Objectives of Purchasing

Purchasing is an important and inevitable activity of any business or non-trading activities. Progressive organizations recognize it as an important function and organize a separate purchase department to look after the purchase function. The objectives of the purchase function must be spelt out clearly for the justification of its independent existence. Moreover, purchasing being the part of the total management activity must see that its objectives are in conformity with the overall objectives of the organization. Identification of objectives encourages the imaginative personnel to accelerate their efforts in attaining them efficiently and economically. Objectives are set by the head of the purchasing department either in consultation with the top management or on the line of the broad policies outlined by the top management.

The objectives of the purchase department can be outlined as under:

To avail the materials, supplies and equipment at the minimum possible costs: These are the basic inputs in the manufacturing operations. The minimization of the input cost increases the productivity and resultant profitability of the operations.

To ensure the continuous flow of production: Purchasing department helps in ensuring the interrupted production flow through continuous supply of raw material, components, supplies, tools etc. and good equipment with repair and maintenance services.

To increase the asset turnover: the efforts of purchase department result in formation of fixed assets and maintenance of a certain level of investments in inventories. The investments in fixed assets and also in the inventories should be kept at minimum in relation to the corresponding volume of sales. This will increase the turnover of the assets and thus the profitability of the company will get enhanced.

To develop the alternate sources of supply: Exploration of alternate sources of supply of materials increases the bargaining ability of the buyer, minimization of cost of materials and increases the ability to meet the emergencies.

To established and maintain the good relations with the suppliers: Maintenance of good relations with the supplier helps in evolving a favorable image in the business circles. Such relations are always beneficial to the buyer in terms of changing of reasonable price, preferential allocation of materials in case of material shortages, intimation about forthcoming shortages, information about the newly developed substitute, prolonged payments in case of temporary liquidity crisis etc.

To achieve maximum integration with other departments of the company: The purchase function is related with the following other departments of the company:

i) Production department regarding the material specification, flow of materials, suggested supplies for certain items etc.
ii) Engineering department for the purchase of tools, machines and equipment.
iii) Marketing department regarding the forecast sales and its impact on procurement of materials, impact of quality of inputs on quality of outputs and sales.
iv) Finance department for the purpose of maintaining levels of materials, pledging and hypothecating the materials for meeting working capital needs, tapping the quantity discount, scheduling the investments in capital assets such as materials and equipment.
v) Personnel department for the purpose of manning and developing the personnel of purchase department, maintaining the vendor relationships etc.

To train and develop the personnel: Purchasing department is manned with varied types of personnel. The company should try to build the imaginative employees force through training and development. This will ensure management succession and a contended workforce who are provided with an opportunity to fulfill their aspirations through promotions on higher positions.

Efficient record keeping and management reporting: paper processing is inherent in the purchase function. Such paper processing should be standardized so that the record keeping is facilitated.

The periodic to the management about the purchase activities is also one of the important activities which justifies the independent existence of purchase department. The management is interested in knowing the following aspects of the purchase functions which provides them the valuable data for shaping certain important policies:

1. To know the volume and value of the purchase broken into raw materials, supplies, pares, components, machines and equipment, etc
2. To know the departmental cost of the purchase department according to the important heads of expenditure
3. Analysis of the work performed in the purchase departments.
4. Information about the cash discount and quantity discount earned and lost.
5. The trend about the price changes in foreseeable future and its impact on the cost of inventories.
6. The predictions about the availability of materials and the development of the strategy against such predictions.
7. The information about the new materials and processes which may reduce the manufacturing costs.
8. Exploration of new sources of supply.

BY 

V S Rama Rao