Types of Purchasing Methods
Business purchasing is the process of procuring the supplies and materials that are necessary for the operation of your company. Business purchases vary considerably in size and scope, and a purchasing method that may be appropriate for one type of expenditure may not be suitable for another. Most businesses use a variety of strategies.
Bidding involves asking potential vendors to provide cost forecasts and then choosing among available options. Most companies that accept bids decide among available options on the basis of price, but cost is not the only criteria. A vendor bid also may include time considerations such as how quickly a vendor can fill an order and how much advance notice he needs. In addition, not every vendor provides products of comparable quality, and sometimes better-quality items are worth the additional expense.
Purchasing in bulk enables a company to secure low prices by placing substantial orders. Although bulk purchasing offers price advantages, it is not always the best method to use because you do not need large quantities of every product you purchase. In the case of perishable foods, in particular, it makes sense to limit purchases to the amount you will be able to use before the products spoil. In addition, keeping excessive inventory on hand can raise labor costs because of the need to store and rotate stock.
Petty cash is a purchasing method appropriate for small, immediate purchases that you have forgotten to include in your office supply order, such as paper clips. Petty cash purchases tend to be too small to write a check and are often intermittent in nature. Most businesses keep a petty cash fund with a designated amount of cash, as well as a log for recording the date, item and amount of the petty cash purchase.
Barter is a type of purchasing method that involves exchanging products or services other than cash for supplies and materials. The process of bartering can expand your purchasing power because it generally costs less to produce an item than the retail value on which you base your bartering arrangement. For example, if you own a restaurant and you negotiate a barter arrangement with your forager to trade meals for mushrooms, you could trade a dinner that costs you $5 to produce for a box of mushrooms that he would typically sell for $15.