Just as every business has financial, marketing, and business plans, each small business needs a purchasing plan. While ordering is one aspect of purchasing, it also consists of making sound decisions in every area of obtaining materials and services for the business. A sound purchasing plan considers who the best suppliers are in that industry, what their reputation is, as well as what the quality of their material or services are, when the products can be delivered and how fast, and how much the products to order and how much it will cost. In addition, purchasing considers not just what products to order, but what your target market will buy (Scarborough, 2012).
Total Quality Management or TQM goes beyond just checking the quality of a finished product. TQM is a process of quality from start to finish. It starts with set standards and at each point in the process of a product or service, quality is checked to see if it is up to that standard. Just as financial ratio and formulas help entrepreneurs gauge his or her financial steps, save money by catching mistakes earlier, and allows for correction before a mistakes is detrimental, total quality management can save a business owner time and money by catching flaws in quality early on and fixing them when they are noticed instead of after complete. If a business waits until the product is produced, the complete product might need discarding. While checking as a product is produced allows ample time to fix issues that may cost less at that moment than after the complete process is finished (Scarborough, 2012). In addition, quality is how customers gauge a business and sometimes waiting to check the finished product is too late to affect the customer’s image of the business.
One of the hardest things small businesses must balance in keeping and maintaining an inventory is how much to purchase and store that will be adequate enough for supply and demand without tying up to much cash flow in inventory. Carrying inventory costs businesses not just the money to order product, but it cost to stock it as well. Most inventory does not come with an unlimited shelf life, so if a business has to much inventory it might be wasted, where to little can cause an issue with customer service, decreased sales, and more costs for placing smaller orders more frequently. Economic order quantities is a formula that allows small business a starting point to measure the balance between the cost of ordering inventory and the cost of carrying inventory meet (Scarborough, 2012). Just as a break even analysis allows a small business owner to see what he or she must maintain financially in order to neither show a loss or a profit, an economic order quantity gives an owner an opportunity to balance inventory costs for maximum service.
Every small business must decide whom it is going to purchase its inventory and supplies from, as well as whom it will utilize when the business needs...