What is Purchasing Department
The purchasing department is the section of a company responsible for all activities for the
business acquisition financing of raw materials, spare parts, services, etc., as required by the organization. It provides a service that is the backbone of many industrial, retail, and military organizations.
Ensures that supplies necessary to operate the business are ordered and kept in inventory. This department is at the center of successful supply chain management, and is responsible for minimizing the cost of ordered products, controlling inventory levels, and establishing strong relationships with suppliers.
A good purchasing department will demand quality from suppliers and will follow up on orders from the beginning to the reception. Help other departments identify needs, manage the requisition process, and obtain competitive prices. They usually act as controllers to ensure compliance with budgets.
Characteristics
Act as trusted advisers to senior management
The purchasing department is involved in corporate planning and budgeting at a high level. This makes it possible to design reverse engineering costs and explore potentially less expensive and / or higher quality alternatives.
Drive supplier innovation
More than just demanding the lowest price, the purchasing department works with suppliers to reduce the underlying cost of their products and services.
They are intimately involved with "the life cycle of innovation", from initial idea to manufacturing and continuous improvement.
Provide insight into key vendor data
Companies can draw on this information to create predictive analytics, providing a deeper insight into markets.
Manage and mitigate supply chain risk
Economic crises have taught the value of being aware of the stability of suppliers. The purchasing department has a much clearer view of that area than any other part of the organization.
Promote agile staffing and talent development
It is necessary to cross functional and geographic boundaries to find the right candidates for the purchasing department.
In some cases, the answer is in outsourcing or using shared service organizations.
Features
Obtaining materials
For a manufacturing company this could include raw materials, but it could also include tools, machinery, or even the necessary office supplies for the sales team and secretaries.
In a retail business, the purchasing department must ensure that there are always enough products on the shelves or in warehouses to keep the store well stocked.
It is especially important to keep your inventory warehouse at a reasonable level. Overinvesting large amounts of money in inventory could lead to stock problems and a lack of capital for other types of expenses, such as research and development, or advertising.
Evaluate prices
A purchasing department is in charge of continuously evaluating whether you are receiving the materials at the best possible price, in order to maximize profitability.
You need to compare prices so that you can find the best suppliers with the most sensible prices for company-specific size orders.
The purchasing department can contact alternate vendors, negotiate better prices for higher volume orders, or inquire about the possibility of obtaining lower priced products from a variety of other sources.
Vendor pre-approval
The purchasing department evaluates suppliers in terms of price, quality, customer opinions and time to complete orders, producing a list of approved suppliers.
Track orders
Orders are documented with purchase order forms. These specify important information about the materials ordered, as well as the quantity ordered.
These forms are used to ensure that ordered products are received and to track the time it takes for orders to complete.
Office work
The purchasing department handles all the documentation related to the purchase and delivery of the materials.
This means working closely with your accounting department to ensure that there is enough money to purchase items, that cash flows smoothly, and that all payments are made on time.
Policy compliance
Before making a purchase, the purchasing department has to ensure that it complies with the formalities for the acquisition and approval of the budget, and it must ensure that the materials are purchased following the general policy of the organization.
Importance
Get lower costs
The purchasing department plays an important role in maximizing business profits. Compare prices and negotiate with suppliers so that the company obtains the best possible price on the necessary products.
You can also provide savings by taking advantage of guarantees and discounts that non-specialists generally forget.
It helps to save, providing better transparency in company spending. This will allow you to negotiate better contracts and free up cash flow.
Prevent insufficient materials
The purchasing department has to identify which products are critical to the business and take appropriate measures to protect its supply chain.
To ensure that insufficient materials do not affect productivity, the purchasing department uses techniques such as multiple sourcing.
Having multiple sources means using multiple vendors that offer the same products. If there is a problem with one supplier, orders can be increased to another to compensate for the failure.
Improve quality
The purchasing department helps improve quality by setting performance goals. Then it tracks actual performance against those goals.
It is critical to measure quality characteristics using indicators for attributes, such as durability, product appearance, or timeliness of delivery.
They work closely with suppliers to develop their processes and help them improve quality.
Manage relationships
The challenge for the purchasing department is to get the supplier interested in working with the company. Make the supplier invest in a long-term relationship.
The department also has to manage relationships within the company. You have to work with internal stakeholders, such as marketing, finance, logistics, and distribution, to ensure that they are all aligned.
Seek innovation
Because the purchasing department is always in contact with a variety of external businesses, it is in an ideal position to acquire innovative products that can provide a competitive advantage to the business in terms of price, quality or convenience.
see also
finance and business knowledge
