LU5 Chapter 15: Purchasing and Supply Chain Management
Theme 1: Purchasing and Supply Chain Management
LO1: Explain the importance of the purchasing and supply function to a business
LO2: Explain control in the purchasing and supply function
LO3: Discuss the management tasks of the purchasing and supply manager
LO4: Describe the components of the purchasing process, explaining what each
component entails
LO5: Describe each of the following components in the purchasing process:
1. Quality decisions as a purchasing and supply activity
2. Selection of purchasing and supply quantities
3. Selection and management of suppliers
4. Pricing decisions
5. Timing of purchases
1
, Theme 1: Purchasing and Supply Chain Management
LO1: Explain the importance of the purchasing and supply function to a business
The purchasing and supply function should:
Select suppliers
Purchase and arrange for the transport of materials to the business
Decide what prices to accept
Determine quantity and quality of materials or services
Expedite and receive materials
Control warehousing and inventory-holding
Determine the timing of purchases
Greatest expenditure for the business
Purchasing costs are the business’s biggest expense
o represent an area where cost savings can make a vital contribution to the
business profits
Inventory-holding
Stock is held to prevent disruptions when there is an interruption in the flow of
material to a business
o aim to keep inventory levels low without risking an interruption in the
operational process
Profit leverage
Profit-leverage effect means that if purchasing costs constitute a major portion of
total cost, a saving on these costs has greater profit potential than a similar increase
in sales
Contributions to the marketing of products
Purchasing materials of the right quality and price at the right time can make final
products available in the right quantities at a competitive price at the right time to its
customers
2
Theme 1: Purchasing and Supply Chain Management
LO1: Explain the importance of the purchasing and supply function to a business
LO2: Explain control in the purchasing and supply function
LO3: Discuss the management tasks of the purchasing and supply manager
LO4: Describe the components of the purchasing process, explaining what each
component entails
LO5: Describe each of the following components in the purchasing process:
1. Quality decisions as a purchasing and supply activity
2. Selection of purchasing and supply quantities
3. Selection and management of suppliers
4. Pricing decisions
5. Timing of purchases
1
, Theme 1: Purchasing and Supply Chain Management
LO1: Explain the importance of the purchasing and supply function to a business
The purchasing and supply function should:
Select suppliers
Purchase and arrange for the transport of materials to the business
Decide what prices to accept
Determine quantity and quality of materials or services
Expedite and receive materials
Control warehousing and inventory-holding
Determine the timing of purchases
Greatest expenditure for the business
Purchasing costs are the business’s biggest expense
o represent an area where cost savings can make a vital contribution to the
business profits
Inventory-holding
Stock is held to prevent disruptions when there is an interruption in the flow of
material to a business
o aim to keep inventory levels low without risking an interruption in the
operational process
Profit leverage
Profit-leverage effect means that if purchasing costs constitute a major portion of
total cost, a saving on these costs has greater profit potential than a similar increase
in sales
Contributions to the marketing of products
Purchasing materials of the right quality and price at the right time can make final
products available in the right quantities at a competitive price at the right time to its
customers
2
