The profitability and the demand of any product depend on its design. It is designed as per the pre-fixed specifications and guidelines. The buyers purchase specially ordered goods which have been manufactured by following certain quality standards. The following factors are considered before making purchasing decisions:
- The cost factors: The price of the materials is a major deciding factor. The transport, installation, operation, duties and taxes are taken into account.
- Delivery: The routing and freight charges
- Legal fees: The warranties, government guidelines, patents and public liabilities are considered.
Three main methods are used to assess the past record of the suppliers. They are:
- The cost factors:The price of the materials is a major deciding factor. The transport, installation, operation, duties and taxes are taken into account.
- The quality plan/rating: The quality of materials is decided by the extent of acceptance and
rejection. The acceptance rate is ascertained by the percentage basis which is calculated as:
Approved material/lots X 100
- The cost-ratio plan:The price is fixed depending upon the net price charged by the supplier. The cost- ratio plan is also used to decide the supplier or vendor. This is done on the basis of costs incurred for procuring the materials from the suppliers. The cost-ratios are fixed for factors such as quality, price, and timely delivery and so on.
The buyer seller negotiations are done to agree on a fair competitive price, deliver the goods at mutually agreed time, fix terms of delivery and to eventually build a trusting and sustained relationship. The price is the foremost and the most important factor because every supplier expects to make a neat profit out of every contract. The purchasing department negotiates hard for a lower price while still not compromising on quality and standards.
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