Chapter 2 Purchasing Management (21B)

Define purchasing in the context of supply chain management.

• act of obtaining raw materials and component part only along the downstream flow.

• act of obtaining merchandise, capital equipment, raw material, services, MRO supplies in exchange for money.

• act of buying from a manufacturer to deliver to the end consumer.

• tact of purchase order from the buyer to the customer until it causes the bullwhip effect

Purchasing is classified two category. They are:

• Merchant & Industrial Buyer

• Manufacturer & Raw Materials Suppliers

• Intermediate Component Manufacturer & Retailer

• End Consumer & Industrial Buyer

Below is the goal of purchasing EXCEPT:

• Purchase at the lowest total cost

• Improve quality of finished good

• Purchase at high volume

• Maximize customer satisfaction

As the head of the department in purchasing, what action is not relevant to achieving the goal of purchasing?

• Find high quality of materials from reliable supplier.

• Cooperate closely with supplier to improve the quality of raw materials/component parts.

• Purchase component parts that can offer high price from unreliable supplier

• Cooperate together with supplier and purchasing personnel in product design and development efforts.

Define profit leverage effect.

• the impact of a change in purchase spend on a firm’s profit before taxes, assume gross sales and other expenses remains changed.

• the impact of a change in purchase spend on a firm’s profit after taxes, assume gross sales and other expenses remains unchanged.

• the impact of a change in purchase spend on a firm’s profit before taxes, assume only gross sales remains unchanged.

• the impact of a change in purchase spend on a firm’s profit before taxes, assume gross sales and other expenses remains unchanged.

What is the assumption in profit leverage effect?

• Inconsistency in purchase spend directly increase profits before taxes by the same amount.

• Decrease in purchase spend directly increase profits before taxes by the same amount.

• Increase in purchase spend directly increase profits before taxes by the same amount.

• Zero purchase spend directly increase profits before taxes by the same amount.