Introduction
We will try to make this material as objective and direct as possible and reach those interested in the subject at hand, Purchases, from the first moments.
Shopping is, in general, an activity that is carried out in all spheres of life of men and women, and independently where they are developed, they behave with very similar motivational and execution traits.
Imagine that to live you have to eat, dress, drink, walk, party, work, produce, it is also necessary to acquire all the services that accompany modern life, but all will satisfy a desire and meet a certain need for what is done It is necessary to buy goods and services that guarantee our lives and our productive and / or service institutions, state and private.
The ways of buying are dissimilar and it has been developed in tandem with the development of society and technical scientific development and has gone from bartering to electronic Internet purchase, but all of them have common objectives and common forms of execution, the which we will try to explain and emphasize business purchasing and the ways to evaluate its effectiveness and the elements to make its execution and analysis more efficient.
At the present time, the word Logistics has changed its essence and has evolved, having a great impact on purchases, since the integral analysis of the production or service processes and the acquisition, at the right time and at the right price, of the materials necessary to satisfy an existing demand that will generate values to continue, in a cyclical way, the process.
The need to buy is generated, as we have said, to satisfy a need that will generate in the future or personal satisfaction, a new product, a new service or simply the pride of having bought something.
Before the purchase, different evaluations are made such as: what to buy, who to buy, at what price to buy and for when I need it.
Let's take a homey example. You are going to invite a person to lunch, the first thing you should do is evaluate the person and know their tastes and preferences, with enough time you should go shopping with enough time to be able to season the meats, prepare the beans, the sweets, cool the beer prepare the food and prepare the table, dress appropriately for when the guest arrives all this as you anticipated and give a good image and satisfy the guest.
In this article we will try to transfer this daily example of any citizen, regardless of the country of origin, to business life in order to create the necessary mechanisms (proposed) to make this activity a pleasant, creative and efficient activity in the field of business since, you will agree with me, that everything in life is a business.
Chapter 1
Why and when is a purchase need generated?
Anyone would say that it is an absurd question, because they believe that no.
The answer may be: when you need to buy something or when you have no choice but to buy something to do something that should have been foreseen much earlier and that is where the big problem is. When does it go out to buy?
Well, from this answer, the purchase management will be more or less efficient in order to satisfy the created need.
Purchase needs must, above all, know how to generate them in a timely manner. They depend on many factors. For this, the production or marketing plans must be known in order to determine the purchase periods that are no more than the time necessary to make the purchase.
Firstly, the entity's purchasing policy must be drawn up, which sets out the main directives and strategies for making purchases according to the needs of the company. From these strategic definitions in each tender or search for products, the technical characteristics of each one of them and the main objectives to be achieved in each negotiation must be very well defined and for this, it is most convenient to create the official bases for a of the tenders to be carried out.
The bases of each tender must include the commercial and financial conditions to be obtained from the suppliers and which will respond to the real needs of the company.
Once the issues raised above are defined, buyers search the local or foreign market for the suppliers of the products to be contracted through consultations with well-known foreign trade companies and through the Internet.
It is at this time when problems and difficulties begin, since locating the product and the supplier is not enough.
Study the suppliers, their economic solvency, the support of factories, the assurances for possible breaks and repairs, the transfer of know-how or training courses if necessary and the guarantees, among others, are factors that will guarantee the efficiency in purchases. For these reasons, each supplier must be studied prior to purchase and for this, each supplier is asked, through the supplier file, for all the necessary information that gives us the possibility of being able to carry out an x-ray of the supplier company.
This card will collect the list of its main executives with their signatures, positions and powers, it is also necessary to request bank guarantees, volumes of operations in the last three years, capital of the company, main clients, certified legal documents of the company in question and of its duly accredited and legally certified executives.
From this file we can form a criterion of the company with which we are thinking of establishing business relationships.
We already know the possible suppliers, the characteristics of the product, the company's purchase policy, the commercial conditions to be reached. It is time to go out to tender what we need.
On the other hand, we have identified the product to buy and its technical specifications.
Another very important question is to define when to buy? Here the question is very difficult when there are no statistics, so we begin to delve into the internal life of companies and their processes.
The purchasing process
The purchase process extends from when the need to buy arises until that something is purchased, put in the hands of whoever needs it and is paid for the purchase made. In other words, the acquisition of the raw material necessary to produce the committed product in the necessary time must be guaranteed, thus achieving compliance with the delivery deadlines and with the necessary quality.
For this reason, it is necessary to study the necessary replenishment periods that guarantee production over time.
To do this, we define some time parameters of vital importance in the study of replenishment periods and the efficiency and effectiveness of purchases.
Replenishment time: It is the time necessary to make the purchase of raw material that guarantees uninterrupted production, thus covering the delivery commitments of finished production.
This magnitude is made up of several times, which we will try to define:
- Time of production of the product by the supplier of the raw material Time of bidding, negotiation and contracting Time of processing the payments that cover the contract Time of manufacturing (if they are products to be manufactured) Time of shipment and crossing (in case of to be imported) Import and nationalization time, Transportation time to the end customer's warehouses, Manufacturing time, Sales time.
Tc = Ti. i = 2 …… 7 (1)
Knowing the time that the purchase management takes, we must determine the purchase volume Vc in the same way, since this figure is directly related to the management time to complete a purchase and the daily consumption rates and the maximum production capacity.
It is also necessary to take into account the calculation of a minimum stock to be kept in the warehouses to cover any eventuality or delay in the purchase process or other cause related to production, therefore, the purchase volume is calculated as follows:
Vc = Daily Icons * Tc + VStoc min + VSecurity (2).
The calculation of the Minimum Stock varies depending on the daily consumption index and the days to be covered to guarantee production in the event of any inconvenience in the purchase process and production does not stop and therefore the delivery of the products to final customers. We must also take into account the storage capacity, storage costs and the shelf life of each product to buy.
The causes that may cause a delay in the purchase process are very different and depend largely on the country in which the purchase is generated and the geographical location of the suppliers, financial and climatological issues, among others, so we will not try to list them in this article.
To determine the purchase volume we will use the following method used for a productive company with positive results.
In this productive world, purchasing needs arise together with the need to produce, only that the first must be done before production, so the purchase process must be planned in sufficient time so that at the beginning of production there are the raw materials and supplies necessary for this.
Another important factor is to calculate the lot to buy since many variables are involved here, highlighted above and that ultimately affect the cost of the product.
An important element to guarantee the above is knowing when to go out and how much to buy to guarantee a specific production period. The interrelation between the different departments and / or the logistics management plays an important role here in determining the consumption standards of each product to be produced as well as the productive capacities of the industry in question.
We will explain how the purchasing process should be organized so that it is efficient, always assuming that you have enough money to purchase what is needed.
Production of the "X" Product.
Three main raw materials (A, B, C) are used in the production of X to make the product ready for sale.
The consumption norms of X are determined, which is nothing more than the quantities of A, B and C that make up the product X.
Table 1.
Analysis and calculation in a purchasing process
The daily production capacity is 1000 units. It is important to make the calculations for the maximum production capacity of the factory in order to foresee having the raw material necessary for the maximum production of the day.
This means that in order to produce 180 days at the maximum capacity of the factory, it is necessary to acquire the raw materials calculated as follows;
K = Consumption standard * daily productive capacity * number of days to produce. (3)
KA = 0.20 * 1000 * 180 = 36,000 Kg.
Calculating for the case at hand we have;
Table 2.
Analysis and calculation in a purchasing process
As observed, we have already defined what needs to be purchased to guarantee production.
Now we have to define the number of days it takes to put the raw materials in the warehouse ready to be used in production. This TC value is defined in formula (1). This value will be optimized over time and with increasing knowledge of the market and suppliers. For this reason, we define that the merchandise comes in containers and the time from the need to purchase until it is delivered to the warehouse is 30 days.
TC = 30 days.
The first purchase is made automatically in the investment process and a start-up stock is generally purchased that guarantees production for the first 180 days. For this reason we start with the assumption that we have the raw material necessary for 180-day production, so it becomes necessary to know when it is necessary to go out and buy the next batch, so that production is not interrupted due to a shortage of raw material..
From what is stated, it is necessary to set the point that the purchase need needs to be generated so that it is sufficient to make the purchase in time. We define that 30 days are needed to buy, we call this period as the Date to generate a KC Purchase order. This means that it is necessary to reserve a warehouse stock to produce during the 30 days that are needed to make the purchase. This time may be affected by certain inconveniences beyond our control, which is why it is necessary to add a number of days of security to this purchase period, ensuring production if necessary. Actually what we define with these days is a safety stock calculated by formula (1).We define this period as the purchase safety period and the quantity of raw material to guarantee the production of these days is defined as Safety Stock (KS). Let's define that the security time is will be 15 days.
For the foregoing and using equation (3) we say that:
KA = KC + KS (4)
For Product A we have: KA = (30 + 15) * (0.20 * 1000) = 9,000 Kg.
This means that the Logistics, Purchase and Production specialists when the warehouse stock reaches the figure of 9,000 Kg is necessary to generate the need for purchases and begin the process of purchasing product A. (Graph 1).
Analysis and calculation in a purchasing process
Graph 1
This analysis has been automated in an Excel table where with the update of the warehouse stock tells us when to generate the purchase need, how much to buy and the estimated cost of the purchase.
Let us explain the real possibilities of the following proposal:
The table is made up of different columns which we will describe in order to understand the interrelation and the parameters that have been taken into account for the calculations that will be presented to exemplify the proposal. We will always start from those already defined above. See tables 3, 4 and 5
Code: Every product must have a code that defines it for the manufacturer, the supplier, the buyer or buyers. This code for producers must be unique.
Product: Product name.
Consumption standard. It is the minimum necessary quantity of this raw material or input used in the manufacture of a unit of the new product.
Daily production capacity: It is the quantity of products that the factory can produce in one day.
Maximum daily consumption: It is the result of the multiplication of the consumption norm by the daily production capacity. Defines the maximum amount of raw material to use in a day.
Unit of measurement. Unit of measurement of each raw material.
Warehouse existence. It is the quantity of raw material in warehouse.
Backup in days. It is the result of the division of the Stock in warehouse between the maximum daily consumption. It is only the number of days that the factory can produce with the raw material found in the warehouses.
Replenishment time. It is, as we have already defined, the time necessary to make a purchase. The time that the purchase need arises until the raw material reaches the warehouse and is ready to be used in production.
Minimum stock. It is the minimum quantity of products to have in the warehouse [to guarantee production during the replenishment time and is calculated by multiplying the number of replenishment days by Maximum daily consumption.
Define purchase. It is a logical equation that defines whether, based on the quantities in the warehouse and the minimum stock of each product, it is necessary to go out and buy or if the existence of the warehouse is sufficient for the moment.
"YES (Existence in warehouse <= Minimum stock; then you have to buy; otherwise there is existence in warehouse)"
Backup time. It is the time that production must be guaranteed with the products to be purchased taking into account the stocks in the warehouse.
Quantity to buy. Amount needed to buy that guarantee production during the time to be backed. If the purchase definition column defines that there is stock, then the quantity to buy is “0”.
Unit price. Average or reference price of the raw material to buy.
Purchase value. It is the value to buy of each raw material.
The table calculates the total amount to buy at each moment since it adds all the values and in this way the amount necessary to buy is defined to guarantee production in the defined time.
In order to appreciate the work of the proposed table, we will present it at three different times.
Preparation of a purchase
After analyzing the purchase need and its volumes, we prepare the purchase process.
The products to be purchased must be well defined in terms of name, codes (if the manufacturer is known), quantities, technical characteristics, market prices, units of measurement, form of packaging and packaging. In the same way, a list is prepared with the possible suppliers to whom the aforementioned supplier form is previously requested.
With all this data, the bidding bases are prepared (this is for large purchases and where several suppliers participate). In these bases the following must be very clear:
1. What to buy? It includes very clear and detailed technical characteristics.
2. How much to buy?
3. Delivery times.
4. Desired forms of payment.
5. Packaging ways.
6. Necessary guarantees. If required, technical support and supply of know-how and technical documentation necessary for use.
7. Required expiration dates (in the case of perishable products).
8. Closing date of the tender.
9. Characteristics of the tender.
Requests for quotations or tenders must be sent to each potential supplier directly and personally. There are mainly tenders, governmental and those carried out by international institutions that are publicly announced and the bidding rules are sold to each interested party and in this way the participants or those interested in participating are registered. For this reason, it is necessary that each request have the following:
10. Name of each supplying Company and its legal representative.
11. Name of the buyer's company with address, telephone, mail and name of the purchase representative who will be the contact person.
For each purchase, a commercial file must be opened, listed with the purchase need request number. In this file all the evidence of the purchase will be chronologically filed. All the information collected in the file will facilitate the analysis and decision making for this and for future purchases. The effectiveness and deficiencies of the purchase, the behavior of the different suppliers and the costs of each purchase will be analyzed in the same way.
For the sake of guaranteeing and facilitating the analysis of each supplier, a file must be drawn up by supplier where all the information of the supplying company appears. A conclusive synthesis of each purchase process must be reflected and in this way a characterization of the supplier is carried out and its weaknesses and strengths and its position in the market are determined.
Analysis of a purchase for decision making
The analysis criteria of a purchase are directly related to prices, delivery times, freight values and payment conditions, this, of course, deducing that the technical characteristics of what is purchased is guaranteed.
For these analyzes, generally, the tender document is drawn up where all the suppliers participating in the tender are located and all the characteristics of the offer are compared.
The criteria are dissimilar because, in each historical moment, one or another magnitude takes weight depending on the haste in the execution of the purchase. For example, if the delivery times of a supplier are immediate and that is the decision criterion, it does not matter if this supplier does not offer the best price, (if it is the best price, good), in the same way it happens with the forms of payment and the commercial credits granted, which by adding the interest on the credit may put the final prices of the product at a disadvantage, but if the financial policy of the company is to buy and pay deferred, it is not important for the price to rise somewhat.
Therefore, the analysis criteria of a tender document is directly linked to the company's purchase policy and, therefore, to the reality of the company for a sound decision-making for the benefit of the entity itself.
The purchase decision must always be well argued and must explicitly include the analysis criteria that were taken into account for a purchase proposal since over time the decision to buy could be misrepresented and think that some supplier has been favored despite of not having the best prices or other commercial conditions offered.
For this and other reasons already mentioned, the commercial files are a reflection of the commercial purchase operation and must contain each of the incidents that originate in the course of the purchase process.
Conclusions
Purchasing is one of the basic common functions of any organization, since each of them depends, to a lesser or greater degree, on the materials and supplies of other companies. No organization is self-sufficient.
The management of the company must determine the responsibilities that correspond to the purchasing area, as well as the way to carry out the purchases in what refers to the manufacture during a period, the fulfillment of a certain program of acquisition of materials, a specific purchase order, the acquisition of a certain material that must be in stock.
Purchases like any other activity in the commercial and production sphere must be properly prepared and organized since poor planning or forecasting in purchases and the production process could be interrupted.
Another important aspect is the selection of suppliers and for this it is necessary to have clear and above all objective policies. By trying to favor a supplier or making a bad selection we may be putting the continuity of the company's operations at risk.
Finally, the purchasing area of any company plays an important role and has a relevant influence on costs and prices, which affects the ability to stay in the market and compete. The success of a company created to offer products in the market depends to a great extent on the fact that it can achieve a reasonable combination of the quantity, quality, opportunity and cost of the goods and services it produces.
Today, although we have sophisticated calculation instruments, computers, it is still man who supplies these with the necessary data so that all these means can be effective.
The daily control, professionalism, motivation and sense of belonging of these men and women is what makes the purchasing activity and the purchasing process more efficient every day.
Literature:
- Purchase management and inventory management as a fundamental tool in achieving corporate objectives in wine marketing companies. José Chacón. www.monografias.com.Procurement management. Solmami. www.monografias.com.Acquisition and Payment Cycle. Sent by Alice Naranjo S. Escuela Superior Politécnica del Litoral. Javeriana Polytechnic School. www.monografias.com.Procurement procedure. Process management. Luz Productions. Havana. Cuba. 2006. Oscar Alonso Vázquez.
