shortages of mer-chandise caused by clerical mistakes, em ployee

pilferage, and customer shoplifting. Such reductions in earnings and merchandise short-ages ultimately affect the amount of money that must be planned for purchases.

Planned retail reductions can be calculated in two different ways. One is to calculate reduc-tions as a percentage of planned sales. Suppose planned reductions have historically been 10 percent of planned sales. If planned sales for the month are $25,000, planned reductions for that month would be calculated as follows:

$25,000 � .10 � $2,500

Some companies set goals of reducing planned reductions from the previous year. Assume that a firm’s goal is to reduce this year’s planned reductions by 5 percent from last year’s figure. Last year’s reductions were $700; therefore this year’s planned reductions would be figured this way:

Desired decrease: $700 � .05 � $35Planned reductions: $700 � $35 � $665

This result could also be reached in a single step: $700 � .95 � $665

The planned purchase entry shows the retail-dollar purchase figures a firm needs to achieve its sales and inventory projections for

• PURCHASING as a SALES TOOL Athleta, a catalog and e-tail business that targets women who play sports, sends advance notice of merchandise that has just been purchased.

How can the purchasing power and savvy of a company become a sales tool?

Spring Season 20___ Department

No.

February March April May June July Total

Last year 82,000 96,000 90,000 100,000 94,000 80,000Plan 90,200 105,600 99,000 110,000 103,400 88,000Actual



Last year N/A N/A N/A N/A N/A N/APlan 110,685 76,380 181,125Actual

6124Toys

Sales

Retail StockBOM

RetailReductions

Purchases


each month. All the figures discussed pre-viously—planned sales, BOM stock, and reductions—are needed to determine planned purchases (P). That includes planned sales (PS), planned EOM/BOM stock, and planned reductions (R). The formula for planned pur-chases is:

(PS � EOM stock � R) � BOM stock � P

Assume that planned sales are $10,000, planned EOM stock is $25,000, planned reduc-tions are $500, and BOM stock is $20,000.

Using the formula, planned purchases would be arrived at this way:

($10,000 � $25,000 � $500) � $20,000 � $35,500 � $20,000 � $15,500

Figure 23.1 shows a nearly completed merchandise plan.

Open-to-BuyDuring the buying season, a buyer may

want to know the open-to-buy (OTB). This is the amount of money left for buying goods

23.1 Six-Month Merchandise Plan

Go to the Marketing Essentials OLC through glencoe.com to find a project on merchandise plans.

• Making Merchandise Plans This nearly completed model merchandise plan is based on the following assumptions:

sales are expected to increase by 10 percent over last year; last year’s stock-to-sales ratios should be used to compute

this year’s BOM stock figures; this year’s planned reductions should be 5 percent lower than last year’s; and the

planned BOM for August is $264,000.

What are the planned purchase figures for May through July?




after all purchases received and on order have been considered. It is calculated this way:

P � (goods received � goods ordered) � OTB

Assume that merchandise received against the planned purchase figure computed above is $6,500 thus far and merchandise on order against it is $2,000. The present OTB would be as follows:

$15,500 � ($6,500 � $2,000) � OTB$15,500 � $8,500 � $7,000

This $7,000 figure represents the retail value of the goods that the buyer may pur-chase at the time. However, the problem is not solved here.

There is a way to determine the actual money the buyer has to spend. You must calculate the markup percentage used by the buyer and deduct that figure from the retail value. Assume that the markup percentage is 45 percent based on the retail value of the merchandise. The formula for determining the OTB at cost is shown below:

100% � markup % � % attributed to cost of the item

% attributed to cost � retail value � OTB at cost

100% � 45% markup � 55% (cost)55% (cost) � $7,000 (retail) �

$3,850 OTB at cost

Therefore, in the end, the buyer has $3,850 to spend with all other costs considered. You can see how this extra step makes a big differ-ence in the final amount.

Planning Purchases for a Chain Store Operation

Buying for all branches in a chain store operation is usually done in a central loca-tion (company headquarters) and is called centralized buying. Buyers involved incentralized buying generally buy all the items for a department or part of a depart-ment. There may be three buyers for women’s shoes—one in charge of casual shoes, another of traditional shoes, and still another of

better shoes. To coordinate the efforts of those three buyers, there would be a merchandise or division manager. This person would oversee all shoe buyers, which may include those for men’s, children’s, and women’s shoes.

Chain stores use centralized buying to cre-ate a unified image for the chain. Another benefit of centralized buying is the quantity discounts that stores can negotiate with ven-dors because of the large volume of goods that they purchase at one time.

Decentralized BuyingSometimes, chain stores want to have spe-

cial goods in their stores that are not available elsewhere in the chain. In these cases, local store managers or their designated buyers are authorized to make special purchases for their

P R A C T I C E

On a separate sheet of paper, practice the fol-lowing calculations that are necessary for creat-ing a six-month merchandise plan:

1. Last March a shop had sales of $7,300. The owner’s goal is to increase sales by 8 percent for this year. What would be the planned sales for this March?

2. Last year’s BOM for March was $10,950. Calculate the stock-to-sales ratio.

3. What should be the BOM stock figure for this March?

4. Planned reductions have historically been 10 percent of sales. Using this figure, what would be the planned reductions for this March? The owner would like to cut planned reductions by 5 percent this year. Last year’s reductions for the month was $750, therefore what would be this year’s target figure?

5. Using the figures given or calculated in numbers 1, 3, and 4, determine the planned purchases for the shop if the EOM stock figure for March is $12,000.

6. Assuming merchandise received and ordered amounted to $1,850, what would be the open-to-buy position at retail?

7. The customary markup for an item is 60 percent. What is OTB at cost?

Note: Answers to this practice set are avail able at Market ing Essentials OLC through glencoe.com.



Problem Solving: Operations Determining the individual price of items purchased in bulk quanti-ties is done by dividing the cost of all the items by the total number of items purchased.

• To solve this problem, divide the price of the maps by the total quan-tity of maps purchased.

For help, go to the Math Appendix located at the back of this book.


individual stores. This is decentralized buying. Decentralization is when authority for retail decisions is made at lower levels in the organization.

Retailers constantly make trade-offs be-tween the efficiency gained through central-ized buying and the greater sales potential obtained through decentralized buying deci-sions that tailor merchandise to local markets.

Government MarketsJust as there are special markets, such as

industrial or resellers’, there are also buyers for government markets. Government units are the federal, state, and local agencies responsi-ble for purchasing goods and services for their specific markets. There are approximately 85,000 government units in the United States. These would include the Federal Aviation Administration (FAA), departments of sanita-tion, public libraries, and local school boards.

Government markets make up one of the largest single markets for retail goods and ser-vices in the world. In the United States, the fed-eral government is a huge consumer of goods, ranging from food for school lunches to equip-ment for the military. No one federal agency is responsible for all government buying.

InstitutionsOne final segment of the market includes

institutions and nonprofit organizations that do not compete in the business world in the same way retailers and wholesal-ers do. These institutions include hospi-tals, schools, colleges, churches, civic clubs,and foundations that do not work solely for profit. Institutions and nonprofit organiza-tions may have unique buying requirements.

Identify What are some examples of government markets?

Key Terms and Concepts 1. What are three job titles that can be used to describe people responsible

for purchasing in manufacturing and service businesses? 2. How is a bill of materials used in planning purchases? 3. What are two benefits of centralized buying?

Academic SkillsMath

4. You are ordering tourist maps of your area for resale in your store. The cost of 500 maps is $625. The cost of 1,000 maps is $1,125. Calcul-ate the per-item cost for each quantity of maps.

Social Studies/Geography

5. You want to become an industrial purchaser for the automobile manufacturing industry. Go to local car dealerships to research three different makes and models of cars. Obtain a brochure describing each model you research. Learn where each model is manufactured. Use your brochures to create a classroom map showing where each automobile is manufactured.

Check your answers at the Marketing Essentials OLC through glencoe.com.



Buying

PurchaseSituations

Criteria forSelectingSuppliers

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capabilities


The Buying ProcessThere are many types of purchase situations. The ways sup-

pliers are selected, how terms are negotiated, and how the Internet is used are changing the entire process.

Types of Purchase SituationsHow difficult is the task of a purchasing manager or a buyer?

The answer depends on which type of purchase situation is

Go to the OLC through glencoe.com for printable graphic organizers, Academic Vocabulary definitions, and more.

READING GUIDE

THE MAIN IDEAKnowing the details of the purchasing function gives a better idea of the overall job description. It is important to recognize the impact of the Internet on the purchasing function.

GRAPHIC ORGANIZERDraw this chart to write in three types of purchase situations and four criteria for selecting suppliers.

OBJECT IVES• List the three types of

purchase situations

• Explain the criteria for selecting suppliers

• Name the factors involved in negotiating terms of a sale

• Describe the various Internet purchasing methods

KEY TERMS• want slips

• consignment buying

• memorandum buying

• reverse auction

ACADEMIC VOCABULARYYou will find these words in your reading and on your tests. Make sure you know their meanings.• journal

• evaluate

Predict What do you already know about the purchasing function?

SECTION 23.2

BEFORE YOU READ

The Purchasing Function

ACADEMIC STANDARDSEnglish Language ArtsNCTE 1 Read texts to acquire new information.

ScienceNSTA Content Standard E Science and Technology: Understandings about science and technology

Compare List the

differences amont

the types of purchase

situations.



considered. Let’s review the three types of pur-chase situations: new task purchase, modified rebuy, and straight rebuy.

New-Task PurchaseIn a new-task purchase situation, a purchase

is made for the first time, possibly triggered by a formerly unrecognized need, a new manu-facturing process, or organizational change. This can be the most complicated buying situ-ation, because it involves a first-time purchase. In a retail or wholesale operation, salespeople prepare want slips. These are customer requests for items that are not carried in the store. The buyer evaluates want slips to deter-mine if the requests warrant the purchase of new merchandise.

Modified RebuyIn a modified-rebuy situation, the buyer

has had experience buying the good or ser-vice, but some aspect of the purchase changes. Perhaps the buyer is purchasing from a new vendor because the previous vendor went out of business or increased prices significantly. Other reasons for investigating new vendors may come from an analysis of the competi-tion (through comparison shopping) or from current trade information (found in trade journals or trade shows).

Finally, retail buyers may hire the services of a resident buying office. Resident buying offices are retailers’ representatives in a geo-graphic area where many suppliers of a given product are located. New York City’s garment

Stocking ChallengeIKEA is one of the largest privately held companies in the world, with nearly 300 furniture stores in more than 40 countries, employing more than 100,000 people, and generating more than $15 billion in sales annually. It all started in 1956 in southern Sweden when a local entrepreneur figured out that he could transport furniture more easily by taking it apart and packing it flat. The customer would put it together and the furniture prices could be lowered. Several decades later, the concept still works.

Purchasing Stock for Stores Around the World IKEA owns and runs 28 major distribution centers, and purchases stock from 1,500 suppliers in more than 55 countries. In the past few years, IKEA acquired a number of its own factories, some of which function as training units and set standards for other suppliers for production economy, quality, and environmental awareness.

To secure supplies and help suppliers develop, IKEA also partned as joint owners or financiers in a number of countries including Poland, Slovakia, Russia, Romania, and Bulgaria.

Why did IKEA decide to purchase its own factories?

Go to the Marketing Essentials OLC through glencoe.com to find an activity about purchasing and international business.




district, for example, is a central market for apparel. Resident buying offices send informa-tion to retail buyers on a regular basis. They inform buyers about new merchandise offer-ings, closeouts, or fashion trends.

Straight RebuyIn a straight-rebuy situation, the buyer

routinely orders the goods and services pur-chased from the same vendor(s) as in the past. Staple goods such as office supplies fall into the straight-rebuy category for wholesale and retail buyers. The purchase of certain manu-facturing supplies may be considered a straight rebuy. (See Figure 23.2 for a recap of types of purchases.)

Selecting SuppliersThe criteria for selecting suppliers fall into

a few key categories. They include produc-tion capabilities, past experience, product quality, special buying arrangements, special services, and pricing.

Production CapabilitiesWhen dealing with a source for the first

time, buyers may request specific informa-tion about the source’s production capabili-ties. They may even visit a facility in person to see it in operation. Buyers may solicit busi-ness references to determine the source’s reputation in the industry. These factors would be extremely important when selecting sup-pliers and transportation firms as partners in a just-in-time production arrangement.

Production capabilities for some companies go beyond the actual physical plant into ethi-cal and social issues, such as a review of facili-ties to ensure that they are not sweatshops. Sweatshops are factories characterized by poor working conditions and negligent treatment of employees.

Past ExperiencesMany buyers maintain resource files and

journals that document past experiences with vendors. All basic information, such as products carried, prices, delivery and dating

• WHERE ARE CLOTHES MADE? Clothes you buy in the U.S. are often manufactured abroad. Hong Kong is a central market for the garment industry.

Look at the tags on a few items of clothing (yours or at a store). List the countries where the clothes were made.

Paula B

ronstein/Getty Im

ages

NEW-TASK PURCHASE

MODIFIED REBUY

STR AIGHT REBUY


23.2 Types of Purchases

A new-task purchase is a first-time buy. This is

the most complicated buying situation. It may

be triggered by the identification of a previously

unrecognized need or the decision to switch

vendors. New-task purchases often involve input

from a buying committee, as shown here.

In a modified rebuy, the buyer has had experience

buying the item, but is changing something about

the purchase: perhaps the product line, the vendor,

or the grower.

With a straight rebuy, the buyer repeats a

purchase that was made in the past. This

buyer is reordering shoes he already carries

in his store in order to replenish stock.

• Stocking Up A purchasing manager may be faced with three buying situations: the new-task purchase, the modified

rebuy, and the straight rebuy. The level of difficulty varies depending on the type of purchase.

What circumstances might lead to a modified rebuy type of purchase?

Go to the Marketing Essentials OLC through glencoe.com to find a project on types of purchases.

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terms, and the names of sales representatives, is recorded. Also noted are evaluations of products, delivery performance, and customer service. A major factor in selecting a supplier is the quality of goods it offers. Retail buyers keep accurate records of customer returns and the reasons for them. Returns relating to the quality of the goods may cause a supplier to be dropped.

It is important to clearly define standards of quality for products that will be purchased from suppliers. Standards should be explained to suppliers so they understand the criteria by which product quality is measured.

Special Buying Arrangements Suppliers may have special policies regard-

ing merchandise returns and sales arrange-ments. Two special types of sales and return policies are called consignment buying and mem orandum buying.

In consignment buying, goods are paid for only after the final customer purchases them. The supplier owns the goods until the wholesaler or retailer sells them. Many suppli-ers offer consignment buying as an incentive when introducing a new line of goods. How-ever, a problem arises with consignment buy-ing when merchandise is stolen or damaged, raising the question of who must pay.

Memorandum buying occurs when the supplier agrees to take back any unsold goods by a certain pre-established date. The buyer pays for all the goods purchased but is later reimbursed for all the goods returned in accordance with the agreement. This buying arrangement allows for returns.

Special ServicesBusinesses today demand more services

from their suppliers. One special service that many retailers are requesting or demanding is the placement by manufacturers of univer-sal product codes (UPCs) on goods. Having the codes on all products saves the retailer time because individual items do not have to be marked with a price. It also helps retailers keep track of what they have in stock.

Negotiating TermsBuyers must negotiate prices, dating

terms, delivery arrangements, and discounts. You learned about dating terms and delivery arrangements in Chapter 16. Discounts are any reductions from the quoted price. Such reductions are generally granted for the buy-er’s performance of certain functions. These will be discussed in Chapter 26.

Dating terms include when a bill must be paid and the discount permitted for pay-ing early. You learned about ordinary dating (2/10, net 30) in Chapter 16, but there are sev-eral variations for specific situations. A com-pany may allow the dating terms to take effect later than the invoice date. This type of dating, which is known as advance dating, is some-times offered to businesses as an incentive to buy before the buying season. An invoice may be dated January 15 and include the follow-ing advance dating terms: 2/10, net 30, as of March 1.

In other situations, additional days may be granted for the discount (called extra dating). This special dating may be used to encourage a buyer to purchase new merchandise. In still another situation, the terms begin when the buyer’s firm receives the goods, which is called ROG dating (receipt of goods).

Internet PurchasingBusiness-to-business (B2B) e-commerce has

revolutionized the purchasing function for businesses in the industrial and reseller markets.Organizational buyers account for 80 percent of the total dollar value of all online trans-actions. Increased use of online buying is expected to continue. This is partly because organizational buyers have come to depend heavily on timely supplier information, and such information can be easily and quickly conveyed via the Internet. Another reason is that businesses have found that online pur-chasing dramatically reduces marketing costs for many types of products and services.

Most of the B2B e-commerce transactions are routine purchases of products such as

Problem Solving:Operations Knowing which operations to use, and when to use them, is critical in problem solving. 1. To solve this problem, determine

the discount applied to vendor A by multiplying the total cost of mugs by .02 to determine the discount.

2. Subtract the value of the discount from the total cost to determine vendor A’s price.

3. Multiply vendor B’s price by 144 to determine the cost for a gross of their mugs, and the cost of shipping to determine the total price.

4. Compare the two values to deter-mine which one is a better deal.



office supplies. The Internet makes the process more efficient.

Many companies have their own Web sites from which other companies may make pur-chases directly. Growing in popularity, how-ever, are electronic exchanges where registered users can buy and sell their goods online. Most of these electronic exchanges are in specific industries, such as the NECX Global Electron-ics Exchange, an open market for electronic components, computer products, and net-working equipment.

Another Internet purchasing trend involves online auction companies. An auction usually involves having a seller set an asking price and buyers try to outbid each other. In other cases, a reverse auction takes place. In a reverse auction, companies post what they want to buy and suppliers bid for the contract.

Purchasing online through third parties has both advantages and disadvantages. The biggest advantage is lower prices. However, as with most businesses on the Internet, pri-vacy is a problem. Some companies fear that competitors will know how much was paid for materials and supplies. To combat that problem, some companies, like Intel and General Electric, run reverse auctions. GE spent $15,000 to create its own reverse auc-tion software. Other companies to followed.

GE’s trading process network (TPN) enables GE buyers to post requests for quotes, nego-tiate, and place orders with global suppliers. The TPN has lowered GE’s purchasing costs by over 20 percent.

Another problem with the online purchas-ing process, especially in a reverse auction, is that unknown companies could artificially deflate prices by bidding low prices. Such a practice would benefit buyers but cause bad relationships with suppliers.

Key Terms and Concepts 1. What three ways can a buyer acquire information for a modified-rebuy? 2. How does the buyer’s payment for goods differ between consignment

and memorandum buying? 3. Name one advantage and one disadvantage of

purchasing online.

Academic SkillsMath

4. Vendor A sells 144 (1 gross) coffee mugs at $496.50 with free shipping. Dating terms are 2/10, net 30. Vendor B’s offer is $3.15 per mug for one gross, with shipping charges of $25, and payment is COD. Which vendor is offer-ing the better deal?

English Language Arts/Writing

5. You received a delivery that does not meet specifications. Use a word processing program to write a letter to the supplier stating the problem and requesting action.

Check your answers at the Marketing Essentials OLC through glencoe.com.




JACOB SCHOENLYOWNERSYNTHETIC SPACE FURNITURE LIGHTING & ACCESSORIES

What do you do at work?

The company is a small operation, and so I wear many hats. I maintain the Web site, select and purchase the vintage items that we resell, respond to customer inquiries, and process and ship orders.

What skills are most important to you?

Perhaps the most important skill as a small business owner is the ability to multitask. Each day brings a variety of tasks that need to be fulfi lled, and the person running a business has to ensure that everything is accomplished. This often means that if the owner wants something done, and done right, he has to do it himself. Beyond skills, there are important personality traits, such as honesty and reliability, that can help you make your business a success.I am a strong believer in education. A solid liberal arts education is all that you need in order to begin a successful career. Such an education serves as a strong foundation for more specifi c on-the-job training that an employee might need. If someone is looking to start a business in a particular fi eld, then prior work experience in that fi eld can be helpful but is not an absolute requirement.

What is your key to success?

Loving what I do. When you feel that way about your job, it no longer seems like work. I also strive to treat customers the same way that I would like to be treated, offering service that meets or exceeds their demands.

Courses general business, management, design

Degrees High school, BA

Retail store owners might begin their career working for someone else, or they might open up their own shop right away. Often, niche retailers are driven by the owner’s personal interests and hobbies.

Growth about as fast as average for the next ten years

Source: Occupational Outlook Handbook

Creativity, interpersonal skills and an outgoing personality, the ability to multitask and prioritize goals and demands

Go to the Marketing Essentials OLC through glencoe.com to fi nd a career-related activity.

Why is a love for one’s career so valuable?




C H A P T E R 23 R E V I E W

SECTION 23.1• Organizational buyers in industrial and resellers’ (wholesale and retail) markets purchase

goods in much greater quantities than the average consumer.

• Buyers for government markets make purchases of goods and services for one of the largest single markets in the world.

SECTION 23.2• The three types of purchase situations are new-task purchase, modifi ed rebuy, and

straight rebuy.

• The primary criteria for selecting suppliers are (1) production capabilities, (2) past

experience, (3) special buying arrangements (such as consignment buying and

memorandum buying), and (4) special services.

• The Internet has revolutionized purchasing in the industrial and resellers markets, and

online buying is expected to grow in coming years.

Key Terms• organizational buyers (p. 482)• wholesale and retail buyers

(p. 485)• six-month merchandise plan

(p. 485)• open-to-buy (OTB) (p. 487)• centralized buying (p. 488)

• decentralized buying (p. 489)• want slips (p. 491)• consignment buying (p. 494)• memorandum buying (p. 494)• reverse auction (p. 495)• bonded warehouse (p. 495)

Academic Vocabulary• technical (p. 482)• predict (p. 483)• journal (p. 492)• evaluate (p. 494)

1. On a sheet of paper, use each of these key terms and academic vocabulary words in a written sentence.

2. List three titles for manufacturing or service

business buyers. (23.1)

3. Identify the type of planning used to guide

purchasing by organizational buyers and that

used by buyers for the resale market. (23.1)

4. What is the six-month merchandise plan?

(23.1)

5. What method of buying is used by chain

stores? Why? (23.1)

6. List three purchase situations. (23.2)

7. How do buyers evaluate suppliers? (23.2)

8. What factors are negotiable in determining

the terms of a sale? (23.2)

9. Explain the purpose of a want slip. (23.2)

10. Why is it important to establish quality

standards? (23.2)

11. What are some of the reasons why busi nesses

use the Internet to sell products? (23.2)



12. Workplace Skills Human Relations You are a division

manager. Top-level management has

instructed you to require your buyers to use

online buying for the purchase of standardized

products. Some of your longtime buyers

are not computer literate and value the

relationships they have established with their

suppliers. Write an outline of the points you

will present to your buyers. Make sure your

outline includes:

• Problems you can anticipate

• How you would handle those problems

13. Technology ApplicationsWriting a Memo You work as a salesclerk

in a men’s clothing store. Several young

customers have inquired about a popular line

of clothing that you do not sell. You believe

updating the young men’s department would

increase sales. Using a word processing

program, create and complete a want slip for

this line of clothing. Then write a memo to

accompany your request, explaining to your

buyer the merits of your proposal.

14. Math Practice Discounts Suppose you own a craft supplies

store, and you place an order with a fabric

manufacturer for several bolts of printed

cotton. The manufacturer offers you a 17

percent trade discount. The total list price is

$1,016.14. How much do you have to pay?

Numbers and Operations:

Calculating Discounted Prices A per-

cent discount is usually calculated as an

amount off an original price. To fi gure price

with a discount applied, convert percents

to a decimal and multiply it by the price

to determine the amount of the discount.

Subtract this amount from the original price

to compute the cost with the discount.


15. Science Online Purchasing The Internet has

helped create a new era in purchasing. From

individuals to large corporations, purchasing

technologies have grown dramatically in the

past decade. Research one such technology

and write a paragraph about how it has

impacted the purchasing power of small or

large businesses.

16. Analyzing Institutional Buying Interview an institutional buyer in your

community. Find out what kinds of products

they buy and why, and what unique buying

requirements they have. Report your fi ndings

to your class.

17. Selecting a Vendor Do an Internet search on printer cartridge

suppliers. Read the details from two of the

top-rated suppliers. Using a word processing

program, report on the services, prices, and

product quality of each of these two suppliers.

Activity Report, as a buyer, which supplier

you would use. Explain your rationale.


glencoe.com

18. Chain Store Buyer

Conduct an Internet search using the phrase

popular chain stores. Also search through

a national online job board. Read through

descriptions of store buyer positions and

make a list of common qualifi cations for

these positions.

1. Directions Choose the letter of the best answer. Write the letter for the answer on a separate piece of paper.

What is the cost of a single notebook if a gross (144) costs $180?

A $1.25 B $1.50 C $1.70 D $1.75

2. Directions Choose either True or False as the answer. Write the letter for the answer on a separate piece of paper.

Customer requests for items that are

not available in the store are called want

slips. T F

Role PlayWomen’s Clothing BuyerSituation Assume the role of buyer for a

women’s clothing store. Your buying duties

are for the junior’s department. The store

has a main store and three branch stores at

local malls. You have been asked to make

a presentation to a high school marketing

class about the job of buyer for a retail store.

You are to include an explanation of your

various duties and give examples of each. The

store’s owner (judge) has asked to review your

presentation before you go to the high school.

Activity You are to make an outline of your

presentation and review it with the store’s

owner (judge).

Evaluation You will be evaluated on how well

you meet the following performance indicators:

• Write purchase orders.

• Determine what to buy.

• Determine quantities to buy.

• Determine when to buy.

• Choose vendors.

For more information and DECA Prep practice, go to the Marketing Essentials

OLC through glencoe.com.


Test-Taking Tip

If each item on a test is worth the same number of points, do not spend too much time on questions that are confusing.



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