PURCHASING MANAGEMENT

Purchasing :

Can be defined as the acquisition of needed goods and services at

optimum cost from competent, reliable sources.

Needs: examine need, timing, quantity, source, specifications

Goods and services: Make or buy or lease
Optimum cost: Best total cost, not only lowest acquisition cost,
consider also quality and service
Competent sources: select carefully
Reliable sources: monitor performance.

Components of purchasing

Needs assessment

Source identification

Contract negotiation

Supplier selection

PO issuing

follow-up

Performance evaluation

Purchasing objectives:

Right quality

Right quantity
Right time

Right source

Right price

Purchasing management cycle

Analysis

Planning – make or buy, domestic vs. overseas, national vs. local,

distributor vs.manufacturer, purchasing timing

Implementation

Control

Organisation

Purchasing role in corporate planning

Quantity

Time

Money

Principles of Purchasing organisation

Specialisation

Control

Co-ordination

Communication
Line and Staff

Setting up a Purchasing Dept:

Task delegation

Work classification – Management, buying, clerical work,

expediting, special project or studies

Centralisation vs. decentralization

Material management

Procurement Process:

Recognition of need

Requisition issue

Requisition review

Specification dept.

Supplier search

Supplier selection

PO issue

Contract formation

Receiving and inspection

Contract completion

Basic options in materials sourcing

Number of suppliers
Supplier size

Supplier location

Distribution channel

Co-operative purchasing

Supplier files

The purchasing must:

Evaluate supplier performance continuously

Reward satisfactory suppliers with additional orders

Inform unsatisfactory / deficiencies are identified, suggest remedies

and offer assistance

Remove consitently unsatisfactory suppliers from approved list

and eliminatefrom further contract awards

Limit the size of supplier base, kept it fresh and dynamic and identify new
sources

Economic consideration in price making:

Cost approach – govt. controlled prices

Market approach

Discounts

Trade discounts

Quantity discounts

Price cost analysis:

Price
Costs

Overhead costs

General and administrative costs

Profits