Purchasing Organization

Purchasing department is usually under the General Manager at par with other functional departments such as engineering, finance, accounts, manufacturing, marketing etc. Sometimes it is kept along with other related departments like stores, inventory and materials control, under materials manager who in turn is under General Manager. Choice of an organizational structure depends on the volume of work and value of the purchase. A good structure encourages the assignment of specific responsibilities, specific authorities and smooth chains of command of delegation. It should lead to the development of policies that permit routine decisions to be made by subordinates.

Within purchase department, the structure may he worked out using following approaches:

Organization by Function: It is based on the principle that job should be organized so as to promote maximum possible specialization of skills. Total purchasing job is broken up on the basis of specialization, such as (1) processing of purchase requisitions, (2) floating enquiries, (3) selection of suppliers, (4) preparation of purchase orders, (5) receipt inspection and storing, (6) liaison with accounts section, (7) records maintenance etc. Each job, or a group of jobs, is assigned to individual or group of individuals who specialize in that work. This approach has obvious advantages but suffers from the disadvantage of people getting bored doing the same kind of jobs for a long time, and sometimes it leads to bureaucratization.

Organization by Product: The items purchased are classified into groups and each group is assigned to a team of personnel who specialize in purchase of that particular type of the materials. For example, a team may be specialist in buying raw materials, while other in components and sub-assemblies, and so forth.

Organization by Location: This is applicable for the organizations which are large and have several plants. Each plant may have a purchasing department under. The overall supervision of the central purchasing department

Organization by Stage of Manufacturing: In case of manufacturing, sometimes it is advisable to organize the purchase activities according to the stage of manufacturing, e.g. raw materials, parts, sub-assemblies etc.