ALU The Buyer Buying Items or Services from The Sellers Discussion

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Topic: Discuss (in your own words) contract purchasing and spot purchasing and their differences.

Discussion 1: A contract purchase entails the buyer and seller signing an agreement in which the buyer agrees to acquire products or services from the seller in return for payment transactions. A contract provides the value and the number of purchase orders. In contract purchasing allows renewal options and also outlines the terms to be used for all purchase orders from the seller within the contract’s valid timeframe. For a buyer to order products in contract purchasing, the buyer may refer to the contract purchase order when raising a standard purchase order. The various types of contracts involved in this method of purchasing includes fixed price contracts, time and materials contracts and cost reimbursable contracts. For contract purchasing to be valid, both the seller and the buyer must accept the requirements stated by the contract.

Spot purchasing occurs when there is an immediate requirement and a purchase must be made on the ‘on the spot.’ These types of purchases are usually not planned and are made up of small orders and are paid immediately after the purchase has occurred. spot purchasing usually occurs when purchasers in a firm need something economical, fast and easy to obtain. The advantage of spot purchasing is that transactions are not complex. The characteristics of this type of purchasing is that they are for an emergency, are for an inexpensive purchase, they are for a unique purchase and they belong to an unmanaged spend category. The main differences between contract purchasing and spot purchasing is that spot purchasing is not flexible in terms of timing as compared to contract purchasing. Another difference is that spot purchasing is for immediate purchasing while contract purchasing delay payments and delivery to a predetermined future date. Also contract purchasing is usually planned while spot purchasing is usually unplanned.

Discussion 2: Contract purchasing also known as replenishment purchasing. Straightforward as its name implies, contract purchasing usually involves a long term contract based on product usage by estimated and also can be a format of several payments before purchase and own, for instance, several years’ contract phone from your network provider, it will need customers signed up a fixed year contract with specific phone purchase plan and the full ownership will be start at the end of contract. Contract purchasing can also be a format of periodically purchasing such as organizations purchasing Alteryx for data recon yearly or several years at once with fixed price.

Spot purchasing refers to a one time purchase behavior that exceeds estimate or when it's hard to estimate the demands. Take AWS cloud service for example, organizations start up a S3 Database, which will only charge whenever they try to trager the data, and they don't need to sign any contract with specific hours ahead of time, they pay by their dynamic usage.

In my opinion, contract purchasing has more advantages of helping providers to estimate their production and will offer more discounts. While spot purchasing is more useful and cost efficient when random non estimate purchasing or for emergencies needs to avoid unnecessary expense for daily bases or long term.