Quiz 13: Purchasing, Inventory, and Quality Control
Buyers have lots of options to buy products of their choice. They plan their time, budget, transport, and accessibility to go and purchase the required products. Each buyer has his/her own preferences. Some prefer to buy from local vendors and some prefer to buy from distant vendors. Advantages of buying locally over buying from a distant seller are as follows: • Buying local products is accessible and easy whereas buying products from a distant seller takes whole day. • One can buy fresh products especially while buying perishable ones. Buying these products from a distant seller spoils the texture. • Buying locally saves money as it requires less transportation cost whereas buying from a distant seller requires good transportation facilities which charge high. • Emergency buying can be done in a feasible manner from a local store whereas this facility is not available if customers choose to go to a distant seller. • Buying local saves time whereas buying from a distant seller needs a proper time-schedule to go and purchase the required products. • Easy returns and exchanges are possible whereas it is a bit difficult to go to the distant seller for the same. Disadvantages of buying locally over distant seller are as follows: • Variety, unique and differentiated products can be purchase while visiting a distant seller whereas local sellers have limited options. • The products will cost comparatively low in distant market whereas it remains high in local market. • Buying from a distant seller makes the customer known about availability of products in other areas where as buying locally makes people confined to a limited known area. It can be said that it is customers' choice what they feel convenient. Many times it depends upon their interests as well. They wish to go to distant sellers to explore the products which they don't get nearby. Some people are so busy in their work-life balance that they never prefer to go to faraway places for buying.
The entrepreneurs perform a series of complicated tasks to maintain smooth flow of their businesses. They keep on exploring the strategies and tactics which can be helpful for them. While purchasing inventories for their business they remain extra vigilant to avoid any further issues. Advantages of shopping from a single store over several stores: • The buyer gets the advantage of lower pricing as the consolidated requirement is placed with one supplier; this advantage seems missing in case of buying from many stores. • The quality will be more consistent as the single store owner does not wish to lose a big buyer; it is quite possible that few of the stores compromise with the quality as losing a small buyer won't affect them much. • The transport and purchasing load will be comparatively low as only store is involved; the same will be high when several stores are involved. • It is feasible to manage and track the inventory in case of a single store; the process becomes complicated in case of several stores. Disadvantages of shopping from a single store over several stores: • The consumers can be provided with multiple options which will increase the sales of the business whereas purchasing from a single store will have products of same quality and less variety. • The dependency on the stores will be reduced as many stores will be lined up to deliver the products whereas in single store the entire business will be dependent upon that one store only. • The main advantage of buying from several stores is division of risk which remain very high in case of single store shopping. • Contacts with several stores provide ways to explore more inventories whereas the shoppers remain confined when they purchase from a single store. It can be deduced that both single store buying and multiple store buying have advantages and disadvantages. Each businessman plans in advance what to buy and from whom to buy. The businessmen keep on researching the products which can be beneficial for their business to increase the sales with minimum possible investment.
An inventory is a formally made proper list of items of a business property. A business must have some inventory to start its work. Since it is an integral part of a business, managing its movement and controlling its cost are the two major factors which should be especially taken care of. The given situation states that a company orders widget in batches such as 1000 units, each month it uses a constant number such as 2000 in production. The inventory level changes over time between orders. • The goods are ordered in batches. • The goods are received and added to the ones already present, this increases the level of inventory. • The same number of goods is kept on display for sale. • The customers start to buy the goods, the level of inventory decreases this time. • When the inventory reaches to a low level, more goods are ordered. • This way the cycle of ordering goods and the level of inventory change between orders. The retailers try to maintain the optimum level of inventory by having them just-in-time for sale to customers. The constant number is ordered by the company to balance inventory carrying costs and stock out costs. The factors which cause a retailer to change the order size up or down are as follows: • The main factor in this case is EOQ (Economic Order Quantity). It determines the quantity to be purchase so that the cost of placing the order and the cost of carrying the inventory can be balanced. • The rate at which the sales goes on inside a store determines whether the order size to be kept up or down. If the customers' demand keeps on increasing, the order size will keep going up. • Inventory turnover rate (which reflects the rate at which the inventory is getting used) also reflects the ratio to determine the size of the orders. • Since the company deals in widgets which keep on updating on a frequent basis, the order can't be placed in bulk. Hence, the orders are required to be placed in a systematic order.