Principles of Buying

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PRINCIPLES OF BUYING

“In the long-term, the success of any organization depends on its ability to create and maintain a customer.” Do you agree? What does this have to do with purchasing and supply management?

Yes, I agree that the success of any organization depends on its ability to create and maintain a customer. No matter where the supply function is located on the organizational chart; each member of the supply organization has the opportunity to improve relations with internal customers and suppliers. By doing this there is a potential for a greater contribution to the organizational objectives. Buyers work with suppliers daily and create trusting relationships. These relationships can produce valuable contacts and deeper connections between the organization and supplier. Creating long-term contracts with suppliers allows the organization to increase productivity by reducing the number of contracting actions required. The purpose of supply chain management is to improve trust and collaboration among suppliers which creates improved inventory visibility and improved inventory velocity.

Relate the objectives of supply to (1) a company producing automobiles, (2) a large fast-food restaurant chain, and (3) a financial institution.

The objectives of supply include: improving the organization’s competitive position, providing an uninterrupted flow of materials, supplies, and services required to operate the organization, keeping inventory investment and loss at a minimum, maintaining and improving quality, finding or developing best-in-class suppliers, standardizing, where possible, the items bought and the processes used to procure them, purchasing required items and services at lowest total cost of ownership, achieving harmonious, productive internal relationships, and accomplish supply objectives at the lowest possible operating costs.

For a company producing automobiles, maintaining and improving their competitive position would be extremely important. Automobiles are big-ticket purchases for consumers. Consumers give them a lot of thought and compare other vehicles and competitors. Many times, if they have, or someone they know, has a bad experience with a certain make of vehicle, they will not go back. In order to be and stay competitive, the company needs to keep improving quality because their competitors will be doing the same. Especially in a technology based world as we live in. Since automobile companies normally produce multiple models, standardizing the parts required for the models would help reduce costs. For example, by having all or most of the models require the same windshield wipers, they would cost less with larger purchase pricing. Another important aspect of the company producing cars is the supply and design engineering. Vehicles are such large tickets items; the customers wants and needs require full attention. Cooperation between design engineering and supply is essential so that the product will meet the requirements of the final customer. Cars lose their value quickly and constantly as newly designed and next year models are introduced. Having too many vehicles left at the end of the year means reducing purchases prices and losing profits. Ensuring that supply and marketing are working together will benefit the car producing company.

Keeping inventory investment and loss at a minimum would be significant for a large fast-food restaurant chain. The product being purchased is food and once cooked cannot be stored and reused the next day or for the next customer. Too much waste increases costs. Improving quality is ever increasingly important in today’s diet environment. Fast food companies that are providing ‘low fat’ alternatives or reducing the trans fat, etc in current products will meet the requirements of more customers. The requirements for the food served at a fast food restaurant don’t normally change. Knowing this, purchasing all the items (ie. Hamburger buns) from...
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