What is purchasing and why is it important?

Purchasing or purchase management basically is a function in any enterprise that works to save money and enhance profits. Hence, it becomes one of the most important departments or functions in a manufacturing company. Organizations have realized that cost savings can be achieved if the purchasing decisions are effective. The main function of this department is to procure the material or inputs that are needed for production.

Nowadays, with so much competition and huge demand in the market and has made many organizations to re-look at how they are going about with their purchasing. The role of purchasing department has enhanced in a big way and it includes tasks like verifying the suppliers, reviewing the material quality, making sure that the delivery is on time.

Importance of Purchase Management

Purchasing management is supposed to be a very important department of materials management in any organization. Purchase staff has to manage various vendors and external agencies and thus they represent their organization’s reputation to the larger world. They are responsible for negotiating and then finalizing big deals which might mean a lot to their company. Other than that, purchasing management helps in the following:

Controlling the costs

The purchasing management has to analyze and decide the best suppliers as per the quality of products and most reasonable cost. They also review many other factors like if the vendor or supplier can guarantee timely shipments, what’s their reputation in the industry and relevant experience. Changing the vendors again and again is expensive; therefore, finding the best and reliable vendor is very important for controlling costs.

Stabilizing the prices

Another important role that purchasing management has to achieve price stability. In case the production cost goes up and down, other functions face roadblocks. For example, the marketing function gets confused about what price should be charged to the customers, the finance department faces problem in calculating profits and the accounts cannot gauge the company’s cash flow. Purchasing managers are the ones who are responsible for stabilizing the production cost by negotiating with suppliers and making long contracts for mutual benefit. They also hedge some items with banks in the form of a forward contract.

Supply Chain Management

Buyers also ensure that the material or supplies are received on time and are of the expected quality. In case the shipment is delayed or is not of the expected standard, it would affect the complete production chain. Hence, this function is of utmost importance across all industries.

Customer Satisfaction

Wondering how purchasing department is related to customer satisfaction? Purchase management is responsible for customer satisfaction in the following ways: working towards the best quality of the products and ensuring on-time deliveries. When the purchase department opts for highest quality of supplies or ingredients at reasonable costs, it results in cost savings, which are further passed on to the customers. Therefore, purchasing management has a critical role to play in customer’s experience with the final products and the organization.

Purchasing is a critical function for a small business because it affects performance at all levels. If supplies you purchase for consumption do not meet your needs they will reduce the efficiency of your operations. Material you buy for manufacturing or resale must be of acceptable quality at a competitive price or your customers will not be satisfied. You must to develop appropriate purchasing procedures and closely monitor them.

Price

1. The lowest price is not always the best deal if you can't rely on the supplier to offer it consistently. As a small business, you must establish long-term relationships with excellent suppliers that will give you top value at competitive prices on a continuous basis. Effective purchasing involves evaluating all available suppliers for performance, financial stability and efficiency, and identifying two or more preferred suppliers. Such suppliers quote consistent low prices, and the way they process orders doesn't generate extra costs for your company. These purchasing practices are important for your planning and predictions of profitability.

Quality

1. Purchasing procedures must include evaluation of the quality of products. Quality assurance guidelines specify that companies may only purchase material from qualified suppliers. Your purchasing policies must include supplier delivery tracking, both in terms of speed and reliability. If a supplier consistently doesn't perform as promised, or if you need faster deliveries than the supplier can meet, your purchasing should transition to a new supplier because supplier delivery performance impacts all your operations.

   Why purchasing is important?

   Purchasing departments are at the centre of successful supply chain management. Typically, they help other departments identify their needs, manage the requisition process and source competitive prices, and generally act as controllers to ensure adherence to budgets.

   What are 4 reasons why purchasing is important?

   Helpful for four reasons:.

   It helps you to spot business or personal opportunities, and it gives you warning of significant threats..

   It reveals the direction of change within your business environment. ... .

   It helps you avoid starting projects that are likely to fail, for reasons beyond your control..

   Why is purchase important and what are its objectives?

   Following are the objectives of purchasing: To maintain continuity in supply. To maintain quality standards. To avoid duplication, wastage and obsolescence.