The Purchasing Function

Flashcards covering key vocabulary and concepts from a lecture on the purchasing function in business.

Purchasing Function

The business function responsible for acquiring materials, supplies, and services.

Objectives of the Purchasing Function

To buy materials of the right quality, from the right source, delivered to the right place, at the right time, and at the right price.

Just-in-time Principle (JIT)

An inventory strategy to improve a business's return on investment by reducing in-process inventory and associated carrying costs.

Planning in Purchasing

Align purchasing objectives with overall business objectives, considering input from marketing, finance, and operations.

Centralized Purchasing

Purchasing done by one department, leading to standardization and cost advantages.

Decentralized Purchasing

Each branch or unit performs its own purchasing, allowing for local suppliers and closer contact with consumers.

Key Performance Indicators (KPIs)

Metrics used to gauge the efficiency of purchasing activities (e.g., price, supplier performance, timeliness).

Inventory

The raw materials, work-in-process goods and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale.

Raw Materials

Basic inputs to the manufacturing process

Finished goods

Products ready to be sold.

Purchasing Cycle

Steps including determining the need, selecting suppliers, determining price, placing order, managing delivery, receiving goods, handling errors, paying suppliers, and closing the order.

Specifications (Quality)

A method of describing quality of non-standard materials through dimensions, physical features, workability, and chemical composition.

Standardization

Making materials, methods, practices, and techniques uniform, complying with a specific minimum acceptable standard.

Economic Order Quantity (EOQ)

The optimal order size to minimize total inventory costs, balancing ordering and carrying costs.

Carrying Costs

Costs associated with holding inventory, including capital cost and holding cost.

Ordering Costs

Costs incurred to place an order, such as telephone calls, paperwork, and transportation.

Fixed-Order Quantity System

An inventory control system where a fixed quantity is ordered when inventory reaches a specific reorder point.

Cyclical Ordering System

An inventory control system where orders are placed at fixed intervals.

Break-Even Analysis

A technique for determining the volume where total revenues equal total costs.

Physical Stocktaking

Physical validation of quantity and value of stock.