CollegeTourPurchasing Video 1 What is Purchasing?

Summary

The video discusses organizational purchasing, differentiating it from consumer buying. It defines purchasing as any transaction for which a company receives an invoice, covering various types of products. These include retail items, raw materials, investment goods, and services supporting internal operations. The video also explores purchasing concepts such as ordering, buying, procurement, sourcing, and supply chain management, emphasizing the importance of long-term, collaborative supplier relationships. Different industries require varied purchasing strategies, and companies must select the most suitable approach to optimize value and efficiency.

Takeaways

• 🛒 Purchasing is often confused with buying or shopping, but it refers to a broader concept, especially in a professional context.
• 🏢 The focus here is on organizational buying behavior, which is how companies buy products and services for professional purposes.
• 📄 Purchasing encompasses everything a company gets an invoice for from suppliers or service providers, not just activities of the purchasing department.
• 📦 Companies buy four types of products: retail merchandise, raw materials for manufacturing, investment goods, and products/services for internal support.
• 💼 Large companies like Philips spend billions on purchasing, often involving thousands of suppliers and buyers across the globe.
• 📊 The proportion of purchasing costs varies across industries, from 60-85% in retail to 25-50% in pharmaceuticals.
• 🔄 Direct purchasing is for components used in products sold, while indirect purchasing supports back-office or internal operations.
• 💡 Several purchasing concepts exist, from simple ordering to advanced strategies like procurement (total cost of ownership) and sourcing (global supplier selection).
• 🔗 Supply chain management ensures efficiency across suppliers, while value chain management focuses on improving products for customers through supplier collaboration.
• 🌐 Modern purchasing strategies are long-term, collaborative, and focused on performance, often reducing the number of suppliers while enhancing value and efficiency.

Q & A

What is the primary focus of the video transcript?

The video focuses on organizational buying behavior, particularly purchasing for professional purposes, and how companies handle buying activities efficiently to support their business operations.

How does the transcript differentiate between consumer buying and organizational buying?

Consumer buying is more about personal shopping experiences, such as in supermarkets, while organizational buying refers to companies purchasing products or services for professional use, often involving larger scale transactions.

What is meant by 'purchasing' in the context of organizational buying?

In organizational buying, purchasing refers to acquiring any product or service for which a company receives an invoice. This can include not only goods directly related to the company's operations but also support services and back-office supplies.

What are the four types of products that companies typically buy?

The four types are: (1) products sold to other organizations or consumers (merchandise), (2) raw materials and components used to assemble final products, (3) investment goods like software and machinery, and (4) products that support internal services, such as facility management or marketing.

What is the difference between direct and indirect purchasing?

Direct purchasing involves buying components that will be part of the final product sold to customers, while indirect purchasing refers to goods and services used for support activities within the company, such as office supplies or cleaning services.

How does purchasing differ across industries?

Purchasing varies significantly across industries. For example, in the retail industry, purchasing can account for 60-85% of sales turnover, while in the pharmaceutical industry, it can be between 25-50%. These variations impact how procurement is organized.

What are some key concepts used by companies for purchasing?

Key purchasing concepts include ordering (placing an order with a supplier), buying (comparing bids from suppliers), purchasing (evaluating product specifications), procurement (considering total cost of ownership), sourcing (selecting global suppliers), supply chain management (managing suppliers' supply chains), and value chain management (collaborating with suppliers to enhance product value).

What is the significance of total cost of ownership in procurement?

Total cost of ownership refers to considering the full cost of a product throughout its lifecycle, not just the initial purchase price. For instance, when buying a printer, the cost of ink cartridges over time may exceed the printer's price, making it important to assess long-term costs.

How do modern purchasing concepts, like supply chain and value chain management, differ from traditional methods?

Modern concepts are more strategic and long-term, focusing on collaboration with suppliers to enhance efficiency and product value, while traditional methods are more transactional and short-term, focusing on operational needs and cost-saving deals.

What are some trends in supplier relationships mentioned in the transcript?

Supplier relationships are becoming more collaborative and integrated, with companies reducing the number of suppliers and forming closer partnerships. For example, DAF Trucks reduced its supplier base from 3,500 to under 400 while increasing production efficiency.