Other
MNP2601 CHAP15
- Course
- Institution
CHAPTER 15 NOTES
[Show more]
Seller
Follow
LLL56
Reviews received
Content preview
Chapter 15 – Purchasing Capital EquipmentCapital Equipment (def): Assets that are held for longer than a year acquired for
long-term requirements and used in the production of goods and services.
- Buying capital equipment is thus an investment decision and the following
considerations must be taken into account:
(1) product support
(2) availability of spares
(3) after-sales service
(4) financial viability of supplier
Take total cost of ownership of buying capital goods into account and not just the
purchase price.
Classification of Capital Goods:
- multipurpose equipment: have a variety of uses in various industries, have a
relatively longer life and have considerable salvage value e.g. forklifts,
furniture
- single purpose equipment: only does one or several similar operations but
quality of work is better e.g. specialised production machinery and specialised
machinery tools
Characteristics of Purchasing Capital Equipment:
(1) Large Expenditure
- relatively large capital outlay regarded as an investment and financed from
long-term capital
- could be necessary to use special financing like bond issues/ leasing/ paying in
instalments
- look at total cost of ownership and include all relevant costs along with
purchasing price e.g. purchasing admin, follow up, transportation, insurance,
depreciation etc
(2) Non-Recurring Expenditure
- capital equipment purchased at irregular intervals and used up gradually in
production process
- to keep capital expenditures uniform yty and keep maintenance costs to a
minimum, replace equipment regularly rather than all at once
(3) Specialised & technical nature of capital equipment
- due to specialised nature of capital equipment various other functions can get
involved in purchasing process
- lead time can be longer and major installations could also require a significant
period of start-up
- capital equipment procurement can be strategic so supplier selection is very
important
Size and Scope of Capital Equipment Team:
- several tasks need to be performed to meet key objectives:
(1) determine specifications
(2) select adequate supplier
(3) conduct negotiations
, (4) install and maintain equipment
- important to select the correct equipment sourcing team, often across
functions, to decide on acquiring capital equipment
- the number of people involved depends on the following:
(1) extent of possible adverse consequences (greater the risk, more people
involved)
(2) purchasing situation; purchasing can handle a straight re-buy but in a new task
or modified re-buy more functions can be involved
(3) size of the organisation
(4) business orientation of the organisation
The role of purchasing and supply management in the procurement of capital
equipment:
- purchasing and supply function does not necessarily play a dominant role in
the purchasing of capital equipment – mainly provide support – give advice
and promote supplier relations
- can provide input in the following areas:
(1) provision of information; provide info on availability of suppliers, new
equipment, price of capital equipment etc
(2) evaluation and selection of suppliers; contribute by investigating potential
suppliers including financial position, management abilities, technical
abilities, reputation, after-sales services etc AND make recommendations on
local, national, international suppliers/ reciprocity AND help compile supplier
assessment
(3) negotiations with suppliers and contractual conditions: help prepare
negotiating strategy and define the contractual conditions of the purchase
(4) coordination and administration of the purchase: act as central point where
specific purchases are analysed and considered, assume admin of the purchase
and execute the purchasing transaction
(5) specific purchases: purchasing can assume control of standard equipment with
relatively low unit value
Factors to be considered in purchasing capital equipment:
Why does an organisation procure capital equipment?
- increase capacity
- achieve economy in operation and maintenance
- increase productivity
- improve quality
- ensure availability as orgs are dependent on its use
- save time and/ or labour costs
- for more durability
- for safety, pollution and emergency protection
Qualitative considerations: - not easily transformed into monetary terms
(1) reliability of equipment; relates to risk of interruption in production
(breakdown = higher costs), maintenance & adjustment times, expertise of
maintenance staff
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller LLL56. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $4.94. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
57727 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now