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Purchasing Function in Materials Management

 

Purchasing function , in a business environment , is one of  the most critical functions as it provides the input for the organisation to convert into output. Materials today are lifeblood of industry. They must be available at the proper time, in the proper quantity , at the proper place, and the proper price. Company costs and company profits are greatly affected by them as normally , a manufacturing organisation spends nearly 50% of its revenue in purchasing.

 

Purchasing Function vs. Purchase department :
Purchasing function is a function commonly seen in all those organisations that undertake purchasing activities.

Purchase department is a unit of an organisation that performs purchasing function.

The purchasing function is usually performed by a specialised  and centralised purchasing department , directed by an efficient manager to

achieve the performance in an economical manner.

Profit making Centre ?
Purchasing is responsible for spending nearly half of a company's income for buying the input materials.

Obviously, any saving achieved by it results into direct saving for the company and all such savings are a company's profit.

Going by a thumb rule "even 1% saving achieved in Purchasing results in 5% profit for any organisation".
Procurement vs. Purchasing
It is used to define one of several supply functions involved in logistics activities. In the broadest sense procurement includes the entire process by which all classes of resources (people, materials, facilities and services) for a particular project are obtained. Since purchasing is a unique function , it differs a bit from procurement in the sense that while procurement , with the same objective has a wider domain , purchasing with the same objective is included in it !
 

Objectives of Purchasing:
The classical definition of objectives of purchasing is to buy materials and services of the right quality , in the right quantity, at the right place , from the right source and at the right time.
However , in general management parlance the objectives of purchasing are:

  • To support company operations  with an uninterrupted flow of materials and services.
     

  • To buy competitively and wisely
     

  • To help keep a minimum Inventory
     

  • To develop reliable alternate sources of supply
     

  • To develop good vendor relationship and a good continuing supplier relationship
     

  • To achieve maximum integration with the other departments of the firm
     

  • To train and develop highly competent personnel
     

  • who are motivated to make the firm as well as their department succeed
     

  • To develop policies and procedures which permit accomplishment of the preceeding seven objectives at the lowest reasonable operating cost

 

 

The basic objective , in pure practical terms is ,of course, to derive the maximum value for each unit of currency spent in buying.

Purchasing is no doubt a vast subject and as the competition among the firms grows this function of business is expected to see a lot of evolution  


Types of Purchasing:
Considering the nature of business an organisation has there could be different approaches and hence Purchasing can be any of these types:

Forward Buying
Tender Buying
Speculative Buying
Systems Contracting
Rate Contract
Reciprocity
Zero Stock buying
Blanket Order

   



 

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