Purchase Manager

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This writeup explains what is the role of a purchase manager in an organization

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Purchase Manager

  1. 1. ICFAI BUSINESS SCHOOL (IBS) PROJECT ON Role of Purchase Manager and Ethical Issues in Purchasing Submitted by: Ashish Baid (07BS0829) Subject: Business Ethics & Corporate Governance Semester: 4th Submitted to: Prof. Santanu Mitra
  2. 2. Purchasing refers to a business or organization attempting to acquire goods or services to accomplish the goals of the enterprise. Though there are several organizations that attempt to set standards in the purchasing process, processes can vary greatly between organizations. Typically the word “purchasing” is not used interchangeably with the word “procurement”, since procurement typically includes Expediting, Supplier Quality, and Traffic and Logistics (T&L) in addition to Purchasing. The best and most successful organizations recognize that they will only prosper in the long term if they satisfy the aspirations of their stakeholders; including customers, suppliers, employees, local communities, investors, governments, public interest and environment groups. The result is that some companies are imposing codes of conduct on both their suppliers and customers to ensure to ensure that other company’s policies or practices do not reflect unfavorably on them. A Purchasing Manager is an employee within a company, business or other organization who is responsible at some level for buying or approving the acquisition of goods and services needed by the company. It is he purchase manager who interacts frequently with the suppliers and other channel members and their behavior can and does affect how suppliers and others view the firm. Approximately 60% of the firm`s sale is controlled by the purchasing function in some of the industries. The position responsibilities may be the same as that of a buyer or purchasing agent, or may include wider supervisory or managerial responsibilities. A purchasing manager may oversee the acquisition of materials needed for production, general supplies for offices and facilities, equipment, or construction contracts. A purchasing manager often supervises purchasing agents and buyers, but in small companies the purchasing manager may also be the purchasing agent or buyer. Role of purchase manager: The purchase manager has a strategic business function to perform. Purchasing is a window to the outside world and hence the prime function of purchasing is remaining sensitive to the external market situation and also of giving feedback to
  3. 3. the other functional areas of the organization. The purchase manager plays a major role in getting the right quality of material, in the right quantity at the right time. The purchasing department is in direct contact with the suppliers. A long term relationship with these suppliers is possible only if there is an open communication and trust between the suppliers or buyers. By behaving ethically, the purchasing department can built up a good image of the company and prove the profitability of the firm. With greater importance to just-in-time purchasing and total quality management in product manufacturing, the importance of purchase manager has increased considerably. Some of the ethical issues that are associated with the purchasing function are deception, bribery, price rigging, and the sale of unsafe products. The role of purchasing department could be: To ensure the availability of proper quantity and quality of material for smooth functioning of the production department To procure materials at reasonably low costs (without compromising on quality) for the company To ensure supply of quality materials To be aware of various substitute materials available in the market, their prices and utility to the organization To pass on information regarding purchasing to other departments of the company such as design, production, sales, finance etc To study possible substitutes of raw material To identify and develop new vendors and maintain a good relationship with existing vendors. Vendor relations, vendor monitoring or evaluation and development of new vendors is an integral part of the purchasing executives job To develop good procedures and systems for the purchasing department
  4. 4. To Co-ordinate with other functional departments, to achieve continuity of information flow and integration between different departments to the extent possible In their professional relationships, Buyers/ purchase manager must commit to the following principles of Honesty, forthrightness and impartiality in their relations with suppliers: To provide suppliers accurate information To provide the same degree of information to all suppliers involved in a particular project To obey all applicable national and international laws, particularly those relating to the rules of fair competition To issue clearly defined criteria for selecting candidates and awarding contracts To provide information to candidates who are not selected on why their offer was not retained, without divulging confidential information To honor the terms of contracts, promises, and agreements, particularly with regard to payment deadlines To respect the confidential nature of any information that might harm the interests of a supplier, Group company or customer To seek rapid, equitable solutions in case of disagreement To maintain respectful, honest, courteous, and fair relations with all parties Purchase research is another important area of importance for purchase manager as it involves studying the present trends regarding the cost of various input materials and also that of general economic conditions, industrial conditions and national and international developments that may be of importance to the organization. With the development of just-in-time concept by Japanese whereby the objective is ‘nothing will be produced until it is needed’ the traditional relationship between buyers and sellers had changed, now emphasis is given on product quality, delivery performance, schedules and price.
  5. 5. Ethical issues in purchasing: A study conducted by Sibley (1979), compared the image held by purchasing department had about itself with the image that the other departments in the organization had of it. The study found that the other departments thought it was okay for the purchasing department to accept gifts from the vendors. Another survey conducted by Rudelius and Buchholz (1979) revealed that most purchase managers were concerned about accept gifts. They wanted clear guidance from top managements in these matters. Most purchasing personnel believed that it was not wrong in accepting inexpensive gifts, but had reservations about accepting expensive gifts. Although most studies revealed that by and large the personnel maintain high ethical standards, there is also evidence of many unethical practices. Most purchasing managers are charged for adopting the following unethical practices. Accepting free gifts: Buyers are reluctant to acknowledge that suppliers are bribing them. Studies indicate that most buyers are honest and ethical in working with suppliers. Gifts offered as a simple expression of courtesy and of little value may only be accepted if they are infrequent and are in relation to events which justify them, such as Christmas, and are appropriate to the customs of the country. Deceiving suppliers: Purchasing personnel often resort to deception (making exaggerated questions about the quality of the suppliers) to pressurize the suppliers to cut prices and to get orders. Managers defend their purchasing personnel by arguing that such deception is necessary to increase competition among suppliers and get the best terms possible. But professional purchase managers feel that these kinds of tactics can destroy the trust that is vital for maintaining vendor relations. Discrimination & favoritism: Showing favoritism and discrimination between suppliers is also considered unethical purchasing behavior. Purchase managers often favor suppliers who are also good customers. Thus developing a mutually beneficial relationship. In some cases purchase managers discriminate in favor of suppliers who are close to the top
  6. 6. management so that they can gain the support and confidence of the top officials. Such discrimination denies an opportunity to these suppliers who can supply better quality products. Disclosure of confidential information: Disclosure of confidential information is a serious issue in purchasing. In exchange of confidential price related information, suppliers promise to reward the purchase manager. Purchase managers in turn operate a tendering system in which the criteria for selection are revealed only for some suppliers, thus putting other suppliers at a disadvantage. Sometimes companies leak the bid amount so as to encourage other bidders to quote the lowest possible prices. This selective leakage of information goes against the concept of ethical purchasing. Forward buying – Ethical or Not: In order to ensure the availability of raw material buyers often resort to ‘forward buying’ or buying of stocks to meet the future requirements. If the purpose of this kind of buying is to ensure supplies to the production department, and not to make speculative profit against inventory then it is justifiable, but if the main objective is to produce goods and market them for high prices by taking advantage of its shortage then it becomes un-ethical.
  7. 7. Bibliography: 1. ICMR Textbook on Business Ethics and Corporate Governance 2. Purchasing_Ethics__GDF_SUEZ_110708.pdf 3. ethical_bus_practices.pdf 4. Ethical_Business_Practices.pdf

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