A low-cost supplier may well impose conditions on the buyer-?such as poor quality, or frequent cookouts, or excessively high inventories-?that result in high total costs of purchase, Buyers must examine all the elements of costs relevant to inventory management, not just the purchase price. Other elevate cost items are ordering costs, carrying costs, Stockpot costs, quality costs, and shrinkage costs. This is because the price or purchase cost Of the goods is only one-?and perhaps, most Obvious element of cost associated with purchasing and managing inventories. Choosing the supplier Who Offers the lowest price Will not necessarily result in the lowest total purchase cost to the buyer. D Companies are increasing the use Of purchase-order cards. D Companies are using electronic links, such as the Internet, to place purchase orders. model indicates is optimal, 20-8 just-in-time 01 T) purchasing is the purchase to materials (or goods) so that they are delivered just as needed for production (or sales), Benefits include lower inventory holdings (reduced warehouse space required and less money tied up in inventory) and less risk of inventory obsolescence and spoilage 20-9 Factors causing reductions in the cost o place purchase orders of materials are: 0 Companies are establishing long- run purchasing agreements that define price and quality terms over an extended period. For example, if opportunity costs are ignored in performance evaluation, the manager may be induced to purchase in a quantity larger than the EX.
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