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Purchasing and supply management Essay

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Introduction

Purchasing and supply management involves critical steps of procurement, storing, and monitoring the general flow of goods in a store. It does not matter whether goods are for retail or otherwise.

The manager in charge of this portfolio also takes care of the well-being of the workforce. The purchasing and supply role is also referred to as procurement.

Issued addressed in the procurement project

For many organizations, including those that are upcoming and the established ones, purchasing and supply management is an essential aspect. The description of a purchasing manager’s role includes determining appropriate suppliers and negotiating with suppliers in the process of buying raw materials or equipment.

The purchasing and supply manager works in conjunction with the cost analyst and finance professionals to acquire products that are cost efficient and quite durable. The manager should compare the products with the existing ones while considering the aspect of price, service value, and returns to be derived from the product.

Suppliers are individuals or businesses that provide goods or services to various vendors in exchange for an agreed upon payment (Johnson, Flynn & Leenders, 2011).

The purchasing manager of Rich Manufacturing Company was leading a team that had the responsibility of advising the company on some vital issues. Finding the right and appropriate supplier is extremely valuable when answering the question on the acquisition of the right machine.

The sourcing decision entails finding an appropriate supplier who can meet the requirements. In most cases, the criterion used includes weighing a number of factors. These factors are price, durability, maintenance cost, depreciation, and revenue expected to be derived from the use of the machine (Johnson, Flynn & Leenders, 2011).

However, when the equipment is rare in the market, reverse marketing is applied. This demands consideration of suppliers that hold the highest potential before they are given essential materials. The feedback is then evaluated while considering the various factors.

However, when dealing with a product that can be found in the market, Rich Manufacturing uses a viable bidding process in choosing the supplier. This encompasses slight or no mediation compared to the other strategy. A tender document is prepared to request for the price quotation regarding the product.

The prices and conditions of the product are also stipulated in a clear manner. Here, the contract is awarded to the bidder with the least amount but capable of delivering. In the earlier case of reverse marketing, open negotiations are conducted.

In this regard, the second alternative is not included because the negotiations are likely to lead to an agreement. After successful vendor analysis, the appropriate supplier is located. Thereafter, the purchasing function shifts attention to ensure that all parties fulfill their obligations.

Rich Manufacturing Company further evaluates the shortlisted suppliers using a common ground. Once the appropriate suppliers have been selected, data collection and analysis usually takes place. This is a fundamental step because it dictates the price at which the machine will be acquired.

These steps involve the finance sector and cost analyst carrying out evaluations based on the collected data. This entails appraising the suppliers individually to settle on the one that guarantees better outcome. Net present value is the preferred appraisal system among many organizations.

Rich Manufacturing is considering the acquisition of a product from a number of sources. Taiko is one of the brands that the company is using. However, due to the high maintenance costs incurred, there is a desire to shop a machine with cheaper maintenance costs and appropriate service.

Nonetheless, in terms of cash flow, when the time value of money is ignored, Bolts has the highest returns in the form of revenue. In this case, Bolts yields $900,000 per year for the next years of the equipment’s estimated useful life. On the other hand, Taiko yields $800,000, Westec $750,000, and Orchid $700,000.

This is applied if the committee selects the machine based on total cash flows. This criterion does not consider the issue of maintenance and operational cost. This entails calculating returns or cash flows derived from using the machine (Johnson, Flynn & Leenders, 2011).

Findings and data analysis

Net present value usually accommodates the change in money value attributed to lapse of time by discounting the cash flows using a present value interest factor. As time passes, the intrinsic value of money does not remain constant.

To consider this change in money value, the total cash flows are reduced by deducting annual expenses. The net cash flows are then reduced to indicate the impending monetary value. The figure attained is then subtracted from the initial outlay to attain the net present value.

In a case where the committee comes with a decision based on quality, net present value, and service, the decision may tend to change. The variables or factors are to be in the following percentages: 20%, 50%, and 30% respectively. Concerning quality, the committee uses colleagues’ recommendations and previous experience.

Taiko has had a relatively stable period with the company as far as quality is concerned. During a previous seminar, Westec and Bolts were highly recommended by colleagues in the same profession.

For the case of Bolts, they have most of their units sold in the South and East Asia market. As for Orchid, majority of their information is not provided hence its quality cannot be accurately rated.

When service and technical support is considered, Taiko is rated to have the quickest response in cases of breakdown. It also has rare instances of breakdown. However, in case a breakdown occurs, the technical response is availed within two hours.

The Westec machine has frequent cases of breakdowns. Although the technical support is reliable, it takes about 4 hours. Bolts offer the second most reliable option concerning service. In this case, it has never had a breakdown incident.

However, in case it occurs, it takes 8 hours for the technical support to arrive. The Bolts Company is located quite far. However, they have an online technical support system to attend to their clients. The Orchid Company is not widely recognized as far as the machine is considered.

calculations of net present value
WESTEC $ $ $ $ $ $
year 1 2 3 4 5 6
revenue$ 750000 750000 750000 750000 750000 750000
operating costs$ 212000 212000 212000 212000 212000 212000
cashflows$ 538000 538000 538000 538000 538000 538000 1
salvage value 500000 1.08
discounting factor(PVIAF) 0.9259 0.85733 0.7938 0.735 0.6805 0.6301 -1
p.v 498134.2 461243.5 427064.4 395430 366109 654043.8 2802025 -2 0.925926
initial cost 1500000 -3 0.857339
npv= -1302024.94 -4 0.793832
-5 0.73503
-6 0.680583
BOLTS $ $ $ $ $ $ 0.63017
year 1 2 3 4 5 6
revenue$ 900000 900000 900000 900000 900000 900000
operating costs$ 152000 152000 152000 152000 152000 152000
cashflows$ 748000 748000 748000 748000 748000 748000
salvge value 700000
discounting factor(PVIAF) 0.9259 0.85733 0.7938 0.735 0.6805 0.6301
p.v 692573.2 641282.8 593762.4 549780 509014 893481.8 3879894
initial cost 2000000
npv= -1879894.24
calculations of net present value
ORCHID $ $ $ $ $ $
year 1 2 3 4 5 6
revenue$ 700000 700000 700000 700000 700000 700000
operating costs$ 112000 112000 112000 112000 112000 112000
cashflows$ 588000 588000 588000 588000 588000 588000
salvage value 300000
discounting factor(PVIAF) 0.9259 0.85733 0.7938 0.735 0.6805 0.6301
pv 544429.2 504110 466754.4 432180 400134 559528.8 2907136
initial cost 1000000
Npv -1907136.44

However, the firm has a strong reputation in the production of other equipment and applications. If the net present value is considered, the Bolts Company yields the highest net present value with the lowest negative (Burt, Dobler & Starling, 2003).

Recommendations

This implies that the company has the average machine at the best returns possible. Bolts machine should be awarded the tender to procure the machine. In this regard, the machine from Bolt is second to Taiko on matters of service and quality.

On the issue of returns, through the net present value appraisal system, Bolts has preferred returns. Bolts should be selected because it offers the best deal. Come October 2012, the company should consider adopting Bolts as the vendor for the cleaning machine (Johnson, Flynn & Leenders, 2011).

Conclusion

Purchasing and supply is a discipline that provides managers with skills to obtain the best materials for the best price. As a discipline, purchasing and supply is vital for the well-being of any corporation.

From the report compiled by the procurement team of Rich Manufacturing, it is feasible for the company to obtain the cleaning machine from Bolts Company.

References

Burt, D.N., Dobler, D.W., & Starling, S.L. (2003). World class supply management: The key to supply chain management. Boston: McGraw-Hill/Irwin.

Johnson, P.F., Flynn, A.E., & Leenders, M.R. (2011). Purchasing and supply management. New York, NY: McGraw-Hill.

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