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Theoretical Background Essay

Purchasing is “Critical to supply chain efficiency because it is the job of the purchasing to select suppliers and then establish mutually beneficial relationships with them. Without good suppliers and without superior purchasing, supply chains cannot compete today’s” marketplace. Purchasing is also very involved in product design and development work. Many “manufacturers have found out that manufacturing costs can be reduced, product quality maximized, and new products brought to market at a much faster rate if purchasing brings the key suppliers into the product design and development at the earliest stage of process.” And purchasing is directly involved in the implementation of e-commerce systems. (Fitzgerald, 2000) Purchasing is responsible for obtaining the materials, parts, supplies, and services need to produce a product or provide a service. You can get some idea of the importance of purchasing when you consider that, in manufacturing, upwards of 60 percent of the cost of finished goods comes from purchased parts and materials.

Furthermore, the percentages for purchased inventories are even higher for retail and wholesale companies, sometimes exceeding 90 percent. Nonetheless, the importance of purchasing is more than just the cost of goods purchased; other important factors include the quality of goods and services and the timing of deliveries of goods and services, both of which can have a significant impact on operations. The goal of purchasing is to develop and implement purchasing plans for products and services that support operation strategies. Among the duties of purchasing are identifying sources of supply, negotiating contracts, maintaining a database of suppliers, obtaining goods and services that meet or exceed operations requirements in a timely and cost-efficient manner, and managing suppliers. Thus, purchasing select suppliers, negotiates contracts, establishes alliances, and acts as liaison between suppliers and various internal departments.

Purchasing is taking on increase importance as organizations place greater emphasis on supply chain management, quality improvement, clean production, and outsourcing. Moreover, business-to-business buying relationships are changing: although traditional relationships currently account for the lion’s share of buying relationships, they are expected to decrease substantially by the middle of the decade, while Web-based auctions and manage inventory relationships are expected to grow. In addition, increasing globalization will continue to have an impact on purchasing. (McGraw-Hill, 2007) The purchasing function in business organizations is becoming increasingly important. Among the reasons are increased levels of outsourcing, increased used of the Internet, greater emphasis on supply chain management, globalization, and continuing efforts to reduce costs and increase quality.

Among purchasing responsibilities are obtaining the materials, parts, supplies and services needed to produce a product or provide a service. Price, quality and reliability and speed of delivery are important variables. Purchasing selects suppliers, negotiates contracts, and establishes alliances, and act as liaison between supplier and various internal departments. It also is involved in value analysis, vendor analysis, make-or-buy analysis, supplier audits, and supplier certification. (Morgan, 1994) In many business organizations there is a move to reduce the number of suppliers and to establish and maintain longer-term relationships with suppliers. Supplier partnerships may involve cooperation that takes the form of sharing of planning and information, and perhaps cooperation in product and process design. (Morgan, 1994) An underlying consideration in purchasing, as in all areas of business, is maintaining ethical standards.

The supplement provides a recommended set of ethical practices in purchasing. (Morgan, 1994) Although often associated with the public sector, purchasing groups are also an alternative considered more and more by managers of the private sector. A purchasing group increases volume consolidation, making it possible to have only one negotiation, in order to increase the purchasing group members’ power vis‐à‐vis that of its suppliers. However, a purchasing group also constitutes an additional link in the supply chain and its objectives could go contrary to those of some of its members. This is why organisations considering joining a purchasing group should analyse this option strategically, in order to assess correctly the potential long‐term benefits. (Nollet & Beaulieu, 2005)


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