Q. Explain the importance of purchasing in a manufacturing organization.

Purchasing is the most important function of materials Management. The

Material planning function determines the requirement of raw materials, parts,

components, spare parts, etc. Needed for production and takes decisions regarding

What, How and When to buy? All this decisions result in the preparation of material

requisitions which are then passed on to purchase department for further action

towards procurement of the materials listed in materials requisitions.

DEFINITION:-

Purchasing refers to the function of processing of materials, supplies,

machines, equipments, tools, spare parts and services required for meeting the needs

of production department and maintenance department.

Purchasing implies the act of exchange of goods and services for money. In its

narrow sense, purchasing refers merely to the act of buying on item at a price. In a

boarder sense, purchasing is a managerial activity involving planning and policy

formulation, research and development strategies required for the proper selection of

materials and sources of supply, negotiating with supplies for best price terms, placing

purchase orders follow-up to ensure timely delivery, co-coordinating with other

departments. Receiving, inwards inspection, stores and accounting

*IMPORTANCE OF PURCHASING IN A MANUFACTURING ORGANIZATION:

Purchasing is a basic function of any industrial enterprise. Since any industrial

enterprise Manufacturing goods (tangibles goods) (products) need raw materials and

components for converting them into finished goods purchasing function is of major

purchasing department is responsible for purchasing materials of right type, in right

quantities, at the right price, made available at the right time and procured from the

right supplier.

In any manufacturing industry the materials cost ranges from 50 to 80% of the

product cost, depending on the nature of the product procurement of goods

through purchase accounts for about 50% of the money spent by the average

industrial enterprise and ranges from 20 to 90% among different industries

Hence, the financial aspect of purchasing is of great importance. A one

percent of savings in cost of materials is achieved mainly through efficient

buying.

A large amount of working capital is usually tied up in the inventories of raw

materials, components and supplies held by an industrial firm since, high

financial stakes are involved in buying the purchase manger who is the

custodian of a firms working capital is obliged to have utmost integrity in

spending the company’s valuable money.

Purchasing can effectively contribute to import substitution and thereby saving

the nations precious foreign-exchange resources purchase managers are

consciously aware of external industrial activities and are able to gather vast

information regarding new products, materials, equipments, machinery, tools

and processes for the benefit of their firms.

Purchasing function has a role in the completion of major projects undertaken

by a firm. Any delay is procurement of materials for the project will eventually

cause delay in procurement of materials for the project will eventually cause

delay in completion of the project.

Purchasing is a key function in materials management. Other functions of

materials management are built around the purchasing function.

For specific factors which have contributed to the rising importance of

purchasing

a) Post war shortages and increasing requirements of defense and govt.,

departments.

b) The cyclical Suring of surpluses and shortages of materials and fast rising

material casts.

Stiff domestic and international competition in the manufacturing industries.

Growing worldwide markets, foreign purchasing to assume international scope

* IMPORTANCE OF PURCHASING DEPARTMENT:-

It is a primary function directly influencing the major cost of operating or

business.

Efficient operation of any industry depends upon proper turnover of

investment. The purchasing department must ensure receipt of proper

materials when needed is sufficient quantities to maintain production at the

same time, it must not increase investment beyond that required to meet

current needs and maintain a reasonable factor of safely against stock and

conditions.

Discovering new materials, which may be used to advantage as

substitutes for materials in use.

Identifying possible new line of products to be added

Building up goodwill is the business world with which it deals.

See changes in trends, either in price or other factors that will affect the

sales of the company.

Its knowledge of vendors and the manufacturing and marketing policies of

other industries make it possible for the purchasing department to

contribute invaluable help in framing plans for initiation of new products,

scheduling of production and determination of marketing