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The Real Value of Purchasing Management

Nov. 26, 2012
Today’s purchasing department plays an increasingly vital role in a company’s overall success

The best purchasing management is involved in most, if not all, aspects of the organization. Until recently, traditionally the purchasing function was viewed very narrowly. It was looked upon basically as a clerical function. Buyers for most businesses were supposed to place orders and make sure that material was delivered to meet the needs of the organization.

This narrow view was reflected in the selection of personnel to perform these menial duties. Gradually, the function changed to reflect the awareness of the possible profit contributions that could be achieved by obtaining lower prices. Buyers were then selected for the ability to shop and negotiate more favorable prices.

Purchasing managers still were primarily concerned with processing paperwork, but with the added motivation of obtaining lower pricing. Buyers who obtained good prices were rewarded with salary increases or promoted to purchasing management positions.

More thoughtful organizations replaced lower price objectives with lower cost goals. Better quality, better delivery performance, and better service in addition to lower pricing were the revised objectives. These evolved further into an evaluation of total cost. Then reductions in total cost objectives were expanded to include long-term total cost.

The largest firms were always ahead of the majority of businesses. They were usually in the manufacturing industries. Their purchasing operations included price analysis and value analysis. Some used various methods to control or reduce inventory costs. These firms used vendor stocking programs, blanket contracts, and releases against long-term commitments.

Smart managers began to realize that standardized products could reduce costs. They began using different sourcing programs to gain from economies of scale. The advantages of single sourcing or split sourcing were considered.

Purchasing management began devising ways to measure supplier performance. Handwritten purchasing records were computerized which allowed quick and inexpensive methods of gathering statistics.

The amount spent per product type and the amount spent per supplier could easily be obtained. This permitted concentration of negotiation efforts on the largest dollar expenditures.

Now computerized records of delivery performance and quality problems provide better assessment of supplier performance. They give real objective data rather than opinions. The documented data helps organizations evaluate suppliers and helps the suppliers improve.

Today, purchasing managers are better trained to install policies and procedures that improve an organization’s efficiency. Communications between users and buyers are quicker and more accurate through the use of well-designed systems. The purchasing manager helps train employees to provide complete information on what they need.

Informed purchasing management is now aware of the organization’s image and the importance of public relations. Buyers and managers have well-designed business cards that follow the company design. Their large and attractive offices and furnishings are indicative of their importance to the organization. Purchasing managers often represent their organization and speak at public functions.

The purchasing operation sometimes obtains no-cost advertising publicity for their organization by collaborating with suppliers.

The purchasing manager obtains valuable information about cost trends, business activity, competitive products, and industry news that is passed on to sales, marketing, accounting, finance, and general management. Purchasing executives can even initiate discussions about possible company acquisitions. They are in a better position to hear about business possibilities than most other employees.

Good purchasing managers can help other department managers improve their operations in various ways. The purchasing manager, along with the buyers, can forecast price changes that help the organization prepare budgets. A good forecast from purchasing can be invaluable to help marketing make good plans and finance to forecast profit potential.

Purchasing can learn about plans or new products offered by the organization’s competitors. Visits to suppliers will reveal this plus other information about the buying company’s competitors.

Purchasing management can learn of new systems and new processes that will help various departments become more efficient and more productive. For example, software used by suppliers may also be beneficial for the buying organization.

The article was reprinted with permission from the American Purchasing Society,

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