Purchase Management

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 Contents
Introduction
Importance of Purchasing
Organizing purchasing
Responsibilities of a purchasing manager
Purchasing Process
Ethics in buying

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 Introduction
 Most organizations cannot satisfy all their materials
requirements internally because they do not have
the capability to make the items themselves.
 In some cases, they purchase items from external
sources simply because it is cheaper to purchase
than to make them internally.
 In other words, the purchasing department must
ensure that the right equipment, materials and
supplies and services are procured in the right
quantity, from the right source, at the right time, and
at a competitive price.

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 Importance

The term ‘purchasing’ refers to buying of a material or an

item from a company or division that supplies materials.
Since a manufacturing firm is involved in the conversion
of raw materials into finished goods, it should ensure that
right type of materials are purchased in the right quantities
at the right time.
Apart from obtaining the right product at a lower cost, the
purchase department may also perform other activities like
developing a network of vendors, and providing for
necessary information about new products, materials and
services to other departments. 4
 Organizing purchasing
The effectiveness of purchasing activities can
be enhanced by proper organization and
coordination of activities. There are two
types of purchasing system.

1. Centralized purchasing system

2. Decentralized purchasing system

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 Responsibilities
The purchase department is one of the key players in
achieving the strategic objectives of a firm. It is
responsible for activities like timely delivery of
products or services, costs and quality of purchased
items and so on. Thus the purchasing manager undertakes
the following activities :
Vendor development
Selection of suppliers
Contract negotiation and communication interface
Value analysis

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 Purchasing Process
Suppliers Purchasing function The internal operation

Suppliers Requests
prepare Prepare
for
quotation of requests
products
specification for
&
price quotations
delivery etc services

Select
the Discuss with
preferred
supplier Internal operation

Produce Prepare
goods/ purchase
services order 7
Deliver goods/services Receive
goods/
services

Inform purchasing Input to

function Internal operation

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 Ethics in Buying
 Ethics means moral principles and recognized
rules of conduct. Since the purchasing department
deals with large sums of money, purchasing
personnel may in some cases, take part in unethical
and illegal activities such as manipulating
quotations, fixing prices, favoring a specific
supplier while placing an order.
 Most organizations develop a set of rules and
guidelines to ensure that their purchasing personnel
conduct business in an ethical manner.
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 Reference

Operations Management –
2nd Edition ICFAI

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