Implementation involves implementing the PPC plans that had been developed.
Purchasing activity is an integral and incessant activity of every business. Many flourishing organizations regard it as a key function and thus have a dedicated purchase department to take care of the purchase activities. The prime objective is to clearly justify its separate existence. Further, since purchasing is a part of the total management activities, it should ensure that its objectives are in sync with the organizational objectives. Identifying objectives assists the imaginative personnel in enhancing their efforts to attain these objectives economically and efficiently. These objectives are established by the purchasing department head in consultation with the top level of management or as per the policies set by the management.
Following are the objectives of purchasing:
- To maintain continuity in supply
- To maintain quality standards
- To avoid duplication, wastage and obsolescence
- To sustain organization’s competitive position
- To maintain good image of the organization
- To develop alternate sources of supply
Methods of Purchasing
There are five essential methods of purchasing:
- Bulk Purchasing
- Hand to Mouth Purchasing
- Speculative Purchasing
- Blanket Purchasing
- Reciprocate Purchasing
Bulk Purchasing – Bulk Purchasing is the most economical form of purchasing. But at the same time, it involves more capital investment of overstocking and high storage costs owing to likely damages. Bulk purchasing is an ideal option for making large quantity of purchase for the future.
Hand to Mouth Purchasing – This purchasing is also widely known as Zero Stock Buying, which means that there are no purchase transactions done until a demand arises, and accordingly the purchase of quantities is decided. This method is mostly used in case of emergencies, or to the goods used occasionally and not taken into stock. Further, using the method avoids any blockage of capital investment in materials, carrying costs, obsolescence and wastage of materials. However, the only drawback in this method is that there is fear of production halts due to paucity of materials, or the materials then need to be procured at higher costs.
Speculative Purchasing – In cases when the manufacturers prefer to purchase materials in large quantities than required in manufacturing process, it is planned such that the surplus can then be sold off at higher prices for earning profits. Speculative purchasing is popular in cases of extremely low prices when it is expected that these materials will fetch better prices in the upcoming period. While one can benefit from speculative purchasing method that it can give you huge speculative profits, it also blocks large amount of capital and you need large storage space and as such, there are risks of obsolescence, etc.
Blanket Purchasing – The method involves ordering items of same group under one category; the blanket purchase orders can be utilized for purchasing frequently purchasing items or services, and have been designed such to effectuate the procurement processes.
Reciprocate Purchasing – In this form of purchasing, an arrangement is entered into between two or more organizations that purchase each other’s goods and services.
