CASE FOR STUDY AND ANALYSIS

Chapter 6: Purchasing Procedures

THE OAKLAND SCHOOL DISTRICT

16

Gene Smith, supply manager for the Oakland School District, has just
completed an analysis of his workload for buying paper. His staff, consisting
of an assistant, two buyers, a clerk, and a stenographer, had complained of
the steadily growing number of orders that the department had to process.
The school district had expanded to include another high school and two votech schools during the last several years. This expansion, plus normal
growth, had created a workload in which 31,164 purchase orders (exclusive
of changes and adjustments) were placed, spending $5,405,678 with 1,296
suppliers. Another breakdown Gene developed showed that 15.2 percent of
the suppliers received 82.5 percent of the dollar volume purchased.
A further analysis revealed that the average value of all orders placed was
$482.21, and that 35 percent of them ranged between $30 and $100 and
totaled 2.8 percent of the total dollars spent annually. In fact, 23 percent of
the purchases were for less than $30 and added only 0.35 percent to the
dollar volume. Purchase orders were evenly spread throughout the year,
running about 2,600 per month.
One cause for the numerous orders, he told the district director for
operations, was daily need for rubber stamps, small equipment parts,
special laboratory supplies, fluorescent tubes, MRO supplies, and other
miscellaneous items. In Genes words, the school district seemed to be like
a custom job shop type operation. In addition, the various departments
wrote an excessive number of requisitions for supply management because
they needed detailed records for their files, which are required by the
stringent district accounting control policies.
Gene had asked Harry Flint, the controller, to reduce some of the
documentation required. He was told that its necessary to have proper
records to control expenses, and the extra orders are not extra expenses
because you would be on the payroll anyway.
Mr. Flint also pointed out that the stores supervisor, who initiated many of
the orders, was following present district policy to keep only very active
inventory items in stock and to make direct purchases of all others. Both the
controller and the stores supervisor were under the treasurers office, which
in turn reported to the district superintendent.
Another problem was the unpredictable number of change orders issued
by maintenance and by the district engineers office. These modifications
involved changes in quality specifications, actual amount delivered, and date
of delivery originally specified by users or by inventory control. Accounting
insisted that it would not approve invoices that did not completely match a
confirmed purchase order or its supporting changes. During the past year,
5,678 change orders had been issued, of which 2,946 had been due to
relatively minor variations.
Smith knew that local suppliers and distributors had complained of the

17

burden of small orders and that some were considering a minimum charge of
$40 per order. After further investigation, he concluded that small orders
were not economical for either the buyer or the seller and had asked the
accounting office and stores to help him solve this problem. However, neither
would suggest to his boss, the district treasurer, any change in policy or
procedure. Smiths boss, the director for operations, also reported to the
district superintendent and had expressed interest in trying to update the
growing organizations management methods.

Question 1: Identify the basic issues and management problems

that Smith should consider in trying to improve the situation.
Question 2: What additional information should Smith attempt to
obtain?
Question 3: How would you suggest Smith solve these problems?

18