Most large organizations, as well as some government bodies, have a purchasing or procurement department as part of their day-to-day operations. The services provided by these divisions are used by many manufacturing, retail, military, and other industrial companies. Here we will describe the 5 key functions and importance of purchasing department.
What are the 05 Key functions and responsibility of purchase department ?
Many individuals, including some employees, are unaware of what the purchasing department performs, why it exists, or what it accomplishes. To obtain a better grasp of the purchasing department’s role, consider some of the functions it does.
1. Availability of Materials
The basic role of purchasing department is to make available the materials to carry out the production process. In the case of manufacturing, establishment material includes basic raw materials like steel, iron, plastic, and aluminum and also includes machinery, tools, equipment, etc.
In the case of a retail outlet, it is ways ensured that relevant stock is there available on the shelves or in go down so as to avoid any situation of stock-out or losing the customers. Where the volume of the business is relatively less, only the required quantity of the stock is kept so as to avoid the blocking of the capital and saving the ordering and the carrying cost of the product.
Purchasing also involves that suitable quantity is procured from the suitable vendors only.
2. Evaluating Price
Another routine function of the purchasing department is continuous evaluation of the price. Whenever the price touches the bottom mark, the order is placed to get the maximum advantage. Higher quantities are preferred to get the maximum discount. However, the same may not be possible where the volume of the business is small.
So, in the case of small businesses, the purchasing department is required to do some extra exercise of finding a suitable vendor so as to meet the requirement of the business. Apart from the prime vendor, who supplies all the relevant quantities, one alternate vendor should also be kept aside to meet the emergent situations or periodically to cross-checking the prices.
3. Paperwork and Accounting
Handling the paperwork related to the receipt, delivery and other peripheral activities related to the purchases is also one of the functions of the purchasing department. It ensures that the material order is received from the respective vendors on time and any delay arising can be tracked.
In the case of small business enterprises, the purchasing department is usually related to the accounting department to ensure the availability of sufficient funds for the execution of the purchase order.
4. Policy Compliance
Apart from the various functions that are discussed above, the purchasing department is also responsible for compliance with the company policies and procedures, a formal procedure is adopted for making a requisition to the purchasing department which further follows certain norms while placing the order.
5. Supplier Development
Supplier development is also very much an important function of purchasing department. Most organizations rely on procuring material from external sources and a good reliable supplier is very much important for a consistent supply of quality materials without any interruptions.
Hence, purchasing department must plan for the development of all its suppliers in a phase-wise manner for their development activity.
For this, a separate cross-function team can be formed to lead the continual improvement activities at the supplier end. The team can guide the supplier in implementing some of the best practices like:
a. 5S (Workplace Management System)
c. CAPA System (Corrective and Preventive action)
d. Implementation of ISO9001 QMS system
What is the 05 Key importance of purchasing department?
The significance of purchasing may be gauged from the following:
1. Efficient Administration
The importance of purchasing function is the same for all organizations, irrespective of the fact whether it is a manufacturing unit, trading company, Government, or a charitable body. It has a strong bearing on production cost, level of production, timely delivery, and product quality.
An efficacious and effective purchasing function leads to the procurement of materials of superior quality at competitive rates. As a result, the efficiency of the management is enhanced, and the bottom-line of the company is improved.
2. Quality of the Final Product
The quality of the end product produced by any unit is of paramount importance. Manufacturers are, therefore, very cautious about maintaining the quality of their products. They don’t like any compromise in this regard, as any shortcoming (faulty or defective products) in their product would destroy their image in the market, and their market share may decline.
They are also likely to lose their loyal customers, who are very particular about the quality of the brand they are using it. This aspect gains additional significance in a market, in which cut-throat competition is rampant.
As the quality of end products depends upon the quality of input materials, the purchasing department needs to be vigilant in respect of the quality of the materials procured, to be used as input.
If poor quality materials are used for production, the finished goods may show some defects/shortcomings, and at that stage, it would be too late to rectify the shortcomings.
3. Timely Delivery
Timeliness is the essence of business ethics and industrial activities, which needs to be paid proper attention to by business entities. Any casual approach in this regard may lead to disastrous results in the form of loss of existing business and business opportunities.
From the manufacturer’s point of view, the flow of raw materials in a regular and unbroken manner is absolutely necessary in order to ensure that the manufacturing process is not interrupted at any stage. The purchase department is, therefore, required to monitor the level of raw material inventory on an ongoing basis, and place the order for fresh raw materials in a timely manner.
They are expected to know about the time likely to be taken for the delivery of raw materials by the concerned supplier and place the order accordingly well in time.
4. Increase in Profitability
The efficiency level of the functioning of the purchasing department has a direct bearing on the revel of the company’s profitability. They have to decide from which supplier the raw materials should be purchased when to purchase, and how much to purchase (whether in bulk or in small quantity). Such decisions are taken on the basis of a number of factors prevailing in the company, and the market; the latter being volatile in nature.
To understand the issue, an example of the textile unit may be taken, which is required to be extra watchful during the season of cotton, when it is available cheap and in plenty. The textile unit may consider going for placing orders in bulk during such periods.
An additional advantage of timely receipt of quality raw materials is a perceptible reduction in the man-hours, which leads to improved production level and ultimately an increase in the profitability of the company. It is thus evident that the purchase department’s decisions have a far-reaching impact on the company’s profitability.
The right decision would impact the profitability in a positive manner, whereas a wrong decision would have a negative impact on the profitability.
5. Full Utilization of Capital
Placing an order for an appropriate quantity of raw materials at an appropriate time by the purchasing department obviates the need for unwarranted investment of the capital. The capital so saved may be used for some other productive purposes.
The significance of “purchase of a right quantity of right quality at the right time from the right source” may again be emphasized. By following the above practice, the purchasing department may receive maximum discounts from the suppliers.
As the primary buyer of goods and services in private sector companies, government agencies, educational institutions, or any other type of organization, the purchasing department supports company operations.
The purchase department serves its internal customers by obtaining the goods and services they require in a timely manner while also ensuring the financial health of the company. They look for and buy products and services at the lowest possible price and value.
As a result, the purchasing department must comprehend the complexities of the operation it supports, as well as the markets that supply the goods or services needed to meet its objectives.
A purchasing officer’s duties and responsibilities extend far beyond the procurement of office furniture and supplies. Today’s procurement staff must also understand complex network technology equipment, international travel requirements, workspace acquisition, and other topics.