PLANNED PURCHASES
Planned purchases save money by:

• Allowing time to write a clear, non-restrictive, competitive specification by performance or design that eliminates unneeded features and function.
• Allowing time to ask for, receive and evaluate competitive bids.
• Making it possible to consolidate needs. This can result in volume discounts and reduce the frequency of, and therefore the cost of, re-bidding, re-ordering and delivery.
• Making it possible to accept the low bid with standard delivery time rather than accept a higher bid with shortened delivery time. Fast availability tends to cost more.

To plan purchases, departments must take responsibility for monitoring the stock of frequently used supplies and must determine reorder points. A reorder point is the point when there is enough stock left to last until the replenishment supplies can be requisitioned and received. If the supply item is a critical one, the reorder point should be increased with additional amount of "safety stock". Safety stock is an amount that would prevent running out of stock if the replenishment takes an unusually long time for some unforeseen reason.

SPECIFICATIONS
Specifications can be used to minimize cost if they are written to describe the most basic item that will meet the need; the process of writing a specification to eliminate unneeded features is called value analysis.

When value analysis is used to specify an item that has multiple users in the organization, it is called standardization. Standardization minimizes cost by simplifying the product, by reducing the number of versions of a common item that must be bought and stored, by consolidating volume and by increasing availability. "Availability" refers to availability in the market place; standard, high-demand items are sold by more vendors, than are custom or low-demand items. Increased availability results in increased competition, lower prices and shorter lead times. See Chapter 3, Specifications, for detailed information.

COMPETITION
A basic principle of public purchasing is free and open competition. Competition drives down price when it is between sellers of the same product and when it is between sellers of "equal" products. "Equal" products perform the same function as the product named in the specification, include the required features and are judged to be equal in value, utility and use to the product named by the City.

Competition is enhanced by non-restrictive specifications, by allowing adequate time for bidding and by inviting an adequate number of interested vendors to bid.

The bidding process allows each vendor a chance to submit his/her best price for the item without knowledge of the other vendor’s offers. Favoritism toward any vendor is strictly prohibited.

FREIGHT AND SHIPPING CHARGES
When making purchases, freight, handling and other related costs incurred to place the purchased item in working order should be included when determining bid price. In determining freight charges, the cost of transporting an item from its "shipping point" or "point of origin", to the buyer’s receiving point or "destination" must be considered during the bid process in order to determine the actual bid. There are two main methods used in determining freight charges. FOB (Free on Board) Destination and FOB Shipping Point. FOB Destination indicates that title does not pass to the City until we receive the goods at the delivery address stated on the purchase order. FOB Shipping Point indicates that title passes to the city when the vendor delivers the goods to the carrier. There are six variations of these two methods that are used as follows:

1. FOB Shipping Point, Freight Collect
• Buyer obtains title (owns goods in transit)
• Buyer pays and bears freight charges, freight charges not added to the invoice
• Buyer files claims for damaged goods, if any
  
2. FOB Shipping Point, Freight Prepaid and Allowed
• Buyer obtains title (owns goods in transit)
• Seller pays and bears freight charges, freight charges are not added back to the buyer’s invoice
• Buyer files claims for damaged goods, if any
  
3. FOB Shipping Point, Freight Prepaid and Charged-Back
• Buyer obtains title (owns goods in transit)
• Seller pay freight charges
• Buyer bears freight charges, which are charged back to the invoice
• Buyer file claims for damaged goods, if any
  
4. FOB Destination, Freight Collect
• Seller retains title (owns goods in transit)
• Buyer bears freight charges, freight charges not included on invoice
• Buyer pays freight charges
• Seller files claims for damaged goods, if any
  
5. FOB Destination, Freight Prepaid and Allowed
• Seller retains title (owns goods in transit)
• Seller bears freight charges, freight charges not include on buyer’s invoice
• Seller pay freight charges
• Seller files claims for damaged goods, if any
  
6. FOB Destination, Freight Prepaid and Charged
• Seller retains title (owns goods in transit)
• Seller pays freight charges
• Buyer bears freight charges, freight charges added to buyer’s invoice
• Seller files claims for damaged goods, if any

Usually, the party holding title bears the risk for loss or damage to the goods and must file claims, if any, for such loss or damage.

As a rule, the City requires that materials and equipment purchased be delivered "FOB Destination". This means the purchase price includes delivery of the item and the City takes title to it when it is received on City premises. If a seller insists on shipping "FOB Shipping Point" the City takes title to it when it leaves the sellers dock and assumes the risk of loss during transit.

Whenever a bid is received it should include an actual or a "not to exceed" freight amount whenever freight is included with the bid price. In addition, bidders who bid FOB Shipping Point should be required to list the city and state of the shipping point. This will give the buyer an idea how long to expect the goods to be in transit, whether the stated freight fee is accurate and whether a less expensive mode of transportation could be used.

Whenever an order is marked rush and must be delivered immediately, the buyer should determine exactly when the goods must arrive and work with the vendor to choose the best freight method. Air freight is not automatically the fastest form of delivery. Care should be taken that a significant premium for air freight is not made for normal delivery time.

Purchase orders based on FOB Shipping Point should include freight costs. The freight costs should indicate whether it is a firm cost or a not to exceed amount. This information will help prevent overcharges for freight.

If both buyer and vendor have agreed to a specific shipping mode, this should be noted on the purchase order in the description area. The shipping instructions, along with the particulars of the terms, should be included

PRICE AUDITING
Payment documents should be properly completed by the departments. This process should include using invoices, purchase orders, requisitions, and other documentation that is available to determine the proper purchase price. Departments are also responsible for verifying that the purchased item has been received as ordered.

Once the payment document has been completed, it is forwarded to Purchasing, who is responsible for performing a pre-audit prior to forwarding it to Accounts Payable who is responsible for processing the payment based on accurate and complete information received from the departments. In determining the reliability of this information, payment documents are audited for accuracy, completeness and proper authorization. Payments for contracts that do not agree with the contract pricing will be forwarded to Purchasing for approval.

PROMPT PAYMENT DISCOUNTS
Vendors frequently offer an additional cash discount to encourage prompt payment of an invoice. The City encourages departments to take advantage of the extra cost savings by taking the cash discount. In addition, contracts should be written to indicate no less than a thirty (30) day window for payments to be made from the date the invoice is received. Vendors who indicate a requirement to receive payment in less than 30 days must receive prior approval from the Purchasing Division.