Purchasing activity is an integral and incessant activity of every business. Many flourishing organizations regard it as a key function and thus have a dedicated purchase department to take care of the purchase activities. The prime objective is to clearly justify its separate existence. Further, since purchasing is a part of the total management activities, it should ensure that its objectives are in sync with the organizational objectives. Identifying objectives assists the imaginative personnel in enhancing their efforts to attain these objectives economically and efficiently. These objectives are established by the purchasing department head in consultation with the top level of management or as per the policies set by the management.
The primary goal of the purchasing organization is to purchase the right item or service, in the right quantity, at the right price, and at the right time. An abundance of competitors and seasoned customers demand higher quality, faster delivery, and products and services customized to their needs, at the lowest total cost. These demands are made at an even greater speed because of the influx of technology and social media into business-to-business applications. Information and data flow between supply chain members are increasing, making it challenging for organizations to continuously adapt to the ever-changing needs of the customer.
Purchase Management History
| Period | Status |
| Late 1890s | Purchasing rarely used as a different department except in the railroad. |
| Early 1900s | Purchasing considered clerical work. |
| World War I and II | Purchasing function increased in importance due to the importance of obtaining raw materials, services, and supplies to keep the mines and factories running. |
| 1950s and 1960s | Continued to gain stature, processes more refined, and more trained professionals. Still considered order placing clerical in a staff-support position. |
| Late 1960s–early 1970s | Integrated materials systems introduced, materials became part of strategic planning, and importance of department increased. |
| 1970s | Oil embargo and shortages of basic raw materials turned the focus of the business world to purchasing. |
| 1980s | Advent of just-in-time with an emphasis on inventory control and supplier quality; quantity, timing, and dependability made purchasing a cornerstone of competitive advantage. |
| Early 1990s | Value proposition of purchasing continued to increase; cost-savings became the buzzword. |
| Late 1990s | Purchasing evolved into strategic sourcing, contracts were more long term, and supplier relationship building and supplier relationship management started. |
| 2000s | Purchasing shifted its myopic focus on cost to much broader terms. Some of the widely used developments: spend analysis, low-cost country sourcing, procurement technology evolved (ERP, e-sourcing), procurement outsourcing evolved (P2P), total cost of ownership, data mining and benchmarking, and lean purchasing. |
Globalization has forced companies to improve their internal processes, such as supply management, to remain successful. The level of competition in the marketplace expanded to include both domestic and international markets. Purchasers no longer discuss “lowest price” but share information, collaborate, and talk to their suppliers about total costs, life-cycle costs, and cost reductions. This requires a focus on process improvements instead of short-term relationships and price reductions.
Following are the objectives of purchasing:
- To maintain continuity in supply
- To maintain quality standards
- To avoid duplication, wastage and obsolescence
- To sustain organization’s competitive position
- To maintain good image of the organization
- To develop alternate sources of supply
To maintain continuity in supply – The purchasing function needs to ascertain that the materials, supplies and equipment are available in continuity, to avoid any disruption in production and maintain a production schedule. This also requires investments to be made in reserve inventories. The efficiency though can only be achieved if these factors are properly balanced that is dependent on experience, assessment of planned activities and activities forming part of purchasing authority.
To maintain quality standards – The purchasing function should ascertain that the purchased materials should be of desired quality such that the goods can be purchased as per specifications and quality standards are maintained.
To avoid duplication, wastage and obsolescence – The purchasing department head should possess accurate knowledge of items in hand and material requirements for a set period of time, to take informed decisions on both long range as well as short range plans. This is very important to avoid any duplication, wastage and obsolescence of the items purchased.
To sustain organization’s competitive position – The purchasing authority is responsible for evaluating his specifications on purchasing the right material. This will help ensure that the quality standards maintained are neither higher nor lower when compared to those of arch rivals as well as to maintain the goodwill of the organization in the industry.
To maintain good image of the organization – The purchasing agent should build a good image of the organization before the vendors for smooth functioning of the purchasing operation as well as to explore new areas and materials, apart from reducing their costs and enhancing product quality.
To develop alternate sources of supply – The purchasing department should identify alternate sources of supply to increase the bargaining power of the buyer and cut down on the purchase expenditure. This also eases down the pressure when a particular supplier fails to deliver the required items; the same can be sourced from the selected alternate suppliers.
