In any organization, it is best that the purchasing transactions be organized in order to reduce purchase transaction costs (About, Inc). The importance of considering the methods involved in purchasing transactions is underscored by the fact that these tra
nsactions form the majority of the expenses of an organization (About, Inc). Indeed, it has been noted that “[i]n a typical organization, 80% of the purchasing transactions represent approximately 20% of the total dollars spent (About, Inc).”
Thus, Tom Camp and Eleanor should discuss about changing their procurement process because apparently, it does not serve the best interests of the company. The facts given show that the equipments it purchases have a high obsolescence rate due to differences in preference and orders.
Thus, there is a need to streamline the purchasing process of the company and minimize the differences in suppliers and orders, which only cause additional cost to the company.
It appears that this situation is appropriate for the application of systems contracting. A systems contracting arrangement is described as “an agreement between the buyer and supplier where the buyer places a blanket order with the supplier and the supplies are delivered to a special area on the buyer’s premises (About, Inc).”
This arrangement ensures that the inventory records are in order and constantly updated (About, Inc).
In a systems contracting arrangement, the supplier retains ownership of the goods while they are purchase orders are still being generated and the customer is billed at established periods only (About, Inc). This system allows the buyer that his inventory commitment is kept at a minimum (About, Inc).
Thus, the buyer is left to deal with his personal concerns regarding maintaining its inventory, without a huge commitment to the seller (About, Inc).
Another option for the company is to adopt the theory of reverse auction, wherein a single buyer would choose from among many sellers so that the buyer could get competitive bids on their needed equipment. This is also an option that could mean savings for the company because only the winning bidder would provide the procured equipment, and the company would no longer concern itself with differences in orders from among the difference departments of the company.
Moreover, this could reduce the obsolescence rate of the equipments because the competitive nature of the selection and procurement process would ensure that only the best equipment would be ordered.
About, Inc. “Four Methods to Reduce Purchasing Costs.” 2007. 4 Oct. 2007. <http://logistics.about.com/od/purchasingpractices/a/reduce_purch_co.htm>.