Timing Is a Critical Element of the Purchasing Process

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The Answer is Timing the purchase of merchandise and supplies is also a critical element of a purchasing plan.Entrepreneurs must schedule delivery dates so that their companies do not lose customer goodwill from stockouts.In addition,they must concentrate on maintaining proper control over the firm's inventory investment without tying up an excessive amount of working capital.There is a trade-off between the cost of running out of stock and the cost of carrying additional inventory.
Usage Rate: A business owner must estimate the speed at which the supply of merchandise will be depleted over a given time.The anticipated usage rate for a product determines how long the supply will last.
Lead Time: The time gap between placing an order with a vendor and actually receiving the goods.It may be as little as a few hours or as long as several weeks to process purchase requisitions and orders,contact the supplier,receive the goods,and add them to the company's inventory.
Safety Stock: Business owners must determine the minimum level of stock allowable.If a firm runs out of a particular item (i.e. ,incurs stockouts),customers will lose faith in the business and begin to shop elsewhere.To avoid stockouts,many firms establish a minimum level of inventory greater than zero.Simply said,they build a cushion,called safety stock.
Reorder Points: When planning delivery schedules for inventory and supplies,owners must consider the lead time for an order,the time gap between placing an order and receiving it.In general,business owners cannot expect instantaneous delivery of merchandise.As a result,managers must plan reorder points for inventory items with lead times in mind.

Timing Is a Critical Element of the Purchasing Process

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