Table of Contents

Purchasing Management | Definition , Objectives , Policies

What is Purchasing Management

Purchasing is an important function of materials management. In any industry purchase means buying of equipments, materials, tools, parts etc. required for industry. The importance of the purchase function varies with nature and size of industry. In small industry, this function is performed by works manager and in large manufacturing concern; this function is done by a separate department. The moment a buyer places an order he commits a substantial portion of the finance of the corporation which affects the working capital and cash flow position. He is a highly responsible person who meets various salesmen and thus can be considered to have been contributing to the public relations efforts of the company. Thus, the buyer can make or mar the company‘s image by his excellent or poor relations with the vendors.

DEFINITION :

The purchasing can be defined as the process of buying and procuring the materials, parts, components, equipments, spare parts, tools and supporting items required by industries or any organization to deliver its products as per customer requirements at the competitive rates and of good quality.

OBJECTIVES OF PURCHASING

The basic objective of the purchasing function is to ensure continuity of supply of raw materials, sub-contracted items and spare parts and to reduce the ultimate cost of the finished goods. In other words, the objective is not only to procure the raw materials at the lowest price but to reduce the cost of the final product.

The objectives of the purchasing department can be outlined as under:

To avail the materials, suppliers and equipments at the minimum possible costs:
These are the inputs in the manufacturing operations. The minimization of the input cost increases the productivity and resultantly the profitability of the operations.
To ensure the continuous flow of production through continuous supply of raw materials, components, tools etc. with repair and maintenance service.
To increase the asset turnover: The investment in the inventories should be kept minimum in relation to the volume of sales. This will increase the turnover of the assets and thus the profitability of the company.
To develop an alternative source of supply: Exploration of alternative sources of supply of materials increases the bargaining ability of the buyer, minimisation of cost of materials and increases the ability to meet the emergencies.
To establish and maintain the good relations with the suppliers: Maintenance of good relations with the supplier helps in evolving a favourable image in the business circles. Such relations are beneficial to the buyer in terms of changing the reasonable price, preferential allocation of material in case of material shortages, etc.
To achieve maximum integration with other department of the company: The purchase function is related with production department for specifications and flow of material, engineering department for the purchase of tools, equipments and machines, marketing department for the forecasts of sales and its impact on procurement of materials, financial department for the purpose of maintaining levels of materials and estimating the working capital required, personnel department for the purpose of manning and developing the personnel of purchase department and maintaining good vendor relationship.
To train and develop the personnel: Purchasing department is manned with varied types of personnel. The company should try to build the imaginative employee force through training and development.
Efficient record keeping and management reporting: Paper processing is inherent in the purchase function. Such paper processing should be standardised so that record keeping can be facilitated. Periodic reporting to the management

PURCHASING POLICY AND PROCEDURES :

Purchasing Policy :

Every organization sets the purchasing policy. In order to accomplish the aims and objectives of the organization, the directives and instructions issued to purchase the materials are called the policy of purchasing. Policy means the set of principles, purposes and rules of action framed written or otherwise applied to fulfill the goals of organization.

Advantages and Disadvantages of Policies Advantages

Policies define and clarify top management objectives.
The written instructions communicate views of management.
It provides guidance to the person to adopt the working method of same type.
It provides framework for decision-making.

Disadvantages

In large size organization it is difficult to communicate the policy and particularly the changes, which are made quite often.
All the employees may not be aware of the purpose of policy.
Greater the number of policies it is more difficult to create awareness.