Purchasing Department — Everything a Procurement Professional Should Know
The purchasing department’s duties may be evident by its name. But there are much deeper functions and roles that make it important to a company.
After reading this article, you will be able to grasp the basics of the purchasing department.
Whatis the Purchasing Department?
As we all know, the purchasing department is responsible for acquiring goods or services that the company needs to operate.
The purchasing department is where the procurement process starts and ends.
This department ensures that the supply, production, and equipment are available to make the process smooth from start to finish.
It keeps the financial condition healthy as it dwells in the marketplace to acquire goods and services. It also maintains the financial condition of the company as it needs to acquire the right amount of materials to use efficiently.
Having too many materials will surely spoil it and that adds more cost. Having less supply of materials will also contribute to more expenses.
That is why the purchasing department has to keep in mind if it has sufficient supply to meet the customer’s demand.
The Functionof the Purchasing Department
As we have discussed, the main function of the purchasing department is the procurement process. The purchasing department supports the company as the main buyer of goods and services that it will need.
The purchasing department is essential to the growth of a company.
Acquiring enough materials in a cost-efficient manner will enable the company to attain its growth. It can also raise more profits for the company and lower some expenditures it has.
The purchasing department also ensures that the businesses it assists are well-served. It needs to make sure that the businesses have all the materials to start their project.
Strategic and operational Role of Purchasing Department
The purchasing department can heavily influence the profitability and cost-saving opportunities of a company. Thus, a purchasing department plays two roles in an organization which are the following:
1. Strategic Purchasing
The purchasing department is formulating procurement activities based on the organization’s business goals in this role. This role helps companies in sourcing goods strategically.
Additionally, the decisions about procurement from external suppliers and in-house manufacturing are taken into account in this role.
2. Operational Procurement
This is the role of a purchasing department where all their responsibilities are focused on taking care of business operations.
On the operational level, purchasing departments ensure that the company receives everything it needs for the project which includes raw materials that will be used in the manufacturing process and supplies for employees.
What is Purchasing Management?
From the word itself, purchasing management is the administration of the process of acquiring the materials necessary for the daily operation of a company and producing its product.
Having efficient purchasing management can help a company to lower costs while maximizing its profits. It usually involves assessing the inventory, identifying the storage capacity, and handling distribution issues.
In purchasing management, the purchasing manager usually works with suppliers and attempts to align the delivery of the necessary materials with production needs. Additionally, the purchasing manager may frequently solicit bids for services and goods to control costs.
Importance of Purchasing Management
Purchasing management is important as it can help in various ways such as the following:
1. Help the company to properly use its space
Purchasing management can help the company to use its space through efficient timing of the purchased materials. Knowing when to purchase materials will allow you to use the space for other things than just letting it sit in your storage for a long time.
2. Maximize production
Purchasing management enables the company to maximize production by ensuring that all employees have the necessary materials for manufacturing. If a company orders too much material, it may end up in storage or worse, wasted.
3. Control costs
Purchasing management is involved in understanding the supply chain and market fluctuations. Thus, it finds the best possible price for raw materials which helps you control the costs in your company.
4. Increase profits
Managing the purchases of a company can help lower the cost per unit of the materials and increase the product’s profit margin. Additionally, it can allow you to avoid wasting materials and having unnecessary storage costs.
5. Just-in-time production
Purchasing management plays a vital role in implementing just-in-time production as the arrival of raw materials for manufacturing is aligned with the delivery of products to consumers.
Other Functions and Rolesof the Purchasing Department
1. Assess the company’s needs
The purchasing department must know if the supplies in the company are enough to cover its operation before purchasing.
It is also important to know that they can provide what is required of the company.
The purchasing department can check the historical records of their purchases to track the needs of the company. This is to evaluate if there are changes in the company’s plans to effectively manage the supplies.
2. Check the Deliveries
The purchasing department negotiates with the supplier the schedule of the deliveries. They do this to make sure that all deliveries will arrive on time.
It also checks the inventory to know if the materials will be enough to use in the company. Because if they run out of materials, they may incur losses as they cannot meet the demands of the customers.
Coordinating the arrival of the deliveries guarantees fewer obstacles to the procurement process.
The purchasing department must guarantee that the requested amount of the budget will be enough to cover the expenses. It must achieve the goal to lessen the cost while ensuring the quality of the company’s growth.
Developing a budgeting plan will make the company’s resources efficient. As the purchasing department works together with the finance team, they can ensure that costs will be maximized.
4. Compare Prices
When the purchasing department was given a budget, they must source out which supplier is better for the company. They must select the supplier with the best price without sacrificing the quality of goods or services.
The purchasing department must find the best rates that will benefit the company and also their supplier in the process.
They can use the traditional or smart procurement method to find the best rates for the company.
5. Maintaining Supplier Relationships
Having a harmonious relationship will benefit one another. This can be the instance with the purchasing department.
It must maintain a healthy relationship with the supplier because of the benefits it has. The supplier may give discounts or extra materials if you have a long-term relationship with them.
The purchasing department can also build relationships with other suppliers it deems beneficial. Especially if the contract with the primary supplier is ending and may raise the prices of its goods or services.
6. Complying with the Agreements
When a contract is made between the purchasing department and the supplier, they must abide by it. They must follow thoroughly what has been negotiated to avoid breach of contracts and other problems that may arise.
They must also follow all the government regulations when it comes to the procurement process to carry out the project.
7. Carry out Research
The purchasing department must develop research to achieve its long-term goals like every other company. Research helps strengthen the company’s future plan for growth. It ensures a clearer view of what should be done to achieve growth.
Moreover, carrying out research will ensure that your supplier can match the standards of your company. It will help you to find the best supplier for your company.
8. Enhance Procurement Strategies
Enhancing procurement strategies will ensure the development of the company. The purchasing department may collaborate with other departments in planning to attain its growth.
This can be done by ensuring that suppliers match your requirements and crafting new ways to improve the procurement process.
9. Records all Transactions
The purchasing department must record all their transactions so that they can easily find them if the need arises.
Records of purchases, invoices, contracts, and documentation of refunds are important to know if both fulfill their obligations diligently.
They can also monitor the records of their inventory to see if it is enough to complete their operations.
10. Enhance the quality of products
Purchasing departments can help the company to improve its products by monitoring the availability of supplies and checking for ways to get better materials without raising the costs. This helps the company to build customer loyalty, increase its profit margins, and thrive in the competition with other companies.
Key personnelin the Purchasing Department
1. Chief of Procurement
The chief of Procurement leads the procurement team. He or she oversees the procurement process.
2. Director of Procurement
The director of procurement has knowledge of the supplies prices, analyzes potential suppliers, and oversees sources for purchasing supplies. He or she also maintains the budget and streamlines costs.
3. Procurement Manager
Its role is to identify, negotiate, and manage the contract of a potential supplier of the company.
4. Procurement Analyst
The role of the procurement analyst is to have meetings with the vendors and test the products. Also, its role includes negotiating supply contracts and creating cost reports.
5. Procurement Specialist
One of its jobs is to supervise budget estimation and sourcing operations
6. Contract Specialist
From its name itself, its role is to manage the contract development from start to end.
7. Legal Counselor
The legal counselor of a company ensures compliance with the law.
8. Business Controller
Its role is to maintain control and forecast the impact of procurement activities in the company.
Significanceof Purchasing Department
The purchasing department helps identify the needs of the company besides its main function of acquiring goods and services.
It knows the crucial needs of the company to secure its supply. The supply chain at its core ensures effective and efficient procurement of goods or services that the company needs.
Planned budgets and minimizing costs cannot be attained without the help of the procurement department.
What is a Procurement Team?
In project management, the term procurement refers to a group of professionals supervising the acquisition of needed goods and services as part of the project’s budget.
The procurement team is responsible for managing the procurement process and monitoring expenditures throughout the whole project lifecycle.
Additionally, they are tasked to negotiate with private or government contractors regarding the price, quality, and delivery terms. They then communicate with the project management team the necessary items and requirements of the project.
What are the Duties and Responsibilities of a Purchasing Department?
+ What is a purchasing department?
The purchasing department is in charge of acquiring the goods or services needed by the company.
+ How many team members does a purchasing department have?
A purchasing department team has 8 key personnel. But generally, it depends on the decision of the company.
+ What skills are necessary for a purchasing department?
One of the skills that are necessary for a purchasing department to have is clerical skills. Other skills include communication and math skills.
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