The purchasing function has been considered as one of the most important functions in an industry from times immorial. In the beginning of industrialisation, when industries were run on ownership basis, the proprietor or one of the partners performed this function. This was quite natural as large amount of money had to be spent on materials and so the owners/proprietors thought it best that they should personally perform this function rather than trust someone else.
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For maintaining a favourable competitive selling position and satisfactory profits, the materials must be purchased at the lowest cost consistent with quality and service requirements. Cost of purchasing and cost of maintaining materials inventories must also be kept at an economic level.
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Purchasing, in general, is the procuring of materials, supplies, machines, tools & services required for equipment’s, maintenance and operation of a manufacturing plant. It is a process which includes all the functions involved from the time the need is felt till the receipt and find acceptance of materials so purchased.
Purchasing has been defined by various authors as:
“Purchasing is a term that describes the business activity directed to securing the materials, supplies and equipments required in the operations of an organisation.” —Westing and Fine
“Purchasing is the acquisition by manufacturer of any necessary primary materials supplies, equipment’s and so forth, by any method, whatsoever. Thus, Procurement includes extraction from owned mine, or forests, civilization of owned agricultural lands, manufacture in owned plants and purchase. Theoretically, the essence of the function does not really consist of purchasing even though most items are so obtained.” —Lewis
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“Purchasing refers to merely an act of buying at a price.”—Anonymous
“Purchasing is a managerial activity which goes beyond the simple act of buying and includes the planning and policy activities covering a wide range of related and complementary activities. Included in such development is research and scientific development.” — Purchasing Journal U.S.A.
“Purchasing as a fundamental function of an operations firm is charged with the responsibility of having the correct quantity of material in hand when it is needed at a price that is consistent with the existing economic conditions.” — Claude S. Georze
Objectives of Purchasing:
Purchasing objectives vary according to type of business and manufacturing activities. The purchasing objectives in term of general management are as follows:
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1. To maintain adequate standard of quality. What has to be ensured is suitability for intended purpose rather than purchase of materials of the highest quality. A constant review of specifications that should ensure that those adopted are just equal to or only a shade superior to one’s competitors is essential. New ideas or materials of lower ultimate costs must be encouraged and, in fact, developed.
2. To maintain a good buyer-supplier relationship.
3. To assure uninterrupted supply of raw materials, consumables, spare parts, etc., so that, there is no disruption in production, maintenance or construction or the services offered by the company. While doing so, efforts should be aimed at reducing ultimate cost.
4. To recruit and train purchase personnel people who are motivated and dedicated to ensure success of the undertaking.
5. To purchase competitively and wisely. This means the procurement of materials of the right quality, in right quantities, at the right price, at the right time from the right supplier and on right terms.
6. To develop new and alternate sources of supply.
7. To achieve and provide proper interaction between purchase and other departments so as to maintain the most cordial relations.
8. To avoid duplication and waste and restrict obsolescence.
9. To keep inventory investment at the minimum. In this way a balance of important factors like costs involved in forward buying, risk of stock outs resulting in plant shutdowns, economics of bulk purchases, etc. has to be maintained.