What Is the Importance of Purchasing Management?

Purchasing management is a significant component for any business. Companies recognize the significant cost savings that can arise from effective purchasing decisions and likewise how poor purchasing strategies may result in disaster: A vendor failing to deliver its purchasing order of beef to a hotel, for example, could hamper the business’s ability to cater an event for 500 people.

Cost control is a critical factor in purchasing management. These managers analyze which suppliers are selling the necessary inputs for production and at what cost. From this information, they review a host of other factors, which include on-time shipments, warranties, industry reputation and length of time in business. Because switching vendors is costly, finding a reliable vendor is important to controlling costs.

An important role of purchasing management is achieving price stability. When the cost of production fluctuates wildly, other departments experience obstacles. For instance, the marketing team does not know what price to charge customers, finance experts cannot estimate profits and accountants cannot determine the company’s cash flow. Purchasing managers keep the cost of production stable in a number of ways, one of which is negotiating with vendors to achieve the lowest price and to lock in the value for a lengthy contract. For inputs with volatile prices such as commodities, purchasing managers work with banks to hedge these items in the form of a forward contract. Alan E. Branch, author of “International Purchasing and Management,” explains that these contracts also shield multinational corporations from the risk of currency fluctuations, which can also affect the cost of production.

Securing the supply chain is another critical role of purchasing managers. Buyers are responsible for ensuring that all of the necessary materials appear on time, intact and of expected quality. If any of these shipments are delayed or of subpar, the effects reverberate throughout the production chain. A shipment of faulty screws, for instance, may cause the finished product to fall apart. In turn, the entire order is jeopardized because of the management’s purchasing decision. As explained in a May 2011 “Bloomberg” article, the explosion of Apple’s vendor in China caused a possible production loss of 500,000 iPads.

Purchasing managers play a fundamental role in ensuring customer satisfaction. Managers have this obligation in two ways: quality of product and on-time deliveries. When buyers select high-quality ingredients at lower costs, these cost savings can be issued to the customer. Likewise, poor quality deters customers from returning to the business. Delayed and defective products are other ways customers are affected by the decisions of purchasing managers. Thus, these employees play a critical role in shaping the customer’s experience with the organization.