DEFINITION OF PURCHASING

Purchasing is a function of procuring goods

and services from sources external to the
organization
In the words of Alford and Beaty
- Purchasing is the procuring of materials,
supplies, machine tools & services
required for equipment, maintenance &
operation of a manufacturing plant.

DEFINITION OF PURCHASING
According to yet another authority
Purchasing is procuring of materials,
tools, stores (or supplies) and services
required for manufacturing of a product,
maintenance of machines & uninterrupted
running of manufacturing plant in a
manner that guarantees marketing of
companys products in quantities desired
at the time promised & competitive price
consistent with quality desired

DEFINITION OF PURCHASING
Yet in another way organization
Purchasing is defined as
that function responsible for
obtaining by purchase, lease or other
legal means, equipments, materials,
supplies and services required by
organization for use in production.

DEFINITION OF PURCHASING
- In this definition, term production is
used in economic sense of creating
utilities i.e. goods and services that
satisfy needs.
In common parlances organizational
purchasing can further be defined as:
Process by which organizations define
& compare supplies and suppliers
available to them,

DEFINITION OF PURCHASING
-

solicit offers or negotiate with

sources of supply or in some other
way arrive at agreed terms of
trading,
- make contracts and place orders
and finally receive, accept and pay
for the goods and services
required

DEFINITION OF PURCHASING
Purchasing in essence is a task of buying
goods of
-

right quality,
in the right quantities
at the right time and place and
at the right price

These essentials of professional purchasing are

though complimentary to each other yet
achievement of one does not guarantee the other

DEFINITION OF PURCHASING
-There may be a source capable of giving
quality goods but may not have enough
capacity to meet quantity requirement in
time
- or the source may have capabilities to
supply goods of right quality and in right
quantities but may not supply at right
price or at right time

DEFINITION OF PURCHASING
- But if buyer has right kind of sources,
he may get goods of right quality, in the
right quantities, at the right time and at
right price
- For scientific purchasing greater stress
has to be placed on locating, selecting,
developing and retaining right kind of
suppliers

DEFINITION OF PURCHASING
-

Somebody has rightly said that half of

battle in purchasing is won if we are
able to locate and retain right sources
of supplies i.e. reliable, capable and
resourceful suppliers

Purchasing & Procurement

In common parlances purchasing &
procurement are used interchangeably
but they are different
- The term purchasing covers function of
identifying & notifying need for items,
locating & selecting vendors, negotiating
& other terms of contract, follow up with
with vendor till receipt of ordered goods

Purchasing & Procurement

- procurement on the other hand implies
much broader area & includes functions
of purchasing, materials planning &
budgeting, inventory control, movement
(transportation), receiving and incoming
inspection of materials, disposal of
redundant/ surplus, obsolete and scrap
materials

Purchasing & Procurement

Dobler & Burt in their book Purchasing &
supply Management have differentiated
these terms as under
Purchasing functions comprises essential
activities associated with acquisition of the
materials, services, equipment and spares
used in operation of an organization

Purchasing & Procurement

Major activities are
1. Coordination with user Deptts to identify
purchase needs
2.Discussions with sales representatives
3.Identification of potential suppliers
4.Conduct of market studies for important materials

Purchasing & Procurement

5.Negotiation with potential suppliers
6.Analysis/ evaluation of proposals
7.Selection of suppliers
8.Issuance of purchase orders
9.Administration of contracts and resolution of
Related problems

Purchasing & Procurement

10. Maintenance of variety of purchase
record
- Earlier the purchasing functions which
handled as a staff support became
subsequently more professional with
managerial emphasizes
- Organizations that have seen strategic
potential inherent in this function have
enhanced its basic activities by

Purchasing & Procurement

expending them and developing procurement
or supply management operations
Procurement
Process or concept, encompasses a wider
range of supply activities than included in
purchasing functions and it typically includes
a broadened view of traditional buying role
with more buyer participation in related
materials activities i. e.

Purchasing & Procurement

1 Participation in development of material &
service requirement & their specifications
2. Conduct of materials studies & management of value analysis activities.
3. Conduct of more extensive material
market studies.

Purchasing & Procurement

4. Conduct of all purchasing functions
5. Management of supplier quality
6. Purchase of inbound transportation
7. Management of investment recovery activities
(salvage of surplus and scraps)
- In essence, procurement tends to be broader
and more proactive with some focus of strategic
matter as compared to typical purchasing concept

Supply management
Supply Management is a process

responsible for development and

management of an organizations total
supply system- both internal and external
components
At operational level, it includes and
expands activities of purchasing functions
and the procurement process

Supply management
Its major focus, however, is strategic.
This is reflected in the activities added to
the scope of its responsibilities- all of
which have two characteristics :
(1) They deal with activities which have
greater potential impacting success of
organization
(2) They tend to be interdisciplinary in
nature and integrate supply action with
those of other key players in the organization

Activities included in Supply

Management
(1) Early purchasing involvement (EPI) and
early supplier involvement (ESI) in product
design and subsequent spec. development
for important items, typically through cross
functional teams
(2) Conduct of all purchasing functions &
procurement process activities.
(3) Heavy use of cross- functional teams in
supplier qualification & selection

Activities included in Supply

Management
(4) Heavy use of purchasing partnering

arrangements and strategic alliances with

suppliers- to develop close and mutually
beneficial linkages with key suppliers in
value chain and to control quality and cost

(5) Continuous identification of threats and

opportunities in firms supply environment
(6) Development of strategic, long term
acquisition plan for all major materials.

Activities included in Supply

Management
(7) Monitoring of continuous improvement in
the supply chain.
(8) Active participation in the corporate
strategic planning process.
Supply Management concept, represents
advance stage in evolutionary development
of the purchasing/ procurement/ supply
sphere activity (Scope is further widen

Supply management
Development of supply chain management
which also includes & integrate, apart from
activities of purchasing/procurement of
materials, its transformation into
intermediates & finished products and
distribution of finished goods to customers)
Major characteristics that differentiates it
from conventional purchasing/procurement
is that it focuses heavily on strategic aspect of key
elements of firms supply system.

Supply Chain Management-Defining

Defining the term
A supply chain is a
- network of facilities & distribution
option that perform functions of
- procurement of materials
- transformation of these materials into
intermediates & finished products
and
- distribution of finished goods to
customers

Supply Chain Management-Defining

Traditionally these functions
operated independently having their
own objectives which at time seen
conflicting and need for integrating
these functions felt.
SCM is a strategy through which this
integration can be achieved.

Supply Chain Management-Defining

Supply chain exists both in services &
manufacturing organization though
complexity of chain may vary from
industry to industry and firm to firm
SCM can be compared with well
balanced and practiced relay team

Supply Chain Management-Defining

Such a team is more competitive &
cohesive
when
- each player knows how to be positioned
for hand-off
- relationships are stronger between
who directly pass-on the baton
- but entire team needs to make
coordinated efforts to win the race

Supply Chain Management-Defining

SCM can also be defined as
a network of autonomous or semiautonomous business entities collectively
responsible for
- procurement, manufacturing &
distribution activities
- associated with one or more families of
related products

Supply Chain Management-Defining

Lee & Billington have defined SCM as
A supply chain is network of facilities
that procure raw materials
- transform them into intermediate goods
- and than finished products and
- deliver the products to customers
through a distribution system

Materials Management
Materials Management concept is quite
different from purchasing/ procurement/
supply management concept.
It is basically an organization concept that,
from the managerial prospective, is
designed to enhance coordination and
control of various materials activities
Required coordination can occur in two ways

Materials Management
First it may be achieved by developing a
straightforward set of reporting,
communication, and control procedures
designed to enhance coordinated decision
making among the involved group.
Second approach involves an organizational
rearrangement that consolidates some of
the individual material activities into larger
groups for administrative purposes.

Materials Management
In this case coordination typically is easier
to achieve because one manager has line
responsibility and authority for those
activities grouped in his her operating unit,
with possibilities of developing a more
effective team- oriented operations.
Specific materials activities typically found
in a materials management organization
are:

Materials Management
1
2
3
4
5
6

Purchasing & supply management

activities
Inventory management
Receiving activities
Stores & warehousing
In- plant materials handling
Traffic & Transportation