Improve Your Business: Basics (ILO, 1999, 188 p.) BUYING (introduction...) Buying to sell Steps to follow when you buy Review Summary What did you learn in this chapter?

Improve Your Business: Basics (ILO, 1999, 188 p.)

BUYING

IN THIS CHAPTER YOU WILL LEARN HOW TO

Discover what kinds of products you need to buy for your business
Communicate with suppliers using appropriate documents and forms
Buy to your best advantage

NOTE	Since this book is intended for use in many different countries, we have used the term “NU” in the examples to represent an imaginary “National Unit of currency”

Buying to sell

WHAT IS BUYING?

Businesses buy raw materials, goods and equipment to:

· make products to sell
· provide services
· resell.

Here are some examples:

Figure	®	Figure
A metal workshop buys equipment and raw materials such as metal sheets, nuts, bolts, welding equipment and tools.		It uses the equipment and the raw materials to make and sell products such as gutters, buckets and feeders.
Figure	®	Figure
A hardware store buys goods such as paints, fertilizer and tools.		It resells the goods to customers.

IS BUYING IMPORTANT?

THINK ABOUT WHAT HAPPENS IN THESE THREE BUSINESSES: · A tailoring business Quality Tailors are convinced by a supplier’s sales representative that a new thin silky material is very popular and that the customers will like it. The material is expensive but they buy 50 metres. Unfortunately the demand for the material is low and one year later Quality Tailors still have 40 metres in stock. · A bakery Village Bakery run out of flour very often. Sometimes they have to go to town to buy flour three times a week. · A general store Star Store buy a lot of soap powder but do not manage to sell any of it because their customers want bars of soap. 1. What is the problem with the way Quality Tailors do their buying? ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ 2. What do Village Bakery do wrong in their buying? ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ 3. What do Star Store do wrong in their buying? ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________

1. The problem with Quality Tailors’ buying is that they do not know what their customers want. They buy what the supplier tells them to buy. 2. Village Bakery do not buy enough flour and often run out. It takes a lot of time and costs a lot of money for transport for them to go to town to buy more. 3. Star Store bought too much soap powder. Their customers do not want soap powder. They want bars of soap.

Buy the goods, material or equipment that give your business the best profit. Before you buy, make sure you know what your customers want. Read about how to do market research in the MARKETING chapter.

WHAT YOU BUY FOR YOUR BUSINESS

Businesses need to buy:

Equipment

Equipment is all the machinery, tools, workshop fittings, office furniture, etc., that your business needs. Equipment is expected to last for a long time and is often expensive. When you need to buy equipment, find out as much as you can about all the different types of equipment you could use. Your equipment will need repairs. Ask the supplier about spare parts and repairs before you buy any equipment.

Raw materials

Manufacturers need raw materials to make goods to sell. Raw materials are all the materials and parts that go into the products you make. Before you buy raw materials, find out what different materials you need and what quality of raw materials you need.

Finished goods

Wholesalers and retailers buy and sell finished goods made by manufacturers. Do market research and think carefully before you buy finished goods. Buy goods that your customers want.

BUY WELL TO IMPROVE YOUR BUSINESS

When you buy equipment, raw materials or finished goods:

Buy the right quality
Buy the quality of goods your customers want.

Buy the right quantity
Buy the quantities your business needs and your customers want - not too much or too little.

Buy at the right price
Buy at prices your business can afford and your customers are willing to pay. Make sure that the prices you pay give your business the profit it needs.

Buy at the right time
Buy when your customers and your business need the goods, materials or equipment - not too early or too late.

The MARKETING chapter tells you more about how to decide which finished goods to buy and sell. The STOCK CONTROL chapter tells you more about buying the right quantities of goods and materials at the right time.

Steps to follow when you buy

There are certain steps to follow when you buy goods, materials, equipment or anything else your business needs. You can follow the same steps for any kind of business.

STEP 1.	Find out what your business needs
STEP 2.	Get information about different suppliers
STEP 3.	Contact the suppliers	USE THIS BUSINESS DOCUMENT ®	ENQUIRY
STEP 4.	Choose the best suppliers for your business	USE THIS BUSINESS DOCUMENT ®	QUOTATION
STEP 5.	Make the order	USE THIS BUSINESS DOCUMENT ®	ORDER
STEP 6.	Check the goods immediately	USE THIS BUSINESS DOCUMENT ®	DELIVERY NOTE
STEP 7.	Check the invoice	USE THIS BUSINESS DOCUMENT ®	INVOICE
STEP 8.	Pay	USE THIS BUSINESS DOCUMENT ®	RECEIPT

All eight steps are important. When you choose new suppliers, it is especially important to follow steps 1, 2, 3 and 4.

STEP 1. FIND OUT WHAT YOUR BUSINESS NEEDS

Make sure you know as much as possible about your customers - who they are and what they need and want. Here are some important questions to ask yourself before you decide what your business needs:

- Which different kinds of customers am I trying to sell to?
- What products or services do they want? Why do they want them?
- What prices are they willing to pay?
- How often and how much do they buy?
- Where and when do they usually buy?
- Who are my competitors and how good are they?

When you know what your market wants, you as a buyer can make better decisions about:

· what materials or equipment you need if you make goods to sell
· what goods you need if you resell finished goods
· what quantities you need
· what prices you are prepared to pay
· when you need the goods or materials.

The MARKETING chapter tells you more about how to understand and satisfy the needs of your customers with the goods or services they want.

STEP 2. GET INFORMATION ABOUT DIFFERENT SUPPLIERS

Find out which suppliers sell the goods, materials or equipment you need. There are many ways to find out:

· Ask the people who work with you, your business friends, your business trainer, or others. Also, find out from your competitors where they buy.

· Contact organizations that support small businesses, for example, the local Chamber of Commerce. They sometimes know about useful, reliable suppliers.

· Look in newspapers, magazines and trade journals. Sometimes there is a list of businesses at the back of the telephone book.

For each supplier, find out as much as possible about what goods, materials or equipment they offer, prices and discounts, credit, deliveries and so on. Try to find out from others how reliable each supplier is. For example:

· Does the supplier usually deliver on time?
· Does the supplier accept returned goods or materials?
· How responsible is the supplier for the quality of goods and materials?

Speak to other businesses about buying together. If other businesses need the same goods or materials, you can save money for your business and your customers by:

· getting discounts for bulk orders
· sharing transport costs.

By buying together, you can sometimes buy directly from the manufacturers and get even lower prices than from wholesalers.

How did you find out about the suppliers you buy from? Do you sometimes order together with other businesses?

STEP 3. CONTACT THE SUPPLIERS

When you have a list of good suppliers, find out what each supplier can offer you. To compare the different suppliers, find out what each one can offer by:

· visiting
· phoning
· writing to them.

If your business is far away from suppliers, it is sometimes better to write or phone instead of visiting them. Visiting suppliers takes time and costs money. Think of transport costs. Also, your business will suffer when you are not there.

It is best to get a reply to your questions in writing. Ask for a written quotation. A written quotation makes it easier if there will be any disagreements between you and your suppliers. You will learn more about quotations in step 4.

A neat written enquiry makes a good impression. So, write neatly by hand or, even better, have it typed. You can write your letter in a duplicate book so that you have a copy.

Figure

A written enquiry is useful for any kind of business, especially when you:

· deal with a new supplier
· buy expensive goods or services
· order seasonal goods such as seeds, umbrellas, blankets or jerseys.

Get as much information as possible about:

What different kinds of goods, materials or equipment each supplier can offer:

· Does the supplier have what you need, in the qualities and quantities you need?
· What is the smallest amount you can buy?

Prices and terms of payment:

· Do you need to pay cash or can you get credit?
· How much credit can you get?
· How soon do you need to pay?
· Can you get discounts if you buy large quantities or pay quickly?
· How much discount can you get?

Terms of delivery:

· Will the supplier deliver to your business?
· How soon after the order will they deliver?
· Do you pay for transport or is delivery free?

STEP 4. CHOOSE THE BEST SUPPLIERS FOR YOUR BUSINESS

The cheapest supplier is not always the best. Compare the quotations to find out exactly what the different suppliers can offer. A quotation is an answer to your enquiry. In a quotation, the supplier gives you detailed information about the goods, materials or equipment, prices, payment, delivery and any other conditions.

Decide what is most important for your business. It can, for example, be:

· credit
· regular and reliable deliveries
· low prices.

When you have decided what is most important for your business:

· carefully read the quotations you have received
· try to negotiate with the suppliers
· choose the best suppliers for your business.

Hardware Supplies 24 Independence Way BIG CITY Number: 136 19 March 2001 QUOTATION The Hardware Store Box 531 SMALLTOWN Dear Mrs Jones Referring to your enquiry, we are happy to offer you the following goods and conditions.
Quantity	Description	Unit price	Total price
10	Hoes	17.00	170.00
5	Batteries, PM 9	9.00	45.00
10	Batteries, PM 10	16.50	165.00
1 roll	Chicken wire, 50 cm	770.00	770.00
2 rolls	Barbed wire, 100 m	225.00	450.00
1 drum	Paraffin, 200 litres	990.00	990.00
Delivery:	Within three weeks after order. Free deliveries on orders over 5000 NU.
Payment:	Cash. Credit: 15 days, to approved customers only.
Thank you for your enquiry. We look forward to hearing from you. Please note that this quotation only applies for 30 days from the date above. Yours sincerely Margaret Wilson Sales Manager

Figure

These are the best two quotations The Hardware Store received after they sent out a number of enquiries. The Hardware Store is located in a small town far away from the suppliers, so free and fast delivery is most important. Good credit is also important.

The Hardware Store compared the quotations from Hardware Supplies and General Wholesalers:

Hardware Supplies	General Wholesalers
- free delivery for orders over 5000 NU	- free delivery for orders over 2500 NU
- delivery within 3 weeks from order	- delivery within 2 weeks from order
- 15 days’ credit	- 30 days’ credit
- lowest prices	- low prices

STEP 5. MAKE THE ORDER

When you have decided which supplier to buy from, make your order by visiting, phoning, faxing or writing to the suppliers. It is always best to make your order in writing. A written order helps you to remember what you ordered and is proof that you made the order.

If the supplier does not have order forms, write your own. You can use a standard order book which you can find in many shops, or make a simple order form yourself. Send the original to the supplier, but remember to keep your copy.

If you have received a quotation, mention it in your order. You do not have to order everything on the quotation. Only order what you need. Think carefully about the quantities of the goods or materials you need:

· What is the smallest quantity you can order?
· How much is in each bulk package?
· Can you order less than one bulk package?

Figure

Learn more about how much and when to order in the STOCK CONTROL chapter

STEP 6. CHECK THE GOODS IMMEDIATELY

If you collect the goods or materials yourself, immediately check the type and quantity before you take the goods or materials away. If the goods or materials are delivered, the supplier usually sends a delivery note with the goods or materials. The delivery note lists details of the goods. The supplier wants you to sign the delivery note as proof that you have received the goods. Always check that you have received the right type and quantity before you sign the delivery note.

Here is the delivery note The Hardware Store received:

Figure

When you get your goods:

Immediately check the goods against the delivery note.

Before you sign the delivery note, make sure you have received:

· the goods you ordered
· the quantity you ordered
· the goods in good condition.

Figure

Some suppliers do not give you a delivery note. They give you an invoice. Then, check the goods against the invoice.

Then, check the delivery note or invoice against your order. Check that you received everything you ordered and you received your delivery on time.

Figure

If something is wrong, complain immediately. Do not sign the delivery note until the problem has been corrected:

· Contact the supplier or, even better, talk to the delivery person before he or she leaves.

· Write your complaint in a note to your supplier or write the complaint on the delivery note itself.

· Make sure the delivery person signs to agree that the complaint is correct. This makes it easier for you, and the supplier, to settle the matter.

Figure

STEP 7. CHECK THE INVOICE

An invoice lists details of what you have bought and tells you to pay. It says:

· how much you must pay
· when you must pay
· who you must pay
· how you must pay.

Some suppliers do not send a delivery note and an invoice. They send one document for both. The supplier can send an invoice:

· at the same time as you get the goods. This usually means that you have to pay immediately, in cash or by cheque

· after you get the goods. This means you do not have to pay straight away - you buy on credit.

Here is an invoice The Hardware Store received from General Wholesalers:

Figure

The invoice tells you when and how the supplier wants to be paid. This is often called terms of payment. For example:

· The invoice may be cash or COD which means Cash On Delivery. That means you must pay when the goods are handed over to you.

· If you get credit, the terms may say 30 days net. This means that you must pay not later than 30 days from the date written on the invoice.

Make sure that the invoice is correct. Compare the invoice with the delivery note. The list of goods must be the same on both. Make sure that:

· you have received everything you pay for
· the prices and totals are correct. For example, if the supplier promised you a discount, did you get the discount?

Figure

If you received a quotation, check the invoice against the quotation. Make sure that the supplier is charging the prices and terms they listed in the quotation.

If you think an invoice is not correct, find out what is wrong and contact the supplier immediately. Discuss the problem with the supplier and agree on the best way to solve it.

Compare the invoice with the delivery note and the note of complaint. 1. What is wrong with the invoice The Hardware Store received? ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ 2. What do you think The Hardware Store did after they found the mistake? ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________

1. The invoice includes the cracked battery PM 10 that The Hardware Store returned to the supplier with the note of complaint signed by the delivery person. 2. After they found the mistake, The Hardware Store immediately contacted the supplier and explained the problem. They told the supplier about the note they sent with the delivery person and discussed with the supplier how to solve the problem.

STEP 8. PAY

You pay for what you buy, whether you buy for cash or on credit. The terms of payment tell you when you must pay. There are different ways you can pay. You usually pay either in cash or by cheque.

Make sure you always get a receipt as proof that you have paid.

Keep all business documents, or copies of them, in good order. You can put them in one or more files where you can easily find them.

Figure

You need your paid invoices and receipts for the record-keeping in your business. Read more about how to keep and use records in the RECORD-KEEPING chapter.

Review

Summary

Businesses buy raw materials, goods, and equipment to:

· make products to sell
· provide services
· resell.

To buy well, buy:

· the right quality
· the right quantity
· at the right price
· at the right time.

There are certain steps to follow when you buy goods, raw materials, equipment or other things your business needs:

1. Find out what your business needs
2. Get information about different suppliers
3. Contact the suppliers
4. Choose the best suppliers for your business
5. Make the order
6. Check the goods immediately
7. Check the invoice
8. Pay.

What did you learn in this chapter?

Now that you have worked through this chapter, try these practical exercises. The exercises will remind you of what you have learned and help you to improve the buying in your business.

Compare your answers with the Answers. If you find it difficult to work out an answer, read the relevant part of the manual again. The best way to learn is to finish an exercise before you look at the answers. Check the list of Useful Business Words.

You have learned more about buying in this chapter. But what you have learned does not help you until you use the new knowledge in the day-to-day running of your business. Remember to do the Action Plan to improve the buying in your business.

EQUIPMENT PROBLEMS A carpenter had been looking for a drill for a long time. A few months ago he bought a new, powerful electric drill that a friend brought him from outside the country. About a month later something in the machine broke. Then the carpenter found out that spare parts are not available in the country. No one knows how to repair the drill. The carpenter now has a machine he cannot use. 1. Was it a mistake for the carpenter to buy that drill? Why? ____________________________________________________________________ ____________________________________________________________________ 2. Who should the carpenter have talked to before he bought the drill? ____________________________________________________________________ ____________________________________________________________________ 3. Give examples of the kinds of questions the carpenter should have found answers to before he bought the drill. ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________

1. Yes, it was a mistake to buy that drill. The carpenter should have found out about repairs and spare parts before he bought the drill. ____________________________________________________________________ 2. The carpenter should have talked to businesses selling drills, his employees, business friends and other business people who use drills. ____________________________________________________________________ 3. Before he bought the drill, the carpenter should have found answers to questions like these: · Which different kinds of drills are available? · Can I choose between new and second-hand drills? · Which drills are easy to use? · How reliable are the drills? · Do the suppliers give written guarantees? · Can the drills be serviced and repaired locally? · Are good quality spare parts available locally? · How expensive are the parts?

WRITE AN ORDER The General Store were unhappy with one of their suppliers. They asked for, and compared, quotations from several suppliers and choose Super Suppliers. The General Store want to order goods. Write the order to Super Suppliers on a separate sheet of paper. Remember what you learned about orders in this chapter. Here is the information you need to write the order. The General Store need: · 3 boxes Fine tea.......................... 1 box = 10 x 125 g................... 10.00 NU per box · 1 box Sunrise coffee.................... 1 box = 10 x 100 g................... 25.00 NU per box · 2 boxes Lemon biscuits............... 1 box = 24 x 150 g................... 45.00 NU per box · 2 boxes Pride flour........................1 box = 10 x 1 kg..................... 22.00 NU per box · 2 boxes Bright bar soap................1 box = 25 bars........................ 35.00 NU per box You also need this information to write the order: · The order number is 23 and the quotation number is 117. · The date of the order is 5 March 2001. · The address of the supplier is: Super Suppliers, 15 Main Street, Big City. Address the order to the Sales Department. · The General Store want to pay on credit. The quotation gave 30 days’ credit. · The address of The General Store is: Box 221, Smalltown. · The goods are needed not later than two weeks after the order. · Delivery is free for orders worth more than 250.00 NU. · The owner of The General Store is Tom Anders.

Your order for The General Store can look like this. It does not have to look exactly the same, but it should have all the information which is marked: Figure