Purchasing is one of the most important aspects of an organization as an organization can’t fulfill the whole raw material need internally. Purchase of required raw material or tools seems to be the most reliable option in such situations. Sometimes, companies get a better deal by purchasing it from the external market.
Earlier, it was easy to handle purchases just by placing an order. Nowadays, it is quite difficult and different with the changing conditions and increases in competition.
Purchasing department creates a network of sellers and shares the information with other departments.
The purchasing department is responsible for the purchase of raw materials, sellers, and equipment from a reliable source at the appropriate time.
The importance of purchasing is out to test with the selection of raw material to make it into finished goods. The quality of the raw material is crucial for the organization to have properly finished goods.
The decision of the selection of the item is made with the fulfillment of these criteria:
- The cost of the purchase should be less than that of manufacturing it(internally).
- Unavailability of the resources to create the purchased product.
- ROI is not that good while making the product in the organization.
- Seasonality affects the storage of the product(Buying it rather than storing it makes a lot more sense).
The department needs to take into account some of the key features for the organization to achieve the set goals.
The purchasing manager is responsible for the following activities
- Creating a network of sellers
- Selection of the seller
- Establishing a communication interface
- Negotiation
- Value-based analysis
Organizations on a large scale want to manage their resources as efficiently as possible.
It is necessary to have the whole process in synchronized way.
When an organization wants to start a new establishment like a factory, they want to open a factory near the old establishment.
An organization looking forward to acquiring a warehouse wants the warehouse to be near their showroom as it reduces the transportation cost and helps fulfill the demand quickly.
Availability of resources is another aspect in determining the purchase of raw material.
The organization needs to identify their requirement, as for the organization dependent upon technology, they need to have skillful labor.
Whereas the organizations depend upon more labor-driven, work needs to have unskillful personnel.
The organization needs to have the cost element in its mind as per the requirement. The cost of resources mainly changes with the change in availability and nature of the task.
A business looking forward to manufacturing the product wants to have some equipment that provides value to the organization.
An organization can have two types of costs while selecting the pieces of equipment. Either it could be the price of the equipment acquired or as an expense in the form of rent.
Companies looking forward to long-term Operations and are not willing to commit hefty amounts to acquire the place can take the lease route.
Those organizations working with an element of risk for employees should prepare safety measures.
To safeguard the employees’ interests, organizations should take care of the safety of employees working with the machines.
They should follow all the precautionary measures like updated machines and tools. Organizations should prepare funds like workmen compensation funds for future uncertainties.
Businesses need some services for the proper functioning of the organization.
Each industry requires a Different set of facilities.
For example, A factory wants services like electricity and water.
Preparing for the long-term goal helps to future-proof the business.
While manufacturing the finished goods, organizations should also think about the expansion factor.
Organizations should evaluate the room for expansion as prior planning for the growth helps to save a lot of money and
resources in the future.
For example, if someone is investing in a machine, it is a viable option to purchase that machine with future aspects as well.
Purchasing a machine with a higher output may add up the extra cost but will be great for future-proofing.
