ChatGPT & AI in
Procurement Course

Free Preview Lesson

Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy

Purchasing Department — Everything You Should Know

Key takeaways

  • The purchasing department is responsible for acquiring the company’s goods to continue its production or processes. 
  • Purchasing is more operational than procurement, which is more strategic. 
  • The purchasing department has two main functions when it comes to business context which are manufacturing and retailing. 

Have you ever wondered how the purchasing department works? How does it get in touch with the suppliers? Or how do they negotiate with the suppliers to acquire the materials or supplies they need to operate?

The purchasing department’s duties may be evident by its name. However, there are much deeper functions and roles that make it important to a company. In this article, we will delve further into what a purchasing department is and what separates it from a procurement department. 

After reading this article, you will know the role of a purchasing department, giving you an idea of how you can help its processes further to promote efficiency in the company.

I have created a free-to-download editable procurement process: 7 steps templateIt’s a PowerPoint file, together with an Excel filethat can help your purchasing department’s processes. I even created a video where I’ll explain how you can use this template.

What is the Purchasing Department?

As we all know, the purchasing department is responsible for acquiring goods that the company needs to operate. It ensures that the supply, production, and equipment are available to make the process smooth from start to finish when manufacturing goods. 

Additionally, the purchasing department is more involved in the actual buying of the goods or services. When buying goods or services, the purchasing department usually considers the best possible price, terms, and conditions of goods or services to meet the organization’s immediate needs.

The purchasing department has to keep in mind if it has sufficient supply to meet the customer’s demand. This is due to the fact that having too many materials or goods will surely spoil it and that adds more cost. Having less supply of materials will also contribute to more expenses. 

The importance of the purchasing department is that it is the part of the company that identifies its crucial needs to secure its supply. The supply chain at its core ensures effective and efficient procurement of goods or services that the company needs.

What is the difference between Purchasing and Procurement?

I can imagine that only some know the difference between Purchasing and Procurement. It doesn’t help that the terms (sometimes wrongly) are used interchangeably. 

They are definitions that relate to each other within a broader context of Sourcing and Supply Chain management, yet they are quite distinct. Below you can find some differences:

Procurement
Procurement is more strategic.
Procurement is broader than purchasing and also encompasses supplier management, strategic sourcing, negotiation, and risk management.
Procurement often involves analyzing the organization's needs, selecting the right suppliers, and managing these suppliers.
It focuses on maximizing value for the organization through cost savings, quality improvement, and risk mitigation.
Purchasing
Purchasing is a component of procurement and is more about the transactional aspect of buying goods and services.
It involves the actual buying of goods or services at the best possible price and conditions.
Purchasing is more operational compared to procurement and focuses more on execution.
It includes activities such as placing orders, managing supplier relationships on a day-to-day basis, and ensuring that the right products are delivered at the right time.

The Two Core Functions of the Purchasing Department

As we mentioned earlier, the purchasing department primarily focuses on acquiring goods or services. It has two main functions or facets within a business context: manufacturing and retailing, which we will discuss further below.

1. Manufacturing

This facet of the purchasing department is involved in acquiring raw materials to process them into a finished product that they will sell in the market. 

For example, a purchasing manager for a food factory is tasked to source raw materials and components needed to create their signature bread. However, this is not where it ends. A purchasing manager must find the right suppliers and check the quality of the materials that will be used for their signature bread.

Once you have all the raw materials, the purchasing manager should have overall control of the production as manufacturing relies on a steady flow of materials. 

2. Retailing

This function of a purchasing department is more focused on acquiring finished goods to be sold again in the market. 

For this, the purchasing manager of a mobile phone store is more focused on ensuring that the inventory has the right stock levels. Of course, the purchasing manager will still search for wholesalers. However, they must be pro-negotiators to get the best deals while also building a strong relationship with their suppliers. 

What is Purchasing Management?

Purchasing management refers to administrating the processing of acquiring the materials necessary for the daily operation of a company. 

Having efficient purchasing management can help companies to lower their costs while maximizing their profits. This process usually involves evaluating 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. Maximizing Resources

Purchasing management can help the company to maximize its resources through efficient timing of the purchased materials. 

Knowing when to buy materials ensures that financial resources are used effectively rather than being tied up in excess inventory.

2. Maximizing production

Purchasing management enables the company to maximize production by ensuring 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. Controlling 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. Increasing profits

Managing the company’s purchases 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 Roles of the Purchasing Department

Here are some of the important functions and roles of the purchasing department that can streamline the company’s operations:

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 the company’s needs can be met. 

The purchasing department can check the historical records of their purchases to track the company’s needs. This is to evaluate if there are changes in the company’s plans which can help them 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 customers’ demands. 

Coordinating the arrival of the deliveries guarantees fewer obstacles to the procurement process. 

3. Budgeting

The purchasing department must guarantee that the requested amount for the budget will be enough to cover the expenses. It must achieve the goal of lessening 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 is 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 its 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 its benefits. 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 may end 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 regarding 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 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 improve its products by monitoring the availability of supplies and checking for ways to get better materials without raising costs. 

This helps the company to build customer loyalty, increase its profit margins, and thrive in the competition with other companies. 

Procurement Expert’s Insights on The Purchasing Department

For this article, we asked an experienced procurement expert to share her insights to help answer common questions about the purchasing department.

Nesrin Chabbah
Senior Lead Buyer

LinkedIn Profile: linkedin.com/in/nesrin-chabbeh

1. What do most people get wrong about the purchasing department?

“Some fail to recognize its strategic importance, often reducing it to transactions. The purchasing department has a profound impact on cost-effectiveness, profitability, and operational efficiency.

It encompasses both strategic and operational procurement, crucial for a company’s growth and financial well-being.

Efficient purchasing management involves timing optimization, cost control, production maximization, and facilitation of just-in-time production, all contributing to a company’s prosperity.

Understanding these facets is crucial for recognizing the pivotal functions and significance of the purchasing department in a company’s operations.”

2. For those planning to work with the purchasing department, what important information should they know?

“Starting in purchasing management? It’s not just buying goods. Learn the strategic and operational sides. Master efficient inventory, cost control, and just-in-time production. Efficient purchases can boost profits and streamline operations.”

3. From your experience, what is the most important thing you learned about the purchasing department?

“The core of purchasing management lies in striking a balance between acquiring necessary materials for operations and minimizing costs. Strategic procurement aligned with business goals is crucial.

Effective inventory management and supplier relations optimize outcomes, highlighting the significance of a well-structured approach in procurement management.”

4. Can you provide some tips for being effective in the purchasing department?

To excel in procurement, focus on strategic sourcing, optimize inventory through data, centralize documentation, maintain transparency, and refine negotiation skills with suppliers for mutual benefit.

5. Can you give us an example of how you managed your purchasing team or department?

“Emphasizing processes was crucial. Clear roles were defined, collaboration was encouraged, efficient procurement tools were utilized, regular training was provided, and a positive work environment was maintained.

Close performance monitoring was a priority. Effective communication was highlighted to ensure efficiency, prevent potential issues, and manage risks adeptly. Weekly meetings were held to facilitate coordination.”

Conclusion

In conclusion, the purchasing department plays a crucial role in businesses as it ensures the timely purchasing of products or services. 

Although it heavily focuses on buying goods and services, purchasing managers should also know how to manage their purchases to ensure that their inventory won’t exceed or go out of the needed items. 

Furthermore, understanding how the purchasing department operates can help the company identify more opportunities that will allow it to have smoother operations that will lead to greater success for the organization. 

Frequentlyasked questions

What is a purchasing department?

A purchasing department is the part of a company that is responsible for acquiring goods that the company needs to operate.

What is the importance of having a purchasing department?

It is important as it is the part of the company that identifies what it needs to continue its production or its daily process.

What are the two core functions of the purchasing department?

The two core functions are manufacturing, which involves sourcing raw materials to create finished products, and retailing, which focuses on acquiring finished goods to be sold in the market.

About the author

My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.

Marijn Overvest Procurement Tactics