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Summary Chapter 7 Purchasing Function
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Summary of the purchasing function from one of the 8 business functions. It answers the unit outcomes and links the purchasing function to the other functions.
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Business FunctionsChapter 7: Purchasing Function
1. Explain the role and importance of the purchasing
function in a business.
Instils the importance of keeping a good balance
between purchasing and stock on hand. Purchasing
contributes to successful marketing: Final products will
be available to customers in the right quantities, at
competitive prices, and at the right time.
JIT = there should be enough material (right quantity,
right quality + at the right time) to be able to
manufacture products AND so that there is enough for customers to buy.
2. Relate each of the fundamental management functions to the purchasing function.
Planning: consult with other functions. Marketing to communicate consumer needs,
finance to communicate the budget, and operations to know the raw materials and
machinery required.
Organisation of the purchasing function: centralised and decentralised. Who buys
what?
Control: evaluation of performance to determine whether objectives have been met.
3. Explain the centralisation and decentralisation issues in a business.
Centralised: done by one purchasing department.
Standardisation: cost benefits and supplier relations
Decentralisations: each branch or unit makes its own purchases. Different suppliers are
used for different activities.
Closer contact with suppliers and consumers.
4. Motivate why senior-level employees should perform the purchasing function in a business.
5. Describe the key performance indicators (KPIs) that can be used to make purchasing activities
more efficient.
Price: comparing actual prices with planned or market prices and the number and amount
of discounts negotiated for a certain period.
Supplier performance: determining the number of rejected orders, orders received late
and the number of times it was necessary to speed up orders.
Timeliness: determining the number of orders indicated as urgent, the number of
interruptions of operations and the number of purchases lost owing to a lack of inventory
Cost savings: comparing costs with those of previous periods and expressing
administrative purchasing costs as a percentage of the monetary value of purchases, for
example.
Inventory holding: calculating inventory turnover, inventory losses and obsolescence of
inventory.
Relationship performance with suppliers: using a
supplier survey or scrutiny of supplier turnover.
Relationship with other functions: monitoring the
diligent execution of requests to the purchasing in the
business function.
Workload: e.g. looking at the no of orders and
requisitions.
6. Illustrate and explain the steps in the purchasing cycle.
Determine need.
Selecting the right suppliers – keep the long-term
relationship you would like to maintain in mind.
Price should be regarded as only one of the components
of the total value package, together with quality,
delivery and cost of use. Negotiate where necessary.
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