Purchasing - Meaning, Importance & Process

Published in Operations and Supply Chain Terms by MBA Skool Team, Last Updated: December 24, 2020

What is Purchasing?

Purchasing is a process in inventory management focused on buying raw materials, goods and services. Purchasing includes supplier research, discussing prices, getting contracts, payments, supplier relationship management and enhancement of existing purchasing systems.

Importance of Purchasing

The purchasing process is of importance because it is used to identify user requirements, effectively and efficiently and evaluate the need ,identify suppliers, ensure the payment occur promptly and drive continuous improvement. Buying of inventory is usually driven by the purchasing department

The key objectives of purchasing department are:

1. Support operational requirements - It includes the basic requirements like buy products at right price, from the right source, at right quantity and quality.

2. Supply base management- One of the most important objectives of purchasing function is the selection development maintenance of supply, a process commonly known as Supply base management.

3. Develop strong Relationship with other functional groups

4. Support organization goals and objectives that comply with purchasing management

Inventory Purchasing Process

Inventory Purchasing Process

The process which the purchasing department follows for buying inventory are:

1. Understand the supply market

2. Selecting & approving suppliers

3. Identifying accurate requirements

4. Evaluating supplier quotations

5. Finalizing the suppliers

6. Negotiations & Contract finalization

7. Invoice & Payment

8. Supplier relationship management

Responsibilities of Purchasing Department

Some of the key responsibilities & duties are:

1. Evaluate and select suppliers: The most important duty of purchasing is to evaluate and right suppliers. It is important to avoid "maverick buying and selling -a situation that occurs when sellers contact and attempt to sell directly to end users

2. Review specifications: The right to question allows purchasing to review specifications where required. The right to question material specifications also helps avoid developing material specifications that only a users favorite supplier can satisfy.

3. Act as the primary contact with suppliers: Purchasing must act as the primary contact with suppliers, but that other function should be able to interact directly with suppliers as needed. involving multiple people enables the communication process between internal customers, purchasing, sale and suppliers internal functions to be more efficient and accurate

Hence, this concludes the definition of Purchasing along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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