Purchasing management

• Purchasing is the function of buying Goods & Services from External Source to an Organization.
• Purchase department buys Raw Materials, Spare parts, services etc. as Required by the company or Organization.
• Purchase management is One of the most Crucial Area of the Entire Organization. Thus, Needs Intensive management.
• Purchase is the Main Activity in Area of Material management.
• Purchasing management is a department in an organization responsible for purchasing activities.
• Purchase is Most Important Function in any Organization.
• Purchase is the first element which affects the product cost.
• Purchase management decides profitability of the Company.
• Purchasing management also covers the areas of outsourcing and insourcing.
• Purchasing management is the management of purchasing process, and related aspects in an organization.

Because of production companies purchase nowadays about 70% of their turnover, and service companies purchase approximately 40% of their turnover.^[1]

The purchasing management department ensures that all goods, supplies and inventory needed to operate the business are ordered and kept in stock. It is also responsible for controlling the cost of the goods ordered, controlling inventory levels and building strong relationships with suppliers.

Objectives of Purchasing Management

• To purchase the required material at minimum possible price by following the company policies.
• to keep department expenses low.
• Development of good & new vendors (suppliers).
• Development of good relation with the existing suppliers.
• training & development of personal employees in department.
• to maintain proper & up to date records of all transactions.
• Participating in development of new material and products.
• to contribute in product improvement.
• to take Economic "MAKE OR BUY" decisions.
• to avoid Stock- out situations.
• to develop policies & procedure.
• to maintain of ROL

Principles of Purchasing Management OR (8 R'S)

1. Buying Material at Right QUALITY.
2. In the Right QUANTITY.
3. From the Right SOURCE.
4. At the Right PRICE.
5. Right service ...
6. Delivered at the Right PLACE in.
7. At the Right TIME.
8. With Right mode of TRANSPORT.
9. With Right CONTRACT.
10. With Right payment terms.

Procurement cycle refers to a term used to describe the actions, procedures, systems and methods used to purchase and obtain the goods and services and required execute a project.

Purchasing Cycle :

1) Indent

2) purchase Requisition

3) Purchase Quotation

4) Purchase Order

5) Goods Receipt

6) Purchase Invoice

7) Payment out

8) Goods Issue

9) Approval to management

Purchasing Cycle / System OR Steps in Purchasing

• Get Requirement from User Department with Proper specification.
• Send the INQUIRY to the Vendors(Suppliers). (Request Quotation)
• Get the QUOTATIONS from Vendors.
• Make COMPARATIVE Statement.
• NEGOTIATE, Fix the Price and Terms & Conditions.
• Place the ORDER to the right Vendor.
• FOLLOW up with Vendor.
• RECEIPT & INSPECTION. (GRN)
• STORAGE & RECORD- KEEPING. (Batching)
• INVOICE & PAYMENT.

Purchasing Process

Purchasing Process includes as usual 8 main stages as follows:

1. Market survey
2. Requisitioning
3. Approving
4. Studying Market
5. Making Purchase Decision
6. Placing Orders
7. Receipting Goods and Services Received
8. Accounting Goods and Services
9. Receiving Invoices and Making Payment
10. Credit note in case of material defect

Purchasing Management Process

Purchasing Management Process consists usually of four stages:

1. Purchasing Planning
2. Purchasing Tracking
3. Purchasing Reporting
4. Negotiate

Purchasing Reporting

Purchasing Reporting includes:

• comparing actual and estimated values
• calculating purchasing task and project statistics
• sorting, grouping or filtering tasks by attributes
• creating charts to visualize key statistics and KPIs

THE IMPACT OF PURCHASING MANAGEMENT

A large study based on 175 company surveys with a respond rate of 22% performed by Carr and Pearson (2002) shows that the factors strategic purchasing and Purchasing Management have a positive impact on the firm’s financial performance in both small and large firms. Carr and Pearson (2002) also write that Purchasing Management and supplier involvement does affect the success of a new product introduction. This study also shows that a link exist between implementation of strategic Purchasing Management and achievements of a firm’s comprehensive goals. It is also stated in the report by Carr and Pearson (2002) that it is believed that most firms recognize the importance of strategic purchasing, because they spend a large percentage of their sales on purchased inputs. Carr and Pearson (2002) also finish their study with the words “Based on this study, management should better understand the importance of Purchasing Management, supplier involvement, strategic purchasing and its relationships with firm’s financial performance.

References

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