What would happen if ice melting salt were not available until spring? How would you feel if you tried to buy a coffee at the local café only to be told they had run out of coffee beans? Making sure the key components that a business or service relies on are available when needed is the responsibility of the purchasing role.
Purchasing and supply chain or procurement may be an understated part of an organization but the reality is that purchasing is a highly strategic role, whether the business is manufacturing or service-based, in the public or private sector, for profit or not. Procurement has many laywers. It covers the full supply chain from contracts (negotiating), procurement (purchasing) and logistics (storage/distribution).
Purchasing and supply focuses on sourcing, pricing and buying the right things, at the right price and at the right time in order to deliver a service or product. Effective purchasing can help an organization to
- Reduce costs
- Maintain quality
- Manage the levels of risk to its supply chain.
The scale or importance of the item is relative to the level of risk to the business. Missing coffee beans will affect the day’s profits; getting the wrong size of engine for a car could close down the production line.
Role of Purchasing Department
Procuring Materials: One role of the purchasing department is to procure all necessary materials needed for production or daily operation of the company. With a small business, it is especially important to keep inventory ordering at a moderate level; investing large amounts of capital in excess stock could result in storage issies and in a shortage of funding for other expenses such as marketing or research and development. Purchasing also oversees all of the vendors that supply a company with the items it needs to operate efficently.
Evaluating Price: A purchasing department also is tasked with continuously evaluating whether it is receiving these materials at the best possible price in order to maximize profitability. This can be difficult for a small business that may purchase in lower quantities than a larger vendor and may not receive the same type of bulk discounts. A purchasing department in a small business needs to shop around to find the best vendors at the most reasonable prices for the company’s particular size orders.
Paperwork and Accounting: Purchasing departments handle all of the paperwork involved with purchasing and delivery of supplies and materials. Purchasing ensures timely delivery of materials from vendors, generates and tracks purchase orders and works alongside the receiving department and the accounts payable department to ensure that promised deliveries were received in full and are being paid for on time. In a small business, this means working closely with the accounting department to ensure that there is sufficient capital to buy the items purchased and that cash is flowing smoothly and all payments are made on time.