But now a days, purchasing has acquired a new dimension and it has become a specific function. It is a process which includes all the functions involved from the requirement to the receipt of material and its final acceptance.

In the words of Alford & Beaty, “Purchasing is the procuring of materials, supplies, machine tools & services required for the equipment, maintenance & operation of a manufacturing plant “

IMPORTANCE OF PURCHASING

The purchasing is important function in all type of business organisations whether it is small, medium or large.

Without purchasing, no business can be operated. In today’s World, purchasing plays a significant role in shaping the business decisions.

The role of purchasing in business management has become very important.

Few important reasonsa) Higher cost of goods & servicesb) Escalating cost of stock outsc) Higher present day cost of capitald) Purchase is not mere act of buyinge) Professionalisation of materials

function f) Changing Concepts of buyer- Seller

relations

(a) Higher cost of goods & services :- As we known nearly 60% or more money in any organisation blocked in raw materials. Therefore the profitability depends to a great extent on the efficient purchasing.

(b) Escalating cost of stock outs :- Lack of continuity in the availability of

materials seriously affects all major Companies.

Financial loss due to stock outs of materials in mass/flow production units.

(c) Higher present day cost of Capital :- Unnecessary Capital lock-up can be

avoided if purchasing is made efficient.(d)Purchasing is not mere act of buying:- Purchasing is not mere act of buying. It

is in fact a much a much broader concept. Purchasing in todays context includes-

market research, vendor rating,standardisation & variety reduction,codification,surplus disposal,purchase budget etc.

(e)Professionalisation of materials function :- Like other branches of industry, purchase to has experienced development of many concepts such as:-ABC analysis, economic lot size, codification, vendor rating etc.

(f)Changing Concepts of buyer-seller-relations :-Retention of good suppliers, with increasing competition, is becoming difficult and hence the buying functinion is becoming challenging day by day.

OBJECTIVES

1. To maintain regular flow of materials, so that there will be continuity of operations.

2. To procure at a competitive price the needed materials at the right quality,the right time.

3. To suggest better substitutes to materials which are currently being used with a view to lower cost & maintain quality of the products.

4.To integrate the requirements of all departments of all departments of the organisation in order to take the advantage of economy of scale wherever possible and to also avoid duplications of purchases resulting in wastes and obsolescence.

5.To create goodwill for the organisation through healthy buyer – supplier relationship.

FUNCTION OF PURCHASE DEPARTMENT

1. Locating selecting & developing qualified source of supply.

2. Scrutinising purchase indents and deciding suitable method buying.

3. Floating enquires, processing quotations, conducting negotiation and releasing purchase orders.

4. Pre – delivery follow – up & shortage chasing.

5.Co-ordination with inward inspection including timely return of defective materials back to suppliers.

6.Endorsing suppliers invoice for payment.

7.Processing suppliers requests for price increases including price renegtiations.

8.Attending to suppliers’ representatives and travelling sales sales men.

9.Arranging discussion meetings between suppliers’ representatives and Companys officials.

10.Disposal of Surplus, obsolete & scrap material.

11.Advising management as regards to new materials, new products, forward buying etc.

12.Acting as a link between Company’s finance department and suppliers for timely payments/settlement of suppliers bills

13. Attending to periodical activities like applying for important licence, quota etc.

14. Maintaining Company’s image among suppliers.

PURCHASING PRINCIPLES

5 R’s OF BUYING

RIGHT SOURCE RIGHT TIME RIGHT QUALITY RIGHT QUANTITYRIGHT PRICE

1. Right Quality :- Right quality does not mean the best quality.Any quality that is suitable for the purpose is known as right quality.

2. Right Quantity :- Purchase organisation is also responsible to maintain regular flow of materials for production activity.

For this right quantity of materials is to be purchased. Excess purchase should be avoided because Capital is unnecessarily blocked.

(3)Right Time – Right time means the minimum level. This level indicates the stock has reached to minimum and now the order must be placed. At this level, purchase department will not delay in placing order.

If the goods are arranged earlier than the required time, it will cause over-stock and blocking of money.

On the other hand, delay in delivery means loss of production.

(4)Right Source :- The right source is that supplier who can supply the material of the right quality, in the right quantity,at the right time and at the agreed or right price.

The supplier should have sufficient financial resources and manpower to handle the order.

Right source aspects requires decisions as to what items should be purchased directly from the manufacturers,which items from dealers & which items from open market.

As far as possible, the firm should be located near the buyers plant.This will avoid delivery delay and high transportation cost.

(5)Right Price :- Right price does not means the lowest price but the price which minimise the overall cost.

ORGANISATION STRUCTURE OF THE PURCHASE DEPARTMENT

BOD

MD

PRODUCTION MANAGER PERSONNEL MANAGERFINANCE MANAGER MARKETING MANAGER MATERIALS MANAGER

PURCHASE MANAGER

RECEIVING & STORES INVENTORY TRAFFIC