Structure

1.0 Objectives

1.1 Introduction

1.2 Purchasing Management

1.3 Important of Purchase Management

1.4 Purchasing Activities

1.5 Types of Purchase

1.6 Purchasing Cycle

1.7 Characteristics of a Purchasing Manger

1.8 Materials Management

1.9 Classification of manufacturing materials

1.10 Objectives of Materials Management Department

1.11 Relationship between Materials Management Department and other Departments

1.12 Risks to be Considered by Purchase Material Manager

1.13 Summary

1.14 Key Words 2

1.15 Self-assessment questions

1.16 References/Suggested readings

1.0 Objectives

Purchasing is not about buying goods or services for a business for the lowest price. Purchasing
professionals broadly contribute to their company’s success by working to make the right buy, at
the right time, for the right price and from the right source. From meeting business requirements
to controlling costs and maintaining relationships, effective purchasing management strategies
and tactics help companies meet key business objectives.

T IPS
 Purchasing professionals have a number of objectives including cost control, developing
and managing supplier relationship, encouraging innovation and diversification of the
supply chain.

R EDUCING C OSTS
Getting the lowest price for a particular product or service may not be necessary, but purchasers
strive to save money for their businesses by getting the best prices and terms overall.
Capitalizing on incentives and discounts that suppliers offer is important. So too are negotiating
favorable contract terms that improve cash flow by prolonging payment and reducing long-term
costs by cutting waste and avoiding defective products.

D IVERSIFYING S UPPLY
Spending too much with one supplier is risky. If that supplier should have trouble fulfilling their
obligations or raise their prices significantly, the company that depends on them may have to
delay delivery of goods to their customers or raise their prices, which could cost them business.
So, ensuring the security of supply by expanding the supplier base is a key objective for
purchasing management.

Fulfilling Business Requirements

Doing business with the right suppliers can matter as much as pricing and supplying. For
example, companies may want to ensure that they support small businesses by allocating a
certain percentage of their purchasing budgets accordingly. They also may want to avoid
suppliers with bad reputations or business practices. Purchasing management can support the
achievement of such objectives.

Sparking Innovation
Purchasing professionals can support their company’s growth by obtaining innovative solutions
to business problems and opportunities. They do so by working closely with vendors, sharing
their company’s needs and exploring how suppliers can help. Together, they can develop better
technologies and products for customers, and refine processes that allow them to deliver goods
and services more efficiently.

Managing Relationships
Purchasing professionals can work with just about anyone in their companies. They may deal
with representatives from marketing, finance and logistics departments to name just a few. Given
the broad range of goods and services that they buy and the impact that their decisions have on
their company as a whole, you can see how purchasing connects departments and aligns their
efforts in pursuit of the company’s general goals.

Spending Wisely
Purchasing often accounts for more than half of a company’s spending. Investing purchasing
dollars correctly can help a company expand market share and increase its sales by allowing it to
bring quality products to market first. Purchasing management also can improve profitability by
efficiently developing those products and services through collaboration with suppliers who are
similarly invested in the company’s success.
1.1 Introduction

Purchasing is the first phase of Materials Management. Purchasing means procurement of

goods and services from some external agencies. The object of purchase department is to
arrange the supply of materials, spare parts and services or semi-finished goods, required
by the organisation to produce the desired product, from some agency or source outside
the organisation.

The purchased items should be of specified quality in desired quantity available at the prescribed

time at a competitive price. In the words of 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.”

Thus, purchasing is an operation of market exploration to procure goods and services of desired

quality, quantity at lowest price and at the desired time. Supplier who can provide standard items
at the competitive price are selected.

Purchasing in an enterprise has now become a specialised function. It was experienced that by

giving the purchase responsibility to a specialist, the firm can obtain greater economies in

purchasing. Moreover purchasing involves more than 50% of capital expenditure budgeted by
the firm.

Types of Purchasing:
Keeping in view the size and requirements of the organization, purchasing may be either
centralized or decentralized.

1. Centralized Purchasing:
When all types of purchasing is done at one level, it is known as centralised purchasing. A

separate department, known as purchase department, is set up for this purpose. All departments

send their purchase requirements to purchase department and it arranges procurement of various
goods needed.

2. Decentralized (or Localized) Purchasing:

This type of purchasing is suitable for concerns or when there are more than one plant or the
plants are situated at different places. Every department or plant, as the case may be, is
authorized to make its own purchases. A separate purchasing agent is appointed for every
department or plant. To enforce general purchasing policies all the purchasing agents are put
under the charge of general purchasing agent. He gets periodical reports from all purchasing
agents. This helps in exercising control over materials. This system has some advantages as well
as disadvantages.
1.2 Purchasing Management