Chapter 13 – Purchasing, Inventory, and Quality Control
13-1
CHAPTER
Purchasing, Inventory,
and Quality Control
CHAPTER CONTENTS
Learning Objectives 13.2
Chapter Overview 13.2
Brief Chapter Outline 13.2
13
Chapter 13 – Purchasing, Inventory, and Quality Control
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LEARNING OBJECTIVES
After studying the material in this chapter, the student will be able to:
1. Discuss the importance of purchasing.
2. Explain the need to choose suppliers carefully.
CHAPTER OVERVIEW
Chapter 13 covers the purchasing function and quality and control of operations. The profitability
of a small business is dependent on the owner-manager’s expertise in purchasing and materials control,
BRIEF CHAPTER OUTLINE
I. IMPORTANCE OF PURCHASING
A. What Purchasing Involves
B. Why Purchasing Is So Important
II. ASSIGN RESPONSIBILITY FOR PURCHASING TO ONE PERSON
III. SELECTING THE RIGHT SUPPLIER
A. Types of Suppliers
IV. ESTABLISHING AN EFFECTIVE PURCHASING PROCEDURE
A. Requisitioning Goods or Services
V. CONTROLLING INVENTORY
A. The Role Played by Inventory
Chapter 13 – Purchasing, Inventory, and Quality Control
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D. Costs of Carrying Inventory
VI. OPERATIONS PLANNING AND CONTROL
A. Handling Variations in Demand
VII. QUALITY AND ITS CONTROL
A. What Is Quality?
B. Improving and Controlling Quality
Chapter 13 – Purchasing, Inventory, and Quality Control
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CHAPTER OUTLINE AND TEACHING NOTES
Chapter 13 Opening Profile:
PERDIDO BEACH SERVCES / SAIL WILD HEARTS
I. THE IMPORTANCE OF PURCHASING
Learning Objective 1.
Discuss the importance of purchasing.
A. The business will need products provided
by someone else.
1. Careful study is required to ensure
those products match your need.
B. What Purchasing Involves
1. PURCHASING determines the com-
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CHAPTER OUTLINE AND TEACHING NOTES
2. Obtaining all items, including goods
and services in the proper form,
quantity, and quality.
3. Obtaining all items, at the
proper place, time, and cost.
6. The Federal Acquisition Streamlining
Act has made it easier for small com-
panies to bid on small federal con-
tracts.
C. Why Purchasing Is So Important
1. The cost of materials and goods and
Chapter 13 – Purchasing, Inventory, and Quality Control
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CHAPTER OUTLINE AND TEACHING NOTES
3. JUST-IN-TIME (JIT) delivery is hav-
ing materials delivered to the user at
the time needed for production.
4. Coordination between a company
and its supplier can improve effi-
REAL WORLD EXAMPLE 13.1
Future Electronics is connected to supplier Bailey Con–
trols by an electronic data interchange system.
3. Two trends in purchasing that are
causing problems for small firms:
a. SUPPLIER-BASE DOWNSIZ-
ING means reducing the number
Chapter 13 – Purchasing, Inventory, and Quality Control
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CHAPTER OUTLINE AND TEACHING NOTES
fully integrated supply chain,
from raw materials to finished
products, is built up.
(1) If small U.S. companies are
4. Cost of inadequate inventory
a. Not having the appropriate stock-
II. ASSIGN RESPONSIBILITY FOR PURCHAS-
ING TO ONE PERSON
A. In general, one person should be given
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CHAPTER OUTLINE AND TEACHING NOTES
B. Trends and special situations that can af-
fect purchasing:
1. Expected changes in price.
a. Buying later for expected de-
crease in price or buying in-
2. Expected changes in demand, as
seasonal and high fashion items.
3. Orders for specialty goods. Quantity
ordered should match expected de-
4. Short supply of materials.
REAL WORLD EXAMPLE 13.2
After the movie Urban Cowboy came out, Salaminder,
Chapter 13 – Purchasing, Inventory, and Quality Control
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CHAPTER OUTLINE AND TEACHING NOTES
III. SELECTING THE RIGHT SUPPLIER
Learning Objective 2.
Explain the need to choose suppliers carefully.
A. Find several acceptable sources of goods
B. Sources of Information
1. Your computer is your cheapest and
Probably best source. Not only can
2. Public or College Libraries:
a. City Directories.
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CHAPTER OUTLINE AND TEACHING NOTES
C. Small businesses are a link in THE SUP
PLY CHAIN, an integrated-coordinated
the end consumer.
D. SUPPLY CHAIN MANAGEMENT (SCM)
is the process of planning, organizing, di
recting, and controlling supply chain from
F. Use Few or Many Suppliers?
1. A single source of supply can result
in:
a. A closer and more personal rela–
Chapter 13 – Purchasing, Inventory, and Quality Control
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CHAPTER OUTLINE AND TEACHING NOTES
2. Multiple sources provide a variety of
goods and possibly, better terms.
Real World Example 13.3
When the developer of Wynton M. Blount Cultural Park
G. Investigating Potential Suppliers
1. Check potential sources for quality of
2. Suppliers should not be chosen on
H Evaluating Supplier Performance
1. Rating systems, which focus on im-
portant factors such as quality, ser-
vice, reliability, and price, can be
used to evaluate each supplier.
REAL WORLD EXAMPLE 13.4
Suppliers for the Sharp Corporation have to agree to pro-
vide 100% quality parts.
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CHAPTER OUTLINE AND TEACHING NOTES
IV. ESTABLISHING AN EFFECTIVE PURCHAS-
ING PROCEDURE
Learning Objective 3.
Describe how to establish an effective purchasing proce-
dure.
A. You must establish a purchasing proce–
dure to ensure effective ordering and re-
ceiving of materials. (See Figure 13.1.)
1. Proper materials, parts, and goods
needed must be obtained.
B. Requisitioning Goods or Services
1. Company standards should be estab-
lished, and sent to suppliers with a
purchase requisition.
+
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CHAPTER OUTLINE AND TEACHING NOTES
(1) Someone observes that in-
ventory is low.
(2) The system automatically
2. Retailers face different purchasing
problems than producers do. (See
Figure 13.2)
C. Making and Placing the Purchase Or–
der
1. A PURCHASE ORDER tells the sup-
plier to ship you a given amount of an
3. STANDING ORDERS set predeter-
mined times to ship given quantities
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CHAPTER OUTLINE AND TEACHING NOTES
D. Paying a Satisfactory Price
1. Quality and price must be balanced
against each other.
2. a. High quality tends to result in
E. Receiving the Items
1. The last steps are receiving the or-
dered goods and placing them in in-
ventory.
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CHAPTER OUTLINE AND TEACHING NOTES
2. Upon arrival, the purchase order
should be checked against the re-
process.
F. Using Computers to Aid Purchasing
and Inventory Control
1. In the last few years, technology has
exploded into every area of business,
from start to finish. They track inven-
new.
V. CONTROLLING INVENTORY
Learning Objective 4.
Discuss how to establish and maintain effective inventory
control.
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CHAPTER OUTLINE AND TEACHING NOTES
A. An INVENTORY is a formal list of all the
property of a business, or the property so
listed.
1. A business has to carry inventory..
You cannot just run to the corner
3. Inventory tracking is improved by us-
ing BAR CODES, derived from a lan-
REAL WORLD EXAMPLE 13.7
The bar code on the back of the course textbook specifi-
cally identifies this book and can be used for pricing and in-
ventory control.
4. QR Codes are optical labels similar
to bar codes but in a tiny square,
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CHAPTER OUTLINE AND TEACHING NOTES
music fest, where to eat, and have
un-limited possibilities.
5. RADIO-FREQUENCY IDENTIFICA-
TION (RFID) is a method of specific
REAL WORLD EXAMPLE 13.8
Airlines, delivery companies and endless others now
B. The Role Played by Inventory
1. Inventory serves to disconnect one
C. Types of Inventory
1. Inventories exist as:
a. Finished items on display for
sale to customers.
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CHAPTER OUTLINE AND TEACHING NOTES
b. Batches of goods, such as mate-
rials, parts, and subassemblies,
awaiting processing or delivery.
2. These represent a major investment
by all businesses.
D. Inventory Mix
1. According to the 80-20 RULE, ap-
proximately 80% of a company’s in-
come usually comes from 20% of its
products.
2. Companies should concentrate on
E. Costs of Carrying Inventory
Chapter 13 – Purchasing, Inventory, and Quality Control
CHAPTER OUTLINE AND TEACHING NOTES
1. The cost of providing and maintaining
storage space, such as rent or depre-
ciation, heating, lighting, and security.
F. Determining When to Place an Order
(See Figures 13.3 and 13.4.)
1. The optimum inventory level can be
maintained by having items arrive
just in time for sale to customers.
G. Determining How Much to Order