Purchasing Management

Abstract

Typically, a manufacturing firm spends about 50% of its sales dollars in its procurement of raw materials, components, subassemblies, and supplies. This gives the purchasing function tremendous responsibility for saving costs and increasing profitability in an organization. Contrary to the common perception that purchasing is the process of buying, the purchasing function involves the process of procuring the right quantities of the right raw materials and components at the right price from reliable sources with the right delivery time and place, in order to facilitate the production or assembly of the right quantity of the end products according to the master production schedule or the final assembly schedule. Determining the right quantities of raw materials or components requires input from the engineering, marketing, manufacturing, and purchasing departments. Quantities and delivery of finished/end products are first determined by the marketing department. Then manufacturing planning and control prepares the production plans, master production schedule, and material requirements planning (MRP) schedule for meeting the demand and delivery dates of the finished products. Then, it is the responsibility of the purchasing function to determine the sources of the raw materials and components, place the orders, and make sure that they arrive just in time according to the MRP schedule. Thus, purchasing management continuously tries to ensure the uninterrupted flow of materials, components, and subassemblies through the production process, so that finished goods of the desired quality are produced at a reasonable cost.

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