The document discusses the importance and functions of purchasing in business organizations. It states that purchasing has become an important specialized function that involves procuring all materials from requirement to receipt. The objectives of purchasing are to maintain regular material flows, procure competitively priced quality materials on time, suggest substitutes to lower costs, integrate requirements across departments, and create good supplier relationships. Key purchasing principles are procuring from the right sources, at the right time, quantity, quality and price to minimize overall costs and avoid issues like stockouts. The purchasing department structure typically involves a purchase manager overseeing areas like receiving, stores, inventory and traffic.

1.  But now a days, purchasing has
acquired a new dimension and it
has become a specific function. It
is a process which includes all the
functions involved from the
requirement to the receipt of
material and its final acceptance.

2.  In the words of Alford & Beaty,
“Purchasing is the procuring of
materials, supplies, machine tools &
services required for the equipment,
maintenance & operation of a
manufacturing plant “

3. IMPORTANCE OF
PURCHASING
 The purchasing is important function in all
type of business organisations whether it is
small, medium or large.
 Without purchasing, no business can be
operated. In today’s World, purchasing plays
a significant role in shaping the business
decisions.
 The role of purchasing in business
management has become very important.

4. Few important reasons
a) Higher cost of goods & services
b) Escalating cost of stock outs
c) Higher present day cost of capital
d) Purchase is not mere act of buying
e) Professionalisation of materials function
f) Changing Concepts of buyer- Seller
relations

5. (a) Higher cost of goods & services :- As we
known nearly 60% or more money in any
organisation blocked in raw materials.
Therefore the profitability depends to a
great extent on the efficient purchasing.
(b) Escalating cost of stock outs :-
Lack of continuity in the availability of
materials seriously affects all major
Companies.
Financial loss due to stock outs of materials
in mass/flow production units.

6. (c) Higher present day cost of Capital :-
Unnecessary Capital lock-up can be avoided
if purchasing is made efficient.
(d)Purchasing is not mere act of buying:-
Purchasing is not mere act of buying. It is in
fact a much a much broader concept.
Purchasing in todays context includes-
market research, vendor
rating,standardisation & variety
reduction,codification,surplus
disposal,purchase budget etc.

7. (e)Professionalisation of materials
function :- Like other branches of
industry, purchase to has experienced
development of many concepts such
as:-ABC analysis, economic lot size,
codification, vendor rating etc.
(f)Changing Concepts of buyer-seller-
relations :-Retention of good suppliers,
with increasing competition, is
becoming difficult and hence the buying
functinion is becoming challenging day
by day.

8. OBJECTIVES
1. To maintain regular flow of materials, so
that there will be continuity of operations.
2. To procure at a competitive price the
needed materials at the right quality,the
right time.
3. To suggest better substitutes to materials
which are currently being used with a view
to lower cost & maintain quality of the
products.

9. 4.To integrate the requirements of all departments
of all departments of the organisation in order
to take the advantage of economy of scale
wherever possible and to also avoid
duplications of purchases resulting in wastes
and obsolescence.
5.To create goodwill for the organisation through
healthy buyer – supplier relationship.

10. FUNCTION OF PURCHASE
DEPARTMENT
1. Locating selecting & developing
qualified source of supply.
2. Scrutinising purchase indents and
deciding suitable method buying.
3. Floating enquires, processing
quotations, conducting negotiation
and releasing purchase orders.

11. 4. Pre – delivery follow – up & shortage
chasing.
5.Co-ordination with inward inspection
including timely return of defective
materials back to suppliers.
6.Endorsing suppliers invoice for
payment.

12. 7.Processing suppliers requests for price
increases including price renegtiations.
8.Attending to suppliers’ representatives
and travelling sales sales men.
9.Arranging discussion meetings between
suppliers’ representatives and Companys
officials.

13. 10.Disposal of Surplus, obsolete & scrap material.
11.Advising management as regards to new
materials, new products, forward buying etc.
12.Acting as a link between Company’s finance
department and suppliers for timely
payments/settlement of suppliers bills

14. 13. Attending to periodical activities like
applying for important licence, quota etc.
14. Maintaining Company’s image among
suppliers.

15. PURCHASING PRINCIPLES
5 R’s OF BUYING
RIGHT SOURCE RIGHT TIME RIGHT QUALITY RIGHT QUANTITYRIGHT PRICE

16. 1. Right Quality :- Right quality does not
mean the best quality.Any quality that is
suitable for the purpose is known as
right quality.
2. Right Quantity :- Purchase organisation
is also responsible to maintain regular
flow of materials for production activity.
For this right quantity of materials is to
be purchased. Excess purchase should
be avoided because Capital is
unnecessarily blocked.

17. (3)Right Time – Right time means the minimum
level. This level indicates the stock has
reached to minimum and now the order must
be placed. At this level, purchase department
will not delay in placing order.
If the goods are arranged earlier than the
required time, it will cause over-stock and
blocking of money.
On the other hand, delay in delivery means
loss of production.

18. (4)Right Source :- The right source is that
supplier who can supply the material of
the right quality, in the right quantity,at
the right time and at the agreed or right
price.
The supplier should have sufficient
financial resources and manpower to
handle the order.

19.  Right source aspects requires decisions as to
what items should be purchased directly from
the manufacturers,which items from dealers &
which items from open market.
 As far as possible, the firm should be located
near the buyers plant.This will avoid delivery
delay and high transportation cost.

20. (5)Right Price :- Right price does not
means the lowest price but the price
which minimise the overall cost.

21. ORGANISATION STRUCTURE
OF THE PURCHASE
DEPARTMENT
BOD
MD
PRODUCTION MANAGER PERSONNEL MANAGERFINANCE MANAGERMARKETING MANAGER MATERIALS MANAGER
PURCHASE MANAGER
RECEIVING & STORES INVENTORY TRAFFIC