Semifinished Products and Components

Semifinished products and components include all the items purchased from suppliers required to support an organization’s final production. This includes single-part number components, subassemblies, assemblies, subsystems, and systems. Semifinished products and components purchased by an automobile producer include tires, seat assemblies, wheel bearings, and car frames.

Managing the purchase of semifinished components is a critical purchasing responsibility because components affect product quality and cost. Hewlett-Packard buys its laser jet printer engines, which are a critical part of the finished product, from Canon. HP must manage the purchase of these engines carefully and work closely with the supplier. Outsourcing product requirements increases the burden on purchasing to select qualified suppliers, not only for basic components, but also for complex assemblies and systems.

Finished Products

All organizations purchase finished items from external suppliers for internal use. This category also includes purchased items that require no major processing before resale to the end customers. An organization may market under its own brand name an item produced by another manufacturer. Why would a company purchase finished items for resale? Some companies have excellent design capability but have outsourced all production capability or capacity. Examples include IBM, Hewlett-Packard, Sun, Cisco, General Motors (Geo), and others. The purchase of finished products also allows a company to offer a full range of products. Purchasing (or engineering) must work closely with the producer of a finished product to develop material specifications. Even though the buying company does not produce the final product, it must make sure the product meets the technical and quality specifications demanded by engineering and the end customer.

Maintenance, Repair, and Operating Items

Maintenance, repair, and operating (MRO) items include anything that does not go directly into an organization’s product. However, these items are essential for running a business. This includes spare machine parts, office and computer supplies, and cleaning supplies. The way these items are typically dispersed throughout an organization makes monitoring MRO inventory difficult. The only way that most purchasing departments know when to order MRO inventory is when a user forwards a purchase requisition. Because all departments and locations use MRO items, a typical purchasing department can receive thousands of small-volume purchase requisitions. Some purchasers refer to MRO items as nuisance items. Historically, most organizations have paid minimal attention to MRO items. Consequently, (1) they have not tracked their MRO inventory investment with the same concern with which they track production buying, (2) they have too many MRO suppliers, and (3) they commit a disproportionate amount of time to small orders. With the development of computerized inventory systems and the realization that MRO purchase dollar volume is often quite high, firms have begun to take an active interest in controlling MRO inventory. At FedEx, an agreement with Staples allows purchasing to be free of the burden of tracking office supply requests. Instead, Staples provides a website listing all supplies with prices; users can point and click on the items they need, and the supplier will deliver them to the users’ location the next business day.

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