Purchasing is the first phase of Materials Management. It means procurement of goods and services from some external agencies. Purchasing is one of the most common at the same time a strategic activity of the business. The success of any business activity is contingent upon having materials and parts, stores and supplies, machines and equipment available in proper quantity, with proper quantity, at the proper place and time and at the proper price, popularly referred to as five R’s of efficient procurement.
Definition of Purchasing
According to Alford and Beatty___” Purchasing is the procuring of materials, supplies, machines, tools and services required for equipment, maintenance, and operation of a manufacturing plant”.
According to Walters___” Purchasing function means ‘the procurement by purchase of the proper materials, machinery, equipment and supplies for stores used in the manufacture of a product adopted to marketing in the proper quality and quantity at the proper time and at the lowest price, consistent with quality desired“.
Purchasing Management refers to the process of efficient, effective and economical purchasing of materials to be utilized by the organization in relation to its manufacturing activities.
Objectives of Purchasing
- To Avail Materials, supplies and Equipment at the Minimum Possible Costs.
- Ensure Continuous Flow of Production.
- Increase Asset Turnover.
- Develop Alternate Source of Supply.
- Establish and Maintain good Relations with Suppliers.
- Achieve Maximum Integration With Other Departments of Company.
- Train and Develop the Personnel.
- Procuring Materials: One role of the purchasing department is to procure all necessary materials needed for production. For a manufacturing company, this might include raw materials such as iron, steel, aluminium or plastics, but it also include tools, machinery etc. In a retail environment, the purchasing department makes sure there is always sufficient product on the shelves or in the warehouses to keep the customers happy and keep the store well-stocked.
- Evaluating Price: A purchasing department also is charged with continuously evaluating whether it is receiving these materials at the best possible price in order to maximise profitability. This can be challenging for a small business that may purchase in lesser quantities than a larger vendor and which thus may not receive the same type of bulk discounts. A purchasing department in a small business needs to shop around to find the best vendors at the most reasonable prices for the company’s particular size orders. Purchasing department staff may communicate with alternative vendors, negotiate better pricing for bulk orders or investigate the possibility of procuring cheaper materials from alternative sources as part of their daily activities.
- Paperwork and Accounting: Purchasing department handle all of the paperwork involved with purchasing and delivery of supplies and materials. Purchasing ensures timely delivery of materials from vendors, generates, and tracks purchase order and works alongside the receiving department and the accounts payable department to ensure that promised deliveries were received in full and are being paid for on time. In a small business, this means working closely with the accounting department to ensure that there is sufficient capital to buy the items purchased and that cash is flowing smoothly and all payments are made on time.
- Policy Compliance: The purchasing department also must ensure that it is complying with all company policies. Before making a purchase, the purchasing department must ensure that it needs the proper protocols for purchase and budget approval and must ensure that any items are purchased in accordance with the overall purchasing policy of the organization.