Purchasing Management free essay sample

Purchasing management directs the flow of goods and services in a company and handles all data relating to contact with suppliers. Effective purchasing management requires knowledge of the supply chain, business and tax laws, invoice and inventory procedures, and transportation and logistics issues. Although a strong knowledge of the products and services to be purchased is essential, purchasing management professionals must also be able to plan, execute, and oversee purchasing strategies that are conducive to company profitability. Sourcing reliable suppliers is a crucial part of purchasing management. Purchasing managers, agents, and buyers usually learn about new products and services from Internet searches, trade shows, and conferences. They meet with potential suppliers in their plants whenever possible. Skills in foreign languages may be helpful for sourcing suppliers in other countries. Purchasing management professionals must always assess potential suppliers in terms of the suppliers ability to deliver quality merchandise at a suitable price on time. We will write a custom essay sample on Purchasing Management or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Purchasing management professionals must be good negotiators, understand technical product information, have good mathematical ability, understand spreadsheet software, understand marketing methodology, and be outstanding decision makers. Increased responsibilities in purchasing management require good leadership skills, and higher positions often require a masters degree in a business related subject. Entry level purchasing management positions such as junior buyers, assistant buyers, and purchasing clerks, often require a college degree and some product knowledge. Larger distributors may require a bachelors degree for entry level purchasing management positions. Training and learning typically start in sales, then supervision, and invoice and stock monitoring. Professional purchasing management designations include Certified Purchasing Professional (CPP) in the United States, and Certified Professional Purchaser (CPP) in Canada. Purchasing managers, buyers, and materials managers control budgets, manage staff, and may analyze procurement methods as well as negotiate supplier contracts. Purchasing management professionals must understand tax laws, purchasing trends, ethics, and global outsourcing issues. Buyers and purchasing agents usually deal specifically with purchasing tasks, while purchasing managers usually supervise others, including purchasing agents. However, titles and duties vary greatly between industries and employers. Buyers often have assistants to place orders and keep track of delivery details. Buyers need the ability to select products that consumers will want to buy, so they need to understand trends as well as economic conditions that affect consumer buying decisions. Buyers employed in small stores may be responsible for purchasing the stores entire inventory, while buyers working for larger operations may focus on a few product lines. Merchandise managers may work with an advertising team to create a campaign for the goods they purchase. Follow up is an important part of purchasing management as responsibility does not end in purchasing goods. For example, merchandise managers need to check to be sure the products they buy are being displayed well to attract consumers. Buyers must keep track of customer demands for new products as well as determine how well goods are selling. Purchase Management is a function of materials management in a company. Their basic function is procuring the inputs for production function. This function encompasses suppliers in the market external to the organization and several internal to the organization. Till recently, the purchasing process simply involved placing an order with the supplier who offered the lowest price. Nowadays, increase in competition and market demand and scarcity of resources have forced organizations to reexamine their purchasing activities. The purchasing department functions have expanded considerably and include activities such as verifying the credentials of suppliers, inspecting the quality of the material to be purchased, ensuring the timely delivery of the material, etc. While the value of purchased items varies from industry to industry, it adds up to more than fifty percent of sales in all industries. Purchase management is regarded as a significant activity in many organizations because of the high cost involved in carrying out purchasing activities, increasing quality benchmarks, and increasing global competition. Purchase departments buy raw materials, parts, machinery, and services used by production systems. The objective of purchase management is to procure the right equipment, materials, supplies and services in the right quantity, of the right quality, from the right suppliers, at the right time, at the lowest price. Case 1 The Santek Images Business Unit Consolidated Products is a $21 billion company headquartered in Atlanta, Georgia. The company’s five business units, which offer a wide array of products and services, are the result of an aggressive strategy of mergers and acquisitions starting in the late 1980s. The corporate staff is surprisingly small, comprised of general management, legal staff, and human resources. Part of the reason for this small staff is due to the eclectic array of businesses housed within one corporate entity. A Business Week editor recently commented that â€Å"Consolidated Products could easily be broken up into five separate companies, since at one time it was five separate companies. † The editor also said that if the company â€Å"ever learned how to leverage its size in the marketplace, Consolidated Products could be a Wall Street powerhouse! † While Consolidated Products is a global corporation with facilities around the world, it operates each business unit as a highly independent and decentralized company. The corporate culture is best described as entrepreneurial, with each business unit being headed by an executive vice president who has complete profit and loss accountability. One of the business units, Santek Images, is the focus of this case. The purchasing and supply function is becoming increasingly important to CM Manufacturers, mainly because it has become one of the greatest spender of organizational funds and directly affects the organization’s profitability. The reasons for the increasing importance of the purchasing function include: Why purchasing is important in the new competitive environment: 1. Increase number of world-class competitors 2. Sophisticated customer base 3. Balance of power between buyers and sellers 4. Greater outsourcing 5. Allow company to participate in product development and design Purchasing objective: 1. Supply chain continuity 2. Manage the purchasing process efficiently and effectively * Determine staff level * Allocate budgets * Provide training and growth opportunity * Introduce procure to pay systemc 3. Develop supply base management Select competitive suppliers by identifying suppliers with potential and build close relationship with existing suppliers 4. Develop strong relationship with other functional stakeholders 5. Develop integrated purchasing strategies that support organization strategies 6. Support organization goals and objectives Supply chain management: a strategic approach to plan for acquiring the organization’s current and future needs through effective managi ng the supply chain in conjunction with cross-function team to achieve the organizational mission. More stringent quality standards- The higher the quality standards are, the fewer the number of suppliers able to meet the requirements. Also quality standards relate to cost, since the higher the quality is, the higher the purchase cost will be. †¢ Holding inventory- CM manufacturers has to buy as effectively as possible to keep inventory levels to a minimum and reduce the cost of holding inventory. †¢ Foreign suppliers- Using overseas suppliers may reduce purchasing costs by creating more competition in the market. Foreign suppliers can also ensure the supply of materials to the enterprise, regardless of the state of the local market. Shortages of materials- Carel has to prevent stoppages in the flow of materials by becoming aware of the risk in good time and by taking the necessary steps to counteract possible shortages in the market. †¢ Cost of developing new product s- Development costs relate directly to the buyer’s attempt to obtain the right material at minimum cost for the development of new products. †¢ Greater competition- The enterprise is forced to cut costs, in order to sell its product at a competitive price. †¢ Price control- Price control over the enterprises finished products forces it to cut costs in order to make a better profit. Inflation – Inflation causes the prices of purchased goods to rise. This puts pressure on the purchasing function to buy more effectively Key Concepts: Inventory are those stocks or items used to support production (raw materials and work-in-process items), supporting activities (maintenance, repair, and operating supplies), and customer service (finished goods and spare parts). Inventory functions are anticipation, hedge, cycle (lot size), functions (safety stock, buffer, or reserve), transportation (pipeline) and service parts. Why do you keep inventory? What is the true cost of inventory holding? How much money can you add to the bottom line with good inventory management? How do you reduce you exposure to obsolete and excess inventory? How much are back orders causing you in lost sales and customer perception? What are Service levels: A desired measure (usually expressed as a percentage) of satisfying demand through inventory or by the current production schedule in time to satisfy the customers requested delivery dates and quantities. What Types of Inventory are there? There are many was to look at inventories. Inventories include raw materials: purchased items or extracted materials that are converted via the manufacturing process into components and products. Purchasing management is very important to any business, if not handled properly it can be detrimental to its success. There are steps to the creation of a project supply, service and material budge from detailed requirements within purchasing and supply management. These details show how to choose the best qualified suppliers and strategies for negotiating for the best prices and if there are benefits and costs of outsourcing, which includes the growth of outsourcing. A varied of organizations should be evaluated regarding their purchasing and supply management; what are there policies and practices in this process. In the technology industry there are companies that show market leadership in purchasing and supply management such as Dell, Toshiba and Gateway. When the term â€Å"purchasing† is mentioned most think of just buying and refers to the location and choice of suppliers, knowing the need of what needs to be bought, negoation of price and terms of agreement and then payment and delivery. The purchasing and procurement of supplies is the function and responsibility of procuring materials, supplies and services used in the course of conducting business. There was a time that purchasing and supply were viewed as two different process, today’s businesses have a different view and have combined the two processes. In Purchasing and Supply Management the authors, Johnson, Leenders and Flynn, state that â€Å"Purchasing, supply management, and procurement are used interchangeably to refer to the integration of related functions to provide effective and efficient materials and services to the organization.