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Transcript of Managing Purchasing and Inventory Back to Table of Contents.
Managing Purchasing and Inventory
Managing Purchasing and Inventory
Back to Table of Contents
Managing Purchasing and Inventory Managing Purchasing and Inventory
2
Chapter 15
Managing Purchasing Managing Purchasing and Inventoryand Inventory
Purchase Planning and ManagementPurchase Planning and Management
Inventory ManagementInventory Management
15.1
15.2
Managing Purchasing and Inventory Managing Purchasing and Inventory
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Describe the importance of planning purchases.
Identify factors that affect purchasing.
Section 15.1 Purchase Planning and Management
15.1
Managing Purchasing and Inventory Managing Purchasing and Inventory
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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
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purchasing
model inventory
vendors
trade discount
Section 15.1 Purchase Planning and Management
15.1
quantity discount
cash discount
secured funds
invoice
Managing Purchasing and Inventory Managing Purchasing and Inventory
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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
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Developing a Model Inventory
As a beginning entrepreneur, after identifying your inventory needs, it is helpful to set up a model inventory.
model inventory a target inventory of what a business thinks it will need to keep in stock
Section 15.1 Purchase Planning and Management
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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
Managing Purchases
Section 15.1 Purchase Planning and Management 9
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
Choosing the Right Vendors
10
Considerations in Vendor Selection
Reliability
DistanceService
Section 15.1 Purchase Planning and Management
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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
Managing Purchasing and Inventory Managing Purchasing and Inventory
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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
Getting the Right Price
Section 15.1 Purchase Planning and Management 13
Dating Terms
Early payment
Advance dating
Extra dating End-of-month
(EOM) dating
Receipt-of-goods (ROG)
dating
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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
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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
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1. Describe the importance of planning purchases.
Section 15.1 Purchase Planning and Management
Making smart spending decisions can result in better values for customers and larger profits for the business.
15.1
Managing Purchasing and Inventory Managing Purchasing and Inventory
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2. Identify factors that affect purchasing.
Section 15.1 Purchase Planning and Management
Factors that affect purchasing are selecting the right quality, buying the right quantity, timing the purchases, choosing the right vendors, getting the right price, and receiving and following up on purchases.
15.1
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Explain inventory procedures used by small business.
Explain the importance and types of inventory control.
Section 15.2 Inventory Management
15.2
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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
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financing cost
opportunity cost
storage cost
insurance cost
shrinkage cost
Section 15.2 Inventory Management
15.2
obsolescence cost
warehousing
lead time
usage rate
safety stock
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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
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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
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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
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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
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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
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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.
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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
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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
Warehousing
Section 15.2 Inventory Management 29
Warehouse Operations Areas
Receiving and shipping docks
Bulk storage areas
Staging areas
Assemblyareas
Packingareas
Pickingrows
Management office and
lockers
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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
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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
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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
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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
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1. Explain inventory procedures used by small business.
Section 15.2 Inventory Management
Inventory procedures include planning to determine and maintain inventory levels that are neither too large nor too small. Inventory procedures encompass the control of inventories after they are purchased and before they are sold. Many small businesses use inventory control systems to track inventory.
15.2
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2. Explain the importance and types of inventory control.
Section 15.2 Inventory Management
There are four types of inventory control: visual, perpetual, partial, and just-in-time. Regardless of which system is used, a business should conduct periodic physical inventory counts so that inventory levels are neither too small nor too large.
15.2
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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
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Tech TermsB2B 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
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Tech Termsprivate 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
Managing Purchasing and Inventory
Managing Purchasing and Inventory
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