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4.00 Understand business operations management.

4.00 Understand business operations management. NC CTE 4.02: Implement purchasing activities to obtain business supplies, equipment and services. The nature and scope of purchasing. Activities involved in purchasing Purchasing - The buying of goods and services for a business.

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4.00 Understand business operations management.

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  1. 4.00 Understand business operations management. NC CTE 4.02: Implement purchasing activities to obtain business supplies, equipment and services.

  2. The nature and scope of purchasing • Activities involved in purchasing • Purchasing - The buying of goods and services for a business. • The purchasing process is much more streamlined in small companies than in larger businesses, especially when the businesses are still fairly new. • The owner usually decides what to buy, when to buy, where to buy, and how much to buy. • By selecting one person to manage all of the business's purchasing activities, you will decrease the risk of duplicating orders for the same materials • The purchasing process used by businesses to obtain materials, equipment, and supplies used in their operation. • Purchasing Process - A series of sequential steps taken by purchasing specialists to buy goods and services for a business. • to provide an uninterrupted flow of materials and services for company operations • to find reliable alternative sources of supply • to buy at the most economic order quantities • to buy the best value: a combination of right quality at the best price with the best supplier service • to maintain good relations with vendors

  3. Place orders/reorders • Purchasing Order - The form that a business fills out to order goods; may be the same as a purchase agreement or purchase contract. • Factors to consider when placing orders/reorders. • how to determine the firm's purchasing needs • finding a supplier who will best satisfy purchasing needs • negotiating and making the purchase • communicating the purchase decision to the supplier and to relevant personnel within your firm, and • Do a follow-up procedure for evaluating your purchasing decisions • Components of purchase orders. • They should include information such as the type of product or service you are ordering, the quantity desired, price and delivery terms. • The orders should also have an area for any additional information. • Purchase orders should also include your company name, address, telephone and fax numbers, and logo.  • Purchase orders should have at least three parts: a vendor copy, an internal file copy, and an accounting copy.

  4. The Purchasing Cycle • Identify the needs for goods and/or services. Research the market to establish a profile. • Telephone minimum of 3 suppliers to obtain prices to supply goods and/or services using an identical specification, terms, and conditions. • Obtain written confirmation from suppliers of verbal quote(s) and keep a file to file with office copy of the purchase order. • Compare all prices on a “like for like” basis. Identify which offer most closely matches Cost per Unit (Unit of Expenses) requirements. • Issue purchase order to supplier. File quotations received with hard copy of purchase order and retain in office. • After goods are received and/or services performed to required standard, supplier’s delivery note signed and invoice paid.

  5. Calculating a Reorder Point • The reorder point (or reorder level) is the inventory level at which a company would place a new order or start a new manufacturing run. The following two formulas are used for the calculation of a reorder point or level • maximum daily or weekly or monthly usage × Lead time • Example: CMS uses 1000 cases of paper daily. Its supplier takes a week to deliver the order. At what quantity should the inventory manager place his/her next order? • The inventory manager should place an order before the inventories drop below 7,000 units (1000 units of daily usage multiplied with 7 days of lead time) in order to avoid a stock-out. • Formula: 1000 x 7 = 7,000 cases of paper • maximum daily or weekly or monthly usage × Lead time + Safety stock • Example: CMS has decided to hold a safety stock equivalent to average usage of 5 days. Calculate the reorder level. • Safety stock which CMS has decided to hold equals of 5,000 cases (1000 cases of daily usage multiplied by 5 days). In this scenario reorder level would be 12,000 cases (5,000 of safety stock plus 7,000 units based on 7 days of lead time). • Formula: 1,000 x 5 = 5,000 + 7,000 = 12,000 cases of paper

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