Lesson 2:Purchasing

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Course Objective

Students will be able to: Explain how purchasing impacts sales and

profit. List qualities of a good buyer. Describe the lifecycle of inventory through a

store – from ordering to sale. List common problems associated with

purchasing and inventory.

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1. Buyer 2. Open-to-buy 3. Vendor 4. Inventory 5. Stock 6. Invoice 7. Inventory Control 8. Just-in-time Inventory Control System 9. Physical Inventory System 10. Perpetual Inventory System 11. Stock Turnover

Terms http://help.knowledgematters.com/vbr3/Help/index.htm

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The Importance of Importing/Exporting

Imports: are services/ products bought by a company or government from businesses in other countries.

Importing provides a wide variety of services for U.S consumers.

Imagine how life would be in the U.S without international business. No calculators, athletic shoes, bananas,

coffee, cars, clothing….. Exporting creates jobs and expands business

opportunities. 4

The Importance of Importing

Businesses can get involved in international trade by importing goods and services and selling them in their own country.

Companies get involved in importing for 1 of

3 reasons: 1. Consumer demand for products unique to foreign

countries. 2. Lower cost of foreign-made products 3. Foreign-made parts used in domestic manufacturing.

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Importing Activities

Finalize the purchase agreement

Contact Potential suppliers

Identify Potential market demand

Receive goods & make payment

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What Does a Buyer Do? Identify Potential market demand

Buyer: person responsible for purchasing the merchandise for a store.

Buyer must be up to date with the store’s customers & familiar about the merchandise available for purchase. Why ?

It’s important to buy things that customers would want to buy. This will generate profit for the business.

Increase the number of clients/customers

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Buyer’s Tasks

1. Planning 2. Timing 3. Negotiating

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1. Planning

Buyer plans which merchandise to buy. Purchasing is done weeks or months before

products arrive to the store. Buyer must plan to make purchases within

the budget available for purchasing at any given time.

Open to buy: the amount of money available to a buyer for purchasing items for a store.

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Open to Buy

►Use the formula below to Calculate open-to-buy: Open-to-buy = Planned Purchases – (Orders Received + Merchandise Ordered)

Example: You have planned purchases of $1,000 You have received orders that total $400 and you have

ordered merchandise that totals $200 Open-to-buy= $1,000 – ($400+ $200) Open-to-buy = $400

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2. Timing

It’s a critical consideration in purchasing. Why?

Merchandise must be available when customers want to purchase it.

Buyer decides when merchandise arrives at the store.

Example If Christmas trees/ Decorations arrive in the

month of June….will you buy the items?

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3. Negotiating

Buyer will need to negotiate the terms and discounts of the orders with the vendors or suppliers. Why would this be

important to the company? Because the favorable

terms & discounts will have an impact on the store’s profit margin.

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Selecting Vendors Contact Suppliers

What is a vendor? A business from which a buyer purchases merchandise.

The buyer selects vendors What are some important qualities when selecting a

vendor? The reputation & reliability of a vendor is very important. Vendors are “EXPECTED” to deliver merchandise when

it’s scheduled to arrive.

Buyer must make sure that the merchandise delivered by the vendor is the same “quality” & “quantity” that was ordered.

By using the appropriate sources, importers can identify the companies that will best serve their needs.

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Inventory Needs Finalize Purchase

Inventory: the total amount of goods a business has. May be referred to as “stock”

What is a purchase agreement? A contract stating what you are buying from the vendor

Ex: Who will pay for the shipping? When will items be delivered?

Empty shelves DON’T encourage sales or repeat business. On the other hand, too much inventory ties up open-to-buy &

prohibits the purchase of new items. A good way to determine customer demand is to look at the

Average weekly sales. Why would sales records be important to look at and maintain?

Establish customer buying patterns Make important decisions about the amount of inventory available at

any given time.

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Stock Handling Receive goods

What happens after stock is delivered to the store? Stock handling begins:

1.Receiving stock 2.Checking in the stock 3.Price marking the stock 4.Transfer stock to the selling floor

When buying internationally: There is an import duty

Tax based on value of goods, Quantity or weight

Duties (tax) are paid to custom officials. Custom official: a

government employee authorized to collect the duties levied on imports.

Invoice: is the vendor’s bill for stock purchased.

(Lists the items & quantities being delivered) 15

Inventory Control

What is Inventory Control? Is the management of the merchandise a store

has for sale. Why is it important to have an inventory

control system? Make sure the store has sufficient stock to maintain

sales goals. Avoid too much stock at a given time.

Just-In-Time Inventory Control System A computerized method of inventory control that

involves linking a store to its suppliers through a computer system that purchases new inventory automatically as sales are made.

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Just-In-Time Inventory Control System

Receiving Transactions

Shipping Schedule

Product Information

Inventory Current Levels

Inventory Items

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Inventory Systems

Physical Inventory System Makes use of periodic counts of stock to

ascertain stock levels. Requires each item of stock be counted &

recorded. Perpetual Inventory System

Keeps track of stock items on a continual basis.

Can use either manual or computerized methods. 18

Stock Turnover Is a tool that measures how often stock is sold during a given time

period. Can be measured in items of stock or in dollars invested.

To compute stock turnover in terms of stock, use the following formula:

Stock Turnover in Items = Number of items sold / Average number of stock Items

in Inventory

To compute stock turnover in dollars invested, use the following formula:

Stock Turnover in Dollars = Dollar sales of inventory items / Average dollar value

of inventory investment

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Activity #1 QUESTION:

Compute the stock turnover in items for a product that has sales of 500 units and an average of 20 items in inventory.

Stock Turnover in Items = Number of items sold / Average number

of stock Items in Inventory

Stock Turnover in items = 500 / 20

Stock Turnover in items = 25

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Activity #2

QUESTION:

Compute the open-to-buy for a store with planned purchases of $7,200. Orders received total $465 and merchandised ordered totals $1,000. Open-to-buy = $7,200 – (465 + $1,000) Open-to-buy = $5,735

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Review for Quiz 1. The best method of purchasing is to: A. Order the same amount of all products

B. Order different amounts of all products

2. Which product is more likely to have the shelf life of 90 days? A. Magazine B. Soda C. Milk 3. The major factor in deciding how much to purchase is:

A. Demand B. Supply C. Neither

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International Business

Ch.6-1 Importing Procedures Answer Questions on Pg.161 (1-10)

Ch.6-2 Exporting Procedures Answer Questions on Pg. 155 (1-16)

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