Purchasing Management Basics

Purchasing

• Effective purchasing involves obtaining the right materials, in the right quantities, with the right delivery, from the right source, and at the right price.
• It requires input from multiple departments, including marketing, engineering, manufacturing, and purchasing.
• Purchasing involves various activities, such as supplier identification and selection, ordering, expediting delivery, price negotiation, payment, and receipt.

Objectives of Purchasing

• The primary objectives of purchasing are to obtain goods and services at the required quality and quantity, and at the lowest cost.
• Effective purchasing can mitigate missed deliveries, increase profits, and ensure the flow of materials into the firm.

Functional Requirements

• Functional specifications define the intended use and expected performance of an item.
• They are crucial in determining the quality of a product or service, which is closely tied to user satisfaction.

Supplier Selection

• The primary goal of supplier selection is to coordinate quality, quantity, delivery, and price effectively.
• An ideal supplier possesses the necessary technology, capacity, and efficiency to meet required standards.
• Sourcing involves three main approaches: sole, multiple, and single sourcing.

Competitive Pricing

• Suppliers should offer prices that are competitive within the market, balancing cost with the ability to deliver the required goods in the desired quantity and quality.
• Other factors influencing supplier selection include favorable credit terms, reciprocal business arrangements, and inventory holding.

Price Determination

• Price is crucial in purchasing decisions, impacting profits directly.
• The goal is to find the optimal mixture of function, quantity, service, and price, achieving the "best buy" scenario.
• Basis for pricing involves understanding market dynamics, including demand, supply, and cost analysis.

Competitive Bidding and Price Negotiation

• Competitive bidding involves comparing prices from multiple suppliers and selecting the lowest offer.
• Price negotiation involves resolving purchase conditions to benefit both buyer and seller.
• Negotiation approaches vary depending on product type, including commodities, standard products, items of small value, and made-to-order items.

Supply Chain Management

• Effective supply chain management relies on managing data and inventory, as well as strategic planning and risk management.
• It involves planning and controlling the acquisition of goods and resources to achieve strategic objectives.

Importance of Purchasing Management

• Purchasing management plays a crucial role in ensuring cost-effective production, identifying internal requirements, selecting suppliers, and negotiating prices.
• It influences the quality and timing of goods and services, which significantly impact operations.
• Purchasing holds strategic significance, involving procuring capital items essential for manufacturing operations, and requiring dynamic, innovative, and analytically skilled executives.

Learn about the role of purchasing in an organization, involving multiple departments. Understand the importance of effective purchasing, including materials, quantities, delivery, and pricing.