The functions and responsibilities of the purchasing department can be broadly outlined as below:
- To make the materials, supplies and equipment available for the organization at minimal costs, such that it leads to maximum productivity and subsequent profitability of business operations.
- To make sure that there is continual flow of production with undisrupted supply of raw materials, component parts, supplies, tools, equipment, etc. with repairs and maintenance services.
- To enhance the asset turnover ratio, such that the investments made in fixed assets as well as inventories are minimal with respect to the corresponding volume of sales. This will also increase the profitability of the organization.
- To identify alternate sources of supply, increase the bargaining power of the buyer and ensure cost minimization and increased ability to meet the emergencies.
- To establish good relations with the suppliers, which helps in communicating a favorable image in the business circles, and these are often useful when it comes to changing reasonable prices, preferential material allocation during shortages, intimation about foreseen shortages, details about the newly established substitute, outstanding payments during temporary liquidity crisis, etc.
- To attain maximum integrity with other organizational departments, including production department or material specs, flow and recommended supplies of certain items, etc., engineering department for purchasing tools, machines and equipment, marketing department for sales forecasts and impact of input quality on output quality, finance department to maintain levels of materials, scheduling investments, etc., and personnel department to man and develop personnel, maintain supplier relationships, etc.
- To train personnel and develop them and ensure management succession with contented workforce.
- To ensure efficient recordkeeping and management reporting, such that paper processing is standardized and recordkeeping is maintained.
- In addition to the above, the management is also concerned if the following aspects are in place to give the key policies a concrete shape:
- Quantity and value of the items purchased, segregated by raw materials, spares, component parts, machines and equipment, supplies, etc
- Departmental costs under the relevant heads of the expenditure
- Work analysis of the purchase department
- Details about cash discount and quantity discount earned and lost
- Price trend in the ensuing period and its impact on inventory costs
- Planning on material availability and strategy development as planned
- Details about new materials and processes that can reduce manufacturing costs
- Identification of new alternate sources of supply
Purchase Department Organization
Each business will have its organization chart structures as per its specific requirements. Similarly, the organization structure of one purchasing department may even differ from another, while there could be certain positions that are pervasive in more hierarchical structures.
- Director – The purchasing department director may be allotted with number of titles, such as ‘director of procurement’, ‘procurement manager’, ‘lead buyer’ and so on. This person will be ultimately responsible for the functionality of the department, including its day-to-day operations and the efficiency thereof.
- Deputy Director – His role comes second in position to the Director, who takes cues from the latter and assists in the daily operational activities of the purchasing department.
- Senior Buyers – In a purchasing department, the senior buyer should be aware of the material requirements in terms of type and quantity. The department should strike a balance between the inflow of materials and materials being used in the manufacturing process, such that the capital investment is not bogged down by unutilized materials at stock. Especially in consumer-oriented businesses, the senior buyer should be able to plan the want of consumers accurately to avoid any business loss and loss of goodwill. Senior buyers reports to the Deputy Director.
- Assistant Buyers – Assistant buyer report to senior buyers, but are also responsible for keeping themselves updated on the existing inventory and trends, and emphasize on supplier assessment by identifying the most reliable sources at higher cost savings.
- Support Staff – They represent the team working together to achieve the objectives of the department, and include administrative staff, clerks, apart from multi-talented employees.
