DPS 304 : Procurement Management Purchasing Role in a Business System

1. DPS 304 : Procurement ManagementPurchasing Role in a Business System Relations with other Departments A purchasing department is the hub of a large part of a company’s business activity. By its very nature, purchasing has continuing relationships with all other departments in the firm, as well as with the firm’s suppliers. Purchasing operations cut across all departmental lines

2. DPS 304 : Procurement ManagementPurchasing Role in a Business System Purchasing & Engineering Engineering usually has the initial responsibility for preparing the technical specifications for a company’s products and the materials that go into them. To exercise this responsibility effectively, engineering must have the constant help of purchasing and operations. If profit is to be maximized, the materials specified by engineering must both be economical to procure and economical to fabricate, and they should normally be available from more than one efficient, low-cost producer & clearly, the quality must satisfy the ultimate customer.

3. DPS 304 : Procurement ManagementPurchasing Role in a Business System Purchasing & Engineering Purchasing and engineering occasionally differ in their concepts of materials problems & this is understandable. Engineering naturally tends to design conservatively, hence, their specifications may provide amply for quality, safety and performance. By training, the engineer may be inclined to seek the “ideal” design material, or equipment without complete regard for cost or timing.

4. DPS 304 : Procurement ManagementPurchasing Role in a Business System Purchasing & Engineering The buyer, on the other hand, often believes it is appropriate to reduce the designer’s performance goals and safety margins, and to work closer to actual necessary if a less costly design with lower safety factor will do the job? Mutual understanding and willingness to give and take are required from both sides if mutually satisfactory solutions are to be reached.

5. DPS 304 : Procurement ManagementPurchasing Role in a Business System Purchasing & Operations The purchasing operations relationship begins when the this department transmits its manufacturing schedule or materials requisitions to the purchasing department. Purchasing subsequently translates these documents into a procurement schedule. Purchasing timing is often a cardinal difficulty in making this translation.

6. DPS 304 : Procurement ManagementPurchasing Role in a Business System Purchasing & Operations When the user does not allow purchasing sufficient time to purchase wisely, many needless expenses inevitably creep into the final costs of a company’s products. When purchasing has inadequate time to properly qualify suppliers, to develop competition, or to negotiate property, premium prices are certain to be paid for materials. Costly special production runs and premium transportation costs are two additional factors that frequently result from inadequate purchasing lead time.

7. DPS 304 : Procurement ManagementPurchasing Role in a Business System Purchasing & Operations The most serious problem stemming from insufficient procurement lead time in manufacturing is a production shutdown. In most process types of operations e.g (chemicals, cement, paint, flour, etc) either equipment runs at nearly full capacity or it does not run at all. Losses resulting from material shortage in non process based industries are not always so disastrous. The indirect costs of such shortages, consequently, are often hidden in production costs.

8. DPS 304 : Procurement ManagementPurchasing Role in a Business System Purchasing & Marketing The purchasing- production- sales cycle has its genesis in a sales forecast. The forecast is the basis for the production schedule, which in turn is the basis for the purchasing schedule. The sales forecast also influences a firm’s capital equipment budget, as well as its advertising campaigns & other sales activities. Prompt communication to production and purchasing of changes in the sales forecast permits these departments to modify their schedules as painlessly and economically as possible.

9. DPS 304 : Procurement ManagementPurchasing Role in a Business System Purchasing & Marketing Purchasing and sales must wisely blend their interests in the delicate area of reciprocity (buying from customers) if satisfactory legal reciprocal transactions are to be developed, they must be pursued with an understanding of the true costs of reciprocity.

10. DPS 304 : Procurement ManagementPurchasing Role in a Business System Purchasing & Finance The importance of good financial planning is highlighted by the fact that poor financial planning is the major cause of business failure. Among the basic data needed by an organization for proper planning of its working capital and cash flow positions are accurate sales forecast and accurate purchasing schedules. It is just as important for purchasing to inform finance of changes in its schedule as it is to inform production and sales of these changes.

11. DPS 304 : Procurement ManagementPurchasing Role in a Business System Purchasing & Finance The importance of good financial planning is highlighted by the fact that poor financial planning is the major cause of business failure. Among the basic data needed by an organization for proper planning of its working capital and cash flow positions are accurate sales forecast and accurate purchasing schedules. It is just as important for purchasing to inform finance of changes in its schedule as it is to inform production and sales of these changes.

12. DPS 304 : Procurement ManagementPurchasing Role in a Business System Purchasing & Finance There are many economic factors that periodically bring about favorable and completely expected buying opportunities Regardless of the price advantage obtainable, the right time to buy from the standpoint of business conditions is not always the right time to buy from the standpoint of the company’s treasury. If the purchasing department makes commitments to take advantage of unusually low prices without consulting the finance department, the company could find itself paying for these purchases with funds needed for other purposes, on the other hand if the finance department does not strive diligently to make funds available for such favorable buying opportunities, the company may have to pay higher prices later for the same material. Prompt payment of supplies is a key contributor to good supplier relations.

13. DPS 304 : Procurement ManagementPurchasing Role in a Business System Purchasing’s Role in New Product Development Early Purchasing and Supplier Involvement In many progressive firms, the design of new products is conducted by a team representing a number of functional areas. Product planning, design engineering, reliability engineering, purchasing, manufacturing engineering, quality, finance, field support , marketing, & carefully selected suppliers and customers are involved as appropriate.

14. DPS 304 : Procurement ManagementPurchasing Role in a Business System Purchasing’s Role in New Product Development Early Purchasing and Supplier Involvement Evidence indicates that the development of new products by such cross functional teams and the use of concurrent engineering have the potential of significantly improving three key issues: time, quality and cost. Purchasing is moving to earlier involvement in the new product development process because of the important contributions it can make in the areas of quality, cost, and timely market availability. This early involvement commonly is referred to as early purchasing involvement (EPI).