Importance of purchasing in an organization?

Answer 1

The main activity of every business is buying low and selling high. Granted the value added internally may not be that substantial except in a monopoly (and who aside from government and cronies have that) the usual value creation is not only in sourcing the cheapest and best suppliers/supply but also maintaining a good relationship with them. Without that continuing focus who can be sure to make money, except of course if you have a negotiated cost plus contract.

Answer 2

l Purchased content is a significant part of the cost of goods sold (≥55%) In the manufacturing sector the percentage of purchases to sales averages 55%. This means that for every dollar of revenue collected on goods and services sales, more than half goes back to suppliers. It is not difficult to see why purchasing is clearly a major area for cost savings. However, savings come in different forms; the traditional approach is to bargain hard for price reductions. A newer approach is to build relations with suppliers to jointly pull costs out of the product or service. l Move from traditional, adversarial buyer-supplier relations to improve supply chain performance As companies struggle to increase customer value by improving performance,many companies are turning their attention to purchasing and supply management. Consider, for example, CSX, the company featured at the beginning of this chapter. Over 40% of the total sales of CSX is expended withe suppliers for the purchase of materials and services. It does not take a financial genius to realize the impact that suppliers can have on a firm's total cost. Furthermore, many features that make their way into final products originate with suppliers. The supply base is an important part of the supply chain. Supplier capabilities can help differentiate a producer's final good or service. l Purchased content's impact on product and service quality Purchasing and supply management also has a major impact on product and service quality. In many cases, companies are seeking to increase the proportion of parts, components, and services they outsource in order to concentrate on their own areas of specialization and competence. This further increases the importance of the relationships between purchasing, external suppliers ,and quality. l By its nature, purchasing is a basic & integral part of business management l Studies have shown that it is impossible for an organization to be successful without a successful purchasing activity l Participation in product and process design l Use of cross-functional teams l Early supplier involvement (use of value engineering techniques) l The supply chain's impact on competitive advantage Purchasing,acting as the liaison between suppliers and engineers, can also help improve product and process designs. Many executives will agree that a focus on effective purchasing has become a critical way to gain competitive advantage. An indication of this enhanced reputation and recognition is the higher salaries that are being paid to purchasing professionals.