The purchasing department is responsible for buying the goods and services a company needs to run its business at a price that supports the company's bottom line. It's a critical role, since delays in purchasing could stop the production process and result in empty shelves for customers.
What Does the Purchasing Department Do?
The purchasing department heads up the company's procurement process. It is responsible for buying all the goods, equipment, materials and services the company needs to manufacture items and offer goods for sale – and to do so in a timely and organized manner so production doesn't falter.
Within that broad remit, the purchasing department performs a number of tasks, such as:
- Figuring out what specific items the business needs, when and in what quantities.
- Finding reputable and cost-effective suppliers.
- Negotiating prices and delivery terms.
- Coordinating deliveries with the warehouse and logistics team.
- Extracting the best value from supplier contracts.
Strategic Goals of Purchasing
While it's tempting to think of purchasing as a purely operational role, the department is in fact responsible for setting the company's strategy regarding procurement. This is a high-level function. It involves assessing the company's long-term needs for goods, services and materials, and setting budgets by department or location based on the company's current needs and projected future growth.
Cost efficiency is a key objective of the purchasing team. With its strategic hat on, the department will check out all the suppliers in the market and weigh them up against each other in terms of quality, reputation, service delivery, capacity and cost. Risk is another consideration – what happens if the business is reliant on a particular supplier and the supplier goes bust? What's the contingency plan to ensure the security of supply?
Within the context of risk mitigation, the purchasing department might analyze the pros and cons of using domestic versus foreign suppliers, for example, and make decisions about whether the company should manufacture goods itself or buy them from external suppliers.
Operational Purchasing Objectives Examples
From an operational perspective, the purchasing department is responsible for ordering goods and services, receiving inventory, administering supplier contracts and dealing with quality control issues, such as managing complaints and returns. The goal here is to keep supplies flowing through the business so there are always enough resources for people to perform their jobs, and always enough products on the shelves when customers want to buy them. The department will also keep on top of supplier contracts to ensure they are delivering the best value.
Measurable Quality Objectives for Purchase Department
An essential role of the purchasing department is to buy good-quality products at the right price. That is not necessarily the best price – there are plenty of reasons why a company might choose a more expensive supplier if his product is better quality, or if he has shorter lead times or a lower defect rate. Nonetheless, the purchasing department will always be conscious of maximizing profitability.
For small businesses, this can be challenging. Many suppliers set minimum order quantities for their products which means that a smaller business may have to buy more than it actually needs at a given point in time. Choosing the smallest order quantity also means the business cannot access the bulk discounts that a larger company might negotiate.
This means that purchasing department teams often have to work much harder for smaller businesses. They invariably have to balance quantity and supply-risk concerns against pricing and quality concerns to ensure the company has a continuous cash flow. Often, their role comes down to an economic decision, where low prices can result in higher risks, or vice-versa.