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Business Management

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Production System Decisions

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Purchasing Mix

A man holding a fan of money.

Who to buy from is a decision that does not come lightly to firms. Many factors can affect purchasing decisions. This is called the purchasing mix.

Alternative suppliers is a factor in that if there are other suppliers who can meet a firms order then it gives the firm more bargaining power. Also are they reliable? If not, then the firm can go elsewhere.

Price is a factor as firms will naturally want the lowest price they can agree as this in turn will keep their own costs low, enabling them to have the best profit margin as possible.

Delivery is one of the most important purchasing decisions. A supplier has to keep their word and deliver on time. Delivering late is obviously unacceptable, but delivering early has implications for storage capacity. Any deviation in delivery times can affect the production of the product/service to the end user.

Quantity is an important decision as storage facilities need to be able to house the number ordered. Also bulk buying may result in discounts which is another reason for large orders. However buying in large quantities puts pressure on the firm to sell their stock as if stock becomes unfashionable or out of date it may be difficult to clear out the stock.

Quality is hugely important, and is related to price. If the raw materials are of high quality, then it would be expected that the final product sold to customers would be of good quality. If this is the case, a premium price may be charged.

Storage is a purchasing mix factor because a warehouse or stock room has to be able to meet the demands of the stock to be held. The stock should also be under lock and key and to prevent theft or waste.

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