Paper Example on Low Value Purchase

Published: 2021-07-19 19:19:05
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Vanderbilt University
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Case study
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PPL is a utility company like many other in the country. The shift from regulation to deregulation has altered the operations of many of these companies because of the aspect of return on investment. The process of regulation pushed for a fixed amount of return on assets to the companies but deregulation is developing great levels of change, and many utility companies are looking for effective ways of reducing costs and at the same time increase the quality of goods and services they develop. Competition has become very high because of high demands for energy and other utilities. Utility companies now compete like other businesses; with aspects of reduced prices and increased quality. The change to deregulation has forced many utility companies to explore new ways of reducing costs, and one of them is the use of a system of low dollar purchasing. This is a system of procurement that is associated with purchasing goods and services of low dollar value. Low-value purchase in this sense is associated with internal methods of cost reduction that can be utilized by organizations. They include aspects of reduced costs of processing and reduced amount of paperwork needed. Purchases made for goods and services of less than fifty thousand dollars. Some of the examples of purchasing systems that provide for low dollar purchasing include local purchase orders, the use of procurement cards, use of blanket purchase orders and releasing and user issued as well as negotiated cards. These are examples of systems of low-value purchase that a utility company such as PPL can use for the purpose of reducing its costs and become more competitive in the market (Low-Value Purchase, 2017).

Procurement card system is a system of low-value purchases. These are cards that operate in the same manner as credit cards but are utilized for business to business transactions. It is an effective system that helps reduce the cost of processing a procurement. The traditional process of procuring the pay process used to be very expensive. The costs of the process itself could exceed the actual value of the product and service, and this had an effect of raising costs within an organization. With the use of procurement cards, the process costs become the same for goods and services of different value. An example is the costs of the process to procure goods worth 50 dollars and other goods worth 200 dollars with the same. However, in a tradition system, the cost would exist the actual value of the goods or services. The use of such cards is also beneficial in simplifying the process of purchase. In traditional forms of procurement and purchases, a lot of costs used to go to payments of goods of low-value use of cheque systems, purchase orders, and many other methods were very costly and very inefficient. But the use of procurement card simplifies the process and reduces costs associated with purchasing. The aspect of costs reduction is beneficial for both suppliers as well as for organizations. PPL has used procurement cards since the 90s, and the organization has seen great benefits. However one of the disadvantages and explored by the company is the need for an expense report that most employees are expected to present. The use of the cards has also been found with high levels of reluctance. Another disadvantage is associated with its limit in providing adequate data for taxing (Procurement Cards, 2017).

One of the major roles of purchasing during the implementation of low dollar purchase system is ensuring that costs go down and reduction of internal costs are the only factors that can be used without jeopardizing the quality of goods and services produced. Purchasing is very important in any organization, but traditional systems were very costly and inefficient. However, new developments, especially in low dollar purchasing, is becoming promising in providing opportunities for organizations such as PPL to reduce their costs of production. The aspect of deregulation has taken root in many electric companies and other utility companies. The market for utility is becoming competitive like for many other businesses in the economy. Competition is a common aspect of any business, and it is the one that dictates profits as well as market share for the organization. Price and quality have become too important aspects of competitive advantage even for utility companies such as PPL. Systems that allow for low-value purchase have provided great opportunities to organizations to reduce their costs. PPL is a company but not like many in the economy because unlike other businesses utility companies had a fixed rate of return on investment due to the aspect of regulation but regulation is slowly becoming a thing of the past, and for more success, PPL and other utility companies have to operate like the rest of businesses. For more success and high-cost reduction, PPL needs to find a low-value purchase system that is effective for cost reduction. The company plans to develop more collaboration with suppliers to ensure that they receive the best of low-value purchases (Low-Value Purchase, 2017).

 

References

Low Value Purchase. (2017). Retrieved from https://www.uoguelph.ca/finance/departments-services/procurement-and-payables/low-value-purchase-order

Procurement Cards. (2017). Retrieved from http://www.napcp.org/page/WhatArePCards

 

 

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