Importance of Purchasing

Importance of Purchasing

  1. Purchasing is a fundamental function in an industrial establishment. An industrial enterprise is primarily meant for converting raw materials into finished products. The
    wheels of industry will not move unless materials of the right type are bought in right quantities and made available at right time. Needless it is to say that is buying function
    which is responsible for supply of materials to the factory.
  2. As is well known, more than 50 percent of the total cost is contributed by a single element called materials. It is proved that a one percent saving in materials cost is equivalent to nearly 10 percent increase in turnover. Saving in the cost of materials is achieved mainly through efficient buying.
  3. An average manufacturer spends major portion of his earnings on purchases and has the largest portion of working capital tied up in inventories. The annual reports of
    companies prominently illustrate the way their earnings are distributed. High financial stakes are involved in buying and the purchasing manager is the custodian of his firm’s purse; his first and foremost obligation is integrity in spending its funds.
    Purchasing can effectively contribute in import substitution and thus enable the saving of foreign exchange.

Purchasing executives by the intrinsic nature of their job gain a good knowledge of a wide range of external industrial activities. Hence, more than anybody else in the organisation, they are able to bring information about new products, materials and processes. This enables them to suggest alternatives which can reduce costs or dependence on imports.

The purchasing is the main factor in timely execution of industrial projects. It is the known fact that mis-management of purchasing function is a frequent cause of delays in executing industrial projects. At times this has led to costly stoppages, interruptions, delays and wastage in important projects. The economic, social, developmental and political consequences in these cases have been serious and a source of great embarrassment.

Purchasing is the keystone of materials management.Most companies have developed materials management
around purchasing, often relegating the other functions to second class status. The materials management organisa-
tions that exist in real life organisations evolved out of purchasing departments in most cases and they are most likely
to be headed by an ex-purchasing manager than anyone else.
Finally, there are four specific factors which have contributed to the rising importance of purchasing. They are :

(a) post-war shortages and increasing defence and other requirements of government.

(b) the cyclical swings of surpluses and shortages and the fast rising materials costs.

(c)heavy and continued internal and foreign competition and

(d) growing world wide markets forcing purchasing to become international in scope.

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