BizMove Home General Management

Purchasing Management: The Function Of Purchasing


BizMove business management guides
The Function Of Purchasing

Sam Holtz, the owner of a small foundry, complained bitterly one day about the amount of defective material he was receiving. "The raw material is guaranteed to meet quality specifications so as to contain less than.005% impurities. For the past three weeks, though, our castings have been turning out rougher than they should. I'm sure that last shipment of raw material wasn't as pure as it should have been. What do I do now?"

In another plant, Joe White was wondering what to do about a new supplier of electronic components he had just purchased from. "I got a good price on the first shipment, and so signed an order for two more shipments. The bill I got for this last shipment is almost $600 over that of the first. I told the supplier to take it back or reduce the bill, and he said that his quotation gave him the right to increase prices as inflation and labor expenses rose for him. I know I could get the shipment for less, elsewhere."

Both these situations highlight the need to follow good purchasing management procedures to reduce the incidence of such problems.

In this section you will review the activities which lead to effective purchasing. Specifically, you will explore the procurement cycle which concerns decisions on:

  • how to determine the firm's purchasing needs

  • finding a supplier who will best satisfy purchasing needs

  • negotiating and making the purchase

  • communicating the purchase decision to the supplier and to relevant personnel within your firm, and

  • a follow-up procedure for evaluating your purchasing decisions

What is the function of purchasing management in a manufacturing firm? At first glance, it may seem to be to find and purchase a quantity of material for the best price. But price is not the only concern. Low-priced material may not be a bargain if it is of unacceptable quality or if delivery is not reliable.

Clearly, the purchasing function involves more than obtaining the best price. It also involves buying the best value, which means buying:

  • the right quantity and quality

  • at the best price

  • from suppliers who are reliable and provide good service

One way to obtain the best value on a purchase is to set purchasing objectives and carefully follow the procurement cycle. This is explained later in this section.

Purchasing Objectives

It is often helpful to state the goals of purchasing for your business. In this way, you will never lose sight of the purpose of the purchasing function and will be able to make more intelligent purchasing decisions.

Here is a sample list of purchasing objectives:

  • to provide an uninterrupted flaw of materials and services for company operations

  • to find reliable alternative sources of supply

  • to buy at the most economic order quantities

  • to buy the best value: a combination of right quality at the best price with the best supplier service

  • to maintain good relations with vendors

The Procurement Cycle

Effective procurement consists of a series of steps which form a cycle. The steps in the cycle can be described as follows:

1. Determine needs. Before you buy anything, it is necessary to know what you need to buy and how much. It is important to remember that determining what you need involves not only quantity, but quality decisions as well. Determining and specifying appropriate quality requirements, in some situations, is a more difficult task than deciding what quantity to buy.

2. Select the supplier(s). When there are many suppliers to choose from, it is not simple to choose those who will give the best value - not only in price but in service, and consistent quality as well. Selection of suppliers may also mean finding more than one acceptable vendor if the purchased product is so important that you would suffer substantial losses if it were not available. In such a situation, in case the primary supplier cannot meet your needs as a result of a heavy workload, strike, unavailability of raw materials, etc.

When deciding to use more than one supplier, you have to weigh these advantages against the possible disadvantages of higher price and poorer service when you buy smaller quantities from two vendors rather than larger quantities from a single, reliable one.

3. Negotiate the purchase. In addition to specifying quantities and obtaining agreement on price, this can involve guarantees, method of payment, containers and packaging, delivery dates and other details of the purchase. Proper documentation of the purchase agreement is part of negotiation and assures that any questions or disputes that may arise will be settled in line with your expectations.

4. Follow-up. Here you look at the quality of product and service as well as the accuracy of quantities to determine what improvements, if any, are needed for the future.

----------------
Sidebar: you are invited to visit our car insurance information section featuring a list of articles that may save you hundreds of dollars on your motor vehicles quotes. In full coverage auto insurance you'll discover helpful tips to getting cheap quotes. For information on how to get cheaper quotes on shorter terms see one month car insurance and also short term car insurance. For first time drivers information see cheap car insurance for new drivers. How about obtaining cheaper premium rates for mature women? no problem, look here, lower auto insurance for over 25 olds.

If you are interested in a half year duration see 6 month car insurance for helpful tips on the topic. How about getting more favorable premiums costs for younger drivers? see car insurance for 17 year olds and motor car insurance for under 21 and vehicle insurance for male and female under 25 years old. Here is another list of drivers insurance useful articles, As for helpful tips regarding no deposit premium payments see car insurance with no deposit and for a list of low cost brokers, agents and companies see car insurance with no deposit companies. Read the following informative article if you are looking for better rates for the young drivers in your family, cheaper vehicle insurance for young drivers. Now, for discovering new ways to get lower quotes go to general car insurance Read this article if your after high risk car insurance information.
Here is a free book that cover all the info you need to lower your automobile insurance costs.

How about getting a better deal on first time driver? just click the link. Once you get several quotes use the price comparison worksheet so that you will be able to compare apples to apples. It may come a time that you'll be interested in canceling your policy, use this article for the instruction of how to do it. Our drivers insurance hub page feature a list of guides that can surely help you lower your policy rates. For those of you who seek cheap quotes for a shorter term policy, read this article. and here are tips and advice for special interest groups such as young drivers and temporary insurance.

If you have first drivers in your family look here for useful advice on getting cheaper quotes, other types of policies can include the following: no deposit car insurance, pay monthly, insuring classic cars for young drivers, cheaper quotes for MA residents and PA residents, better quotes for female drivers, getting better deals on liability insurance, locating good rates for new drivers. how about if you are interested in pay as you go auto insurance? yep there is a guide for you. And here is a list of reliable insurers. And the list concludes with a way to calculate you premiums.

Disclaimer: While every effort is made to ensure that the content of this website is accurate, the website is provided “as is” and Bizmove.com makes no representations or warranties in relation to the accuracy or completeness of the information found on it. While the content of this site is provided in good faith, we do not warrant that the information will be kept up to date, be true and not misleading, or that this site will always (or ever) be available for use. Nothing on this website should be taken to constitute professional advice or a formal recommendation and we exclude all representations and warranties relating to the content and use of this site.

Copyright © by Bizmove. All rights reserved.