Purchasing Strategies that Support Organizational Goals and Objectives

Purchasing Strategies that Support Organizational Goals and Objectives 

To achieve the company s objectives and goals, the sourcing department has many decisions to make, such as 

Who holds the inventory and when the title transfers ovmership 

Suppliers will often offer volume or quantity discounts to buyers. These discounts provide cost reductions to the buyer but are a way to reduce cost for the supplier as well. Suppliers cost reductions are seen in the form of reduced production cost (fewer setups and longer production runs) and in distribution where full truckloads can be used instead of multiple less-than-fuU truckloads. The buyer, of course, should decide whether or not to take the volume discount. Does the buyer need the additional units and will the quantity discount reduce or increase cost over the long term Using the following example, answers to these questions can be determined. 

For example, use a cafe franchise that purchases coffee beans from a South American distributor. The coffee shop plans to buy 250,000 pounds of coffee beans this year, the holding cost is 5.45 per pound per year and the order cost is 150 per order. Recall from an earlier chapter that the following formula can be used to determine the optimal order quantity, where Q is the optimal order quantity, D is the annual demand for the product, S is the setup/order cost, and H is the annual per unit holding cost. 

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