Most organisations need to buy things to operate. Few organisations are self-sufficient. For example, large automotive corporations buy parts from component manufacturers; component manufacturers buy machinery from equipment producers; equipment producers buy services from service providers and so the chain continues. Organizations buy things that they are unable to produce themselves. This is why purchasing departments exist--they buy all the goods and services that a company needs to operate.
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The purchasing department's task is to acquire everything that an organisation needs to carry out its business. When looked at in such simple terms, that equates to a lot of financial responsibility and risk controlled by a few people. The purchasing function has two lineages: manufacture and financial. The first centres around inventory, getting the goods to be able to function as a business and managing them in such a way to ensure there is an efficient production capability. The second makes sure that what a company is paying for the things it needs is costing the company as little as possible.
A purchasing department searches the marketplace for suppliers and invites vendors to bid for products and services. The purchasing department team then evaluates the bids and awards the sale or project work to certain suppliers based on value for money and quality. After the award of a contract, the purchasing department issues purchase orders to a supplier requesting the delivery of goods or a service. Upon completion, the supplier issues an invoice, which the purchasing department will authorise for payment. Once the contract has been completed, it is the responsibility of the purchasing department to carry out a review process and rate the success of the contract.
Purchasing has become a more strategic function within business. There is a trend to move away from awarding large value contracts to a single provider. Instead, more market research results in a multisourcing approach. This trend will see a number of smaller contracts awarded to suppliers who can explicitly fulfil the requirements, rather than adopting a one-size-fits-all strategy and hoping that the savings gained through a single large contract will counter any potential qualitative problems.
Although adherence to policy has always been recognised, in the past it had been a concept rather than a practice. How the procurement and ordering processes are carried out should be controlled by strict adherence to rules. Procurement Leaders Magazine notes that procurement professionals are now receiving the benefits that having good policies can offer an organisation. Transparency of business conduct, effective reporting and administrative cost savings can all be the result of sound policy deployment.
The manufacturing industries have for many years engaged in global sourcing activities successfully. Purchasing executives are slowly starting to see the advantages of applying global sourcing to services as well. Globalisation of the purchasing function will become easier thanks to continuing improvements in technology, communications and logistics, in addition to competition rules that ensure all qualified suppliers are able to bid.
Role of Purchasing
Purchasing has come a long way from the turn of the 19th century when it was viewed as little more than an administrative function. It is now developing into a function that is involved in many activities. Strategic procurement is a tool that can enable an organisation to get a competitive edge in the marketplace. One of the major issues facing purchasing departments is being able to have an impact in strategic planning, where the big gains can be made, while continuing to run the bread-and-butter procurement processes.
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