significant influence on the overall success of the organization. Ensuring that there are sufficient supplies of raw materials at the right price, of the required quality,in the right place and at the right time is obviously crucial for any manuortance of Purchasing
2Purchasing contributes to the firm’s efficiency and effectiveness in many ways. First, it helps to determine a firm s cost structure. Purchasing goods and services are among the largest elements of cost for many firms. In the average manufacturing firm in North America, purchased goods and services account for approximately 55 cents of every sale dollar. By way of contrast, the average expense of direct labor in the manufacturing process accounts for only about 10 cents of every sale dollar. While the percentage spent on purchased input
does vary considerably among organizations, it is clear that the potential savings from strategic management of purchasing are considerable. Therefore, managers with good negotiating skills and strong relationships with suppliers can save their organizations large sum of money relative to their competitors. And identifying the right production equipment and buying it at a good price can create competitive cost advantages that last for many years. So important is this process that over the years many organizations have developed large departments to deal with supplier transactions.
Unit Three Purchasing Management
Pre-reading Discussion
❖1. What is the relation between purchasing and production?
❖2. What items does a company usually purchase?
❖3. Do you know how an enterprise purchases the goods and materials for the products?
Introduction
1Purchasing is the management of acquisition process. Its responsibility is to ensure quality and economic supply of goods for the company’s operation. Every organization, whether it is a manufacturer,a wholesaler, or a retailer, buys materials, services, and supplies from the outside suppliers to support its operation. Purchasing is one of the key links in the supply chain, so it has a
3Second, good purchasing practices avoid operational problems. Stockout of raw materials or component parts can shut down a production plant. The quality of finished goods and services obviously depends upon the quality of the materials and parts used in producing those items. If poor-quality components and materials are used, the final product will not meet customers’ quality standards. Although avoiding these problems may not lead to operational effectiveness, operational effectiveness is