An entrepreneur has to buy his inputs for production. This is not as simple as it appears. The needed inputs must be available at the right time, proper quantities, and at a minimum costs. To ensure the above requirements, the entrepreneur must select his suppliers and must have purchase planning.
It is always advisable to get backup suppliers even if current suppliers are efficient. Strikes or breakdown’s of equipment of regular suppliers certainly stop their flow of supplies. If these happen, then the entrepreneur has an alternative supply of materials from backup suppliers.
Price. A small difference in price, say 5 centavos, is a big amount of money if large qualities are purchased in one year. Some suppliers offer free delivery and big discounts for large purchases. These are advantages for the entrepreneur.
Quality. Price and V quality should be evaluated. Usually, high quality materials have higher. prices. What is necessary is minimum quality, as long as the materials are.-suitable for their intended uses.
Reliability. Suppliers who cannot deliver their materials on time can ruin the business of an entrepreneurial. Even if their supplies arc of high quality and at low price, if they cannot meet their delivery schedule, they are still not good suppliers.
In the case of purchase planning, its objective is to balance two opposing forces: absence or lack of materials for production and over supply of materials. If there are no materials for production, work is temporarily stopped. Clearly, this is not a good business for the entrepreneur and his workers. On the other hand, a large stockpile of materials is also not good It constitutes idle money.