Understanding Purchase Types to Support Effective Purchasing

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Purchasing is a formal process of choosing different goods and services for a company. Nevertheless, purchasing processes can vary from one organization to another depending on the demands and requirements. These demands can be a physical part of the company, or they can be a service.

To run a business properly, you will need many things to buy, and your quantity may differ from the rest of the companies because of your needs. This article will give you a complete Guide card of different purchase types to understand your needs.

Types of Purchasing

The first purchasing system depends on what type of purchase you will make and what the process concerns. Four main types of purchases take place concerning different processes.

  • Personal Purchasing

This is one of the most critical categories of purchase type as the consumers purchase from themselves for consumption. They purchase different products and ultimately drive the economy by purchasing products. Hence, the economy becomes dependent on consumer purchases.

  • Industrial Purchasing

Industrial purchasing refers to buying materials for finished goods and making new products. Industrial purchasing mainly refers to buying raw materials such as components, supplies, tools, machines, equipment, and office appliances to transform them into finished goods. These goods are then given out to the market for personal purchases.

  • Mercantile Purchasing

This purchase type includes the agents, wholesalers, and retailers. They provide their channels of distribution to the consumers. Furthermore, they work between personal purchases and industrial goods. This purchase type is the most vital part of economic organization.

  • Institutionalized or government purchasing

The government agencies or the institutions perform this type of purchase. These are critical because they purchase in bulk for Public Utilities. Briefly, for people who work for government agencies or institutions, there are goods and products for them depending on their services.

Purchasing Types for Business

At first, we discussed all the purchasing types held within the economic organization. Now we will discuss the types of purchasing a business needs to run correctly. Let us discuss different types of material and purchasing required by businesses to support the final product.

  • Raw Materials

The raw material includes all those things used to create a new product. Such as it includes metals, lumber, petroleum, plastic, or anything required to make a new product.

  • Semi-Finished Products or Components

This purchase type includes all those materials and things that are required to support the final product. For instance, it can include computer systems to run final tests on the product.

  • Finished Products

finished products are those that are for the internal use of the company. Examples include carts and computers.

  • Production Support Materials

This purchase type includes items a company needs to pack and ship the final product. This product can include boxes, bags, labels, tapes, etc.

  • Capital Equipment

 Those assets or purchases of the company that will last more than a few years, such as computers and the machinery used to make the final products, etc. This can also include the plots.

  • Services

Services are the purchasing a company needs to support its business. For example, customer support, legal team, and web hosting.

  • Transportation

Transportation is a particular service that companies mostly purchase to transport their material. They deal with third-party logistics and freights.

  • Maintenance, Repair, and Operating Items (MRO)

Every company needs a few maintaining, operating, and repairing items. Furthermore, these items are not for sale but only for internal use. Briefly, we can say that this purchase type includes the spare parts of the machinery, office supplies, and cleaning supplies.

Improving business with purchase orders

Once the user and the buyer know what goods and services they require from the seller, a purchase order is prepared. It is an official document that a buyer generates as an offer towards the seller.

It is a legal document between the seller and the purchaser. The seller agrees to what type of products are ordered, the quantity, the price, delivery, and the payment terms. This process is essential for understanding before making any purchase.

  • Standard Purchase Orders (PO)

Standard purchase orders are one of the most basic and widely used types of purchase orders. It is created when the buyer is sure about the order details such as item, price, delivery schedule, terms, and payments. For elaboration, we can use hotels as a standard purchase order example where they purchase different bags, basins, and mirrors. They know all the details of the items before buying.

  • Planned Purchase Orders (PPO)

Another purchase type is planned purchase orders which is a long-term agreement. It is an agreement between the supplier and the seller where the buyer is in contract by agreeing to buy the items or the services from a single supplier over a long period.

  • Blanket Purchase Orders (BPO)

In this purchase type, the purchaser agrees to purchase certain goods and services from a specific vendor without discussing the specific quantity, price, or delivery schedule.

  • Contract Purchase Orders (CPO)

In the contract purchase order, the vendor is given details about the payment and the delivery terms. The agreement is created when the vendor supplier agrees to specific terms and conditions of the buyer.