PURCHASE MANAGEMENT

MEANING:
Purchasing is the first phase of Materials Management. Purchasing means procurement of
goods and services from some external agencies. The object of purchase department is to
arrange the supply of materials, spare parts and services or semi-finished goods, required by
the organisation to produce the desired product, from some agency or source outside the
organisation.

DEFINITION:
According to Alford and Beatty, ”Purchasing is the procuring of materials, supplies,
machines, tools and services required for equipment, maintenance, and operation of a
manufacturing plant”.

OBJECTIVES OF PURCHASING:
1. To pay reasonably low prices for the best values obtainable, negotiating and executing all
company commitments.

2. To ensure the continuous flow of production.

3. To acquire quality product so that quality output is served to the consumer.

4. To secure good vendor performance including prompt deliveries and acceptable quality.

5.To develop good procedures, together with adequate controls and purchasing policies.

TYPES OF PURCHASING:

1. Purchase made as per requirement:

No purchase is made in advance .Purchase is done as need arises. Method
usually applied for emergency requirement or infrequent goods. Contract material is given to
an agency. It has an advantage of acquiring materials at low price whose cost fluctuates
frequently.

2. Market purchase:
Purchase is made from the market to take advantage of price fluctuation.

3. Scheduled purchasing:
It is a cyclic purchase model. A schedule of purchase is made and it is used for those
commodities whose price don’t fluctuates frequently

CENTRALIZED PURCHASING:
Centralized purchasing means that a single department controls and manages the purchasing
for the whole organisation. Ideally a manager oversees the purchasing department regarding
what materials need to be purchased and in what quantity. The single purchasing department
is generally located in the headquarters.

centralized purchasing is a purchase of all required goods and services by a single department
for all the branches of the entire company. Generally, a purchasing manager heads the
department.

This can also be run by a central location buying into distribution warehouse that feeds
smaller warehouses. This is called as hub and spoke system.

NEEDS OF CENTARALIZED PURCHASING:

1.Centralized procurement is beneficial in finding the best deals with local vendors for the
corresponding location of the company department.

2. It not only aids in avoiding duplicity of orders, but also promotes advantages arising from
the high volume bulk discounts

3.It helps in lower transportation and inventory management costs.

ADVANTAGES OF CENTARALIZED PURCHASING:

1. Volume purchasing:
Volume purchasing means the district is able to purchase a single item in mass, vendors are
often willing to provide a discount and better prices and more agreeable terms can be
obtained.

2. Increase Efficiency;
In most cases where centralized procurement is not used, the heads of different departments
have to handle purchases. If these organizations were to switch to centralized procurement,
these employees would have more time to devote to their work thus increasing their
efficiency.

3. Reduce Cost:
Centralized procurement saves companies money since it centers all transactions in one
location. This reduces the amount of capital the company needs to invest for storage and
personnel, and also ensures added buying power by combining the needs of various
departments together.

4. Save time in purchasing products:

Individuals spend hours of time to research the product and to find the best
price. The purchasing department
DISADVANTAGES OF CENTARALIZED PURCHASING:
If the company is very geographically diverse, it may not be able to take advantage of local
discounts.

The centralized purchasing department may become too large and complex to manage.

The centralized standard procedure may result in delays in receiving the materials.

It is likely that the centralized buying staff may not be expert in buying varied types of items.

DECENTRALIZED PURCHASING:
Decentralized purchasing refers to purchasing materials by all departments and branches
independently to fulfill their needs.

Such a purchasing occurs when departments and branches purchase separately and
individually. Under decentralized purchasing, there is no one purchasing manager who has
the right to purchase materials for all departments and divisions.

The defects of centralized purchasing can be overcome by decentralized purchasing system.

Decentralized purchasing helps to purchase the materials immediately in case of an urgent
situation.

ADVANTAGES OF DECENTRALIZED PURCHASING:

 Materials can be purchased by each department locally as and when required.

 Materials are purchased in right quantity of right quality for each department easily.
 No heavy investment is required initially.
 Purchase orders can be placed quickly.
 The replacement of defective materials takes little time.

DISADVANTAGES OF DECENTRALIZED PURCHASING:

 Organization losses the benefit of a bulk purchase.

 Specialized knowledge may be lacking in purchasing staff.
 There is a chance of over and under-purchasing of materials.
 Fewer chances of effective control of materials.
 Lack of proper co-operation and co-ordination among various departments.