This article is sub-divided into two, Purchasing Cycle and International Purchasing. It is well-detailed and self-explanatory and will give you an insight on what Purchasing Cycle means and the steps involved, also, the meaning of international purchasing, merits and demerits, and the problems of international purchasing.
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WHAT IS PURCHASING CYCLE?
A purchasing cycle (or process) often describes the steps that the consumer or business undergoes before making a purchase. For example, in a company setting, a purchasing cycle is established by purchasing department and may include steps like obtaining approval from a purchase, completing purchase requisition, paperwork, and so on.
Steps Involved In Purchasing Cycle.
The following are the step-by-step techniques of purchasing cycle:
- Need Recognition: The business must know it needs a new product, whether from internal or external.
- Specific Need: The right product is critical for the company. In this case, the company must specify the necessary product by identifiers such as colour, weight, stability, durability, etc.
- Source Selection: The business needs to determine where to obtain the product. The company may decide to obtain the product from a supplier or its own approved vendor.
- Contract Agreement: If the source is selected, then the contract agreement is drawn up. The contract agreement usually consists of the term and conditions of payment for the supply product.
- Purchase Order: The purchase order is used to buy materials between a buyer and a seller. It specifically defines the prices, specifications and other additional obligations.
- Delivery: The product order by the company must be delivered in the method specified in the purchasing documents.
- Expedition: Expedition is required for the delivery of purchase order if there is any delay. The function of an expediter is to make sure that the required goods or components arrive at the appointed date, in the agreed quality, at the agreed location.
- Inspection of Purchase Order: Once the company product is delivered, it may be accepted or rejected in case the item is of a defective product. Acceptance of the item obligates the company to pay for it.
- Payment Approval: If the product is accepted by the company, then the top hierarchy approved the necessary funds for the product payment. The payment may be in the form of cash, cheque, bank transfers, credit letters, or other types of electronic payments.
International purchasing is an aspect of international trade. It is the process of allowing firms, buyers to obtain goods and services from another country for the running and maintaining their operational activities under the most favourable conditions. Today, many firms engaged in international purchasing because of the benefits of lower cost, quality products, technological advancement and non-availability of locally manufactured products.
Merits and Demerits of International Purchasing or Procurement.
Most buyers or purchasing managers would prefer to buy from abroad due to the following reasons or benefits:
- Level of Quality: Quality is all about meeting the needs and expectations of buyers. Most buyers would prefer to buy from abroad because the goods produced locally do not give maximum satisfaction. Quality is one of the factors that most buyers consider before buying from abroad.
- Price: Price means the amount that the buyer is willing to pay for the purchase products or goods. Buyers then have to compare and contrast the price of transportation, cost of production, lead time and other factors. If the price to be paid for a product is a lower international trade, the buyers would prefer to buy from a foreign supplier.
- To Meet the Market Demand: If the local suppliers cannot meet the volume of goods to be purchased, then the buyers would prefer to buy from a foreign supplier who has the capacity to supply the required materials in larger quantities.
- Production Features: Buyers would always prefer to buy products that possess some certain features in terms of portability, durability, performances, etc. In such cases, local suppliers may not be able to meet these requirements, hence, the buyers purchase from a foreign supplier.
- Technology Advancement: Due to the fast pace of technology, the local supplier may not have the latest new equipment and facilities to meet the tastes of buyers. Due to this reason, buyers would like to purchase from abroad where the needs and requirements of the buyers are met instantly according to the changing preference.
- Lack of Raw Materials: Buyers may be compelled to go abroad to get what is required because the materials to be purchased are not manufactured domestically. For instance, some special purpose machines and equipment are not manufactured by local suppliers in Nigeria. Due to this reasons, buyers will prefer to buy from foreign suppliers.
Problems of International Purchasing Are:
- The distance, the buyers and the foreign suppliers are one of the main problems facing internationally purchasing.
- Different countries operate different legal systems. This may create problems for must buyer that want to purchase from abroad.
- Differences in languages and cultures.
- The imposition of tariffs and other international levies also create problems for buyers.
- Frequently changes in government policies may affect trading outside the country.
- The high cost of shipping the goods.
- Supplier’s assessment problem.
- Terms and conditions of payment.