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Purchasing
All about the purchasing area of a company
Introduction
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What is the Purchasing area?
The purchasing area is the department in a company and all the professionals that make it up, in charge of meeting the supply needs. This implies buying or acquiring raw materials, semi-finished products, spare parts, or services necessary for the operation of said company. All this in the indicated time, with the specified quality, and at the best possible cost.
The main objective of the purchasing area is to achieve continuity in supplies to avoid stock outages, but its mission is also to reduce final production costs. This is what differentiates a reactive purchasing area (it reacts to the lack of some material or raw material and acquires it) from an active one, which, in addition to the above, constantly searches for and monitors suppliers to obtain better prices and favorable conditions for the company.
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TABLE OF CONTENTS
Related concepts
throughout all this time we have compiled a series of concepts associated with process management that will be of great help when it comes to understanding it in its entirety.
Management indicators of the Purchasing area
The management indicators are measurement tools that allow the management of the Purchasing area to be controlled and optimized. The most important ones are:Delivery times by supplier: It is crucial to have the average delivery time measured by each supplier to quickly detect variations, as well as determine orders over time.
Payment time per supplier: Properly knowing the payment time for each supplier makes it possible for the company to optimize the use of financial resources.
Failures and breakages by supplier: Making a detailed count of the failures in the acquired merchandise offers the possibility of making claims as well as classifying the suppliers by the quality of the supplies they sell.
Price variations by supplier: Understanding the frequency and magnitude of price variations by supplier makes it possible to project input purchases to reduce costs as much as possible.
Return on investment (ROI): This indicator offers information on the time in which the investment will be recovered after making an expense.
Total process time (TTP): This indicator is one of the most useful. It focuses on analyzing the entire flow of any process that takes place in purchasing. There are some cases in which it is also used only in transactions that take place between suppliers and the purchasing area.
The number of rejected orders: Rejections, exchanges, and returns are common in many businesses. This indicator measures the ratio of returns.
Trading volume and processes performed by the buyer.
The other areas' requirements that were fulfilled on time.
Savings that were achieved and implemented, taking into account the market trend for material or service.
Explore even more in our
Business Concepts
What does resistance to change mean?
What is a cause and effect diagram and what is it for?
Organizational Levels: Differences and Functions
History and evolution of the area
Main functions of the Purchasing area
1. Stock or inventory control
2. Dealing with suppliers
3. Cost analysis
4. Keep accounting
5.Commercial management
6. Preparation and review of contracts. Compliance control
7. Area optimization
Importance of the Purchasing area
As we have already seen, the Purchasing area is crucial within the company; we can summarize its importance in 5 items:
1. It gets lower costs
Through the management of the supplier business relationship, the Purchasing area has tools that allow you to negotiate to obtain better prices. This allows for maximizing the profitability of the company.
2. It prevents the lack of materials
The area must always be aware of what materials there are and which ones are needed, thus protecting the supply chain, and ensuring that there are no stock breaks. Avoiding crises using multiple vendors and other similar resources are functions of this area.
3. It improves the quality
Companies agree on a product quality level that is established from the beginning of the production chain. The purchasing area must take this item into account in each acquisition. But also, through the negotiation capacity that the area possesses and the constant search for innovation, it can access better qualities that improve the final product or service
4. It manages relationships
The relationship with suppliers must be cared for, developed, and maintained. The challenge in the purchasing area is to make suppliers interested in working with the company to make them invest in a long-term relationship.
But not only suppliers are important for the purchasing area, but also the other departments of the company to achieve alignment of objectives, collaboration, and collaborative work.
5. It innovates
As the purchasing department constantly surveys the market, it is in an ideal position to acquire innovative products that can provide a competitive advantage to the business in terms of price, quality, or convenience.
The purchasing area is essential to optimize costs and guarantee the timely availability of critical resources for the company.
Purchases in organizations
What is the Purchasing area made up of?
The organization charts of all companies are different, according to their needs. The positions detailed below can be held by many people or by one, depending on how many make up the Purchasing area. More specific or intermediate positions can be added, such as supervisors.
Buyer
The buyer is the first point of contact with suppliers. This person is in charge of carrying out all the necessary transactions to purchase materials or services: requisition, quote, purchase order generation, and invoice follow-up. Also, this person will be in charge of generating contracts and agreements.
Expeditor
The expeditor is responsible for making sure that the suppliers are aware of the order made by the company and its characteristics in terms of quality and other requirements. Also, this person is who knows which priority purchases are and the orders that are pending with the suppliers.
Sourcing
The developer is responsible for carrying out a constant search for novelties, both within our company's suppliers and in the market. Products, designs, components, and services are sought that offer the company a reduction in costs or a better service provider. The location, the logistics costs, the novelty of the product or service, the risk, and the maturation of the supplier will be factors that should be considered in this search.
Procurement Engineer
The procurement engineer is responsible for measuring the quality of purchased products and services. These engineers must know the entire supply process in detail since they will be the ones to ensure that a supplier has everything necessary to perform the service or product that we are going to buy from them in the best possible conditions: certifications, qualifications, conditions of their company and its workers.
Purchasing leader
The purchasing leader is responsible for planning, organizing, directing, and controlling the tactics that the Purchasing area must follow. This person will also be responsible for reporting to senior management on the fulfillment of the purchasing team's objectives. Among the main functions will be motivating, guiding, and listening to the team, as well as developing new ways of working that make it faster and easier for the team to meet its objectives.
The buyer and expeditor are on the same level and have a close working relationship as they will be handling purchase orders, communicating with their internal customers about their orders, and following up with suppliers on the status of their shopping orders.
The developer and the purchasing engineer, on the other hand, are on the same level because each one complements the function of the other. When the developer finds a supplier, the purchasing engineer must evaluate it and share certain improvements to be made, and the developer must be in charge of following up with the supplier, so that those improvements are achieved and both positions can develop tactics to improve the quality of suppliers, sharing responsibility and tasks to be performed
Main challenges in the Purchasing area
Main problems in the Purchasing area
1. Seeing the price and not the cost
2. Not planning
3. Not doing a supplier analysis
4. Not evaluating supplier performance
5. Buying materials from the same suppliers
It leads to inefficiencies, increased costs, and reduced service to buy from the same providers, whether for convenience or habit. You can opt for the alternative of having supplier B who is assigned a lower percentage of the purchase but with whom a commercial relationship will be generated. This will allow us to monitor quality and increase our bargaining power. Price comparisons and surveys should be done on a regular basis.
6. Buying more or buying less than needed
You have to know the optimal stock point for physical space and financial capacity issues. Buying more or less than needed costs us money, either because we have immobilized stock or have to stop due to lack of supplies.
7. Not having goals or indicators
What is not measured cannot be managed or improved.
8. Not tracking the purchase order
It is important to monitor the fulfillment of purchase orders to have traceability of orders throughout the process. We must check the time elapsed between the moment we generate an order and when the supplier attends to it since it provides us with valuable information for the management of times and needs of the company.
9. Having no policies
Establishing a purchasing policy is important to regulate basic issues related to order requests, delivery times, selection and evaluation of suppliers, and costs, among others
Delve deeper into the relationship between purchases and business
What do we do at Drew?
We believe that clear processes, supported by the right technology, create an environment where people work happier, and consequently makes your company more productive.Complementary material
Resources and editorial content
Practical resources on the main challenges and solutions that every company has.
Purchasing Sessions
Meetings dedicated to particularizing different problems that current organizations face.
Conclusion
We are far from those times when it was believed that the purchasing area was the office from which the company's accounting was done; a rigid and monotonous area. Purchasing is the heart of companies, the area that supplies the raw material, that ensures that quality is maintained or even grows, that tries to get the best prices to be more competitive. It is dynamic since it must be in contact with suppliers and be present in the market looking for new alternatives.