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Purchasing. Steps in the Purchasing Process. Accurate description of desired commodity or service Selection of possible sources of supply Thomas Register Determination of price and terms Preparation of purchase order Follow-up or expediting Receipt and inspection of goods

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Purchasing l.jpg

Purchasing

MGT 560


Steps in the purchasing process l.jpg
Steps in the Purchasing Process

  • Accurate description of desired commodity or service

  • Selection of possible sources of supply

    • Thomas Register

  • Determination of price and terms

  • Preparation of purchase order

  • Follow-up or expediting

  • Receipt and inspection of goods

  • Clearing the invoice and payment

  • Maintenance of records

Source: Leenders & Fearon

MGT 560


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Description of Product or Service

  • Description by brand

  • “or equal”

  • Description by specification

  • Specification by physical or chemical characteristics

  • Specification by material & method of manufacture

  • Specification by performance or function

  • Description by engineering drawing

Source: Leenders & Fearon

MGT 560


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Determination of Price and Terms

  • Use of quotations and competitive bidding

  • Firm bidding

  • Determination of most advantageous bid

  • Collusive bidding

  • The problem of identical prices

  • Negotiation

  • Provision for price changes

  • Discounts

  • Contract cancellation

MGT 560

Source: Leenders & Fearon


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Negotiation as a Method of Price Determination

  • Framework for planning and preparing for negotiation

  • Ground rules for successful negotiation

MGT 560


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Best Buy

The best buy is the best combination of technical and procurement factors.

  • Procurement Factors

  • Price

  • Delivery

  • Lead time

  • Technical Factors

  • Useful life

  • Materials of construction

  • Design

Source: Leenders & Fearon

MGT 560



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Legal Aspects of Purchasing

Four Factors of a Valid Contract

  • Competent parties

  • Legal subject matter or purpose

  • An offer and an acceptance

  • Consideration

MGT 560


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Legal Aspects of Purchasing

Warranties

  • Express warranty

  • Implied warranty of merchantability

  • Implied warranty of fitness for a particular purpose

  • Warranty of title

MGT 560


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Acquisition of Capital Assets

  • Life Cycle Costing (LCC) or Total Cost of Ownership (TCO)

  • Procurement of used equipment

  • Lease vs buy

  • The acquisition of construction

Source: Leenders & Fearon

MGT 560


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Acquisition of Services

  • Value of the service

  • Degree of repetitiveness

  • Degree of tangibility

  • Direction of the service

  • Production of the service

  • Nature of the demand

  • Nature of the service delivery

  • Degree of standardization

  • Skills required for the service

Source: Leenders & Fearon

MGT 560


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The Purchase Agreement for Services

Short term/Long term

Standard/Custom contract

  • Fixed price

  • Unit price

  • Cost plus % fee

  • Cost plus fixed fee

  • Incentive

MGT 560


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Service Contract Administration

  • Follow-Up

  • Postservice Quality Control and Supplier

  • Evaluation

  • Payment

  • Records and Other Aspects of Contract

  • Administration

MGT 560