ABSTRACT
The function of the Purchasing Department is to obtain for the firm or company everything it needs to carry on its activities, except labour which is obtained by the Personnel Department. The items to be purchased are of four main types. These are:
Capital assets These are purchases of plant, machinery, motor vehicles, office equipment, tools and appliances of every kind. They last a long time – longer than a year – and are distinguished from items that last less than a year, which are called ‘consumables’. Capital assets are often extremely expensive – a single crane may cost as much as £500 000 for example – and the purchasing officer has much to do to ensure that such items are properly approved before ordering, after a period of careful evaluation by staff who know all about the asset concerned. Often special members of staff are appointed to supervise the purchase of assets in particular fields (e.g. office equipment), and no requisition will be considered that does not bear the signature of the appropriate official.
Consumable items These are items used in the course of business, such as letterheads, envelopes, paper clips, etc., for office use; and lubricants, cleaning materials, greases, etc., for factory activities. Much of the ordering of this type of good is routine – it is simply a case of ordering when stocks are running low – but all such items are valuable and easily pilfered so their use should be monitored. Staff should know that management views misappropriation of such items as a serious offence.
Goods for re-sale Firms in wholesale and retail trade buy goods to sell again at a profit, after perhaps performing such useful services as breaking bulk, distribution, display, etc. So widespread is this sort of business activity that the word ‘purchases’ has come to mean ‘items bought for re-sale at a profit’, even though the Purchasing Department may buy many other items. So the purchase of a machine or of typing paper for office use is not ‘purchases’ in the usual meaning of that word, which is reserved for goods that are to be re-sold.
Some goods which are purchased for re-sale are invoiced at ‘Recommended Retail Price’ – say bicycles at £120 each. The buyer is given a discount called ‘trade discount’ which reduces the price to the buying firm, so that when it re-sells at the recommended retail price it will make a profit equal to the trade discount. Trade discounts are usually between 25 and 55 per cent – anything less is insufficient for the trader to cover his/her overhead expenses.
Raw materials and components for manufacturing activities If we are manufacturers there is another kind of purchase, the purchase of raw materials and components that are embodied in the product during the manufacturing process. We have to convert the raw materials and components into a finished product. The purchasing officer will need detailed specifications of the materials required, and of the components to be ‘bought-in’ from sub-contractors or suppliers. It will usually be a matter of serious concern that the quality of materials or parts meets the specification, and to this end it will be usual to deal only with approved suppliers who have proved over the years that they can meet our requirements.
The work of securing supplies of these four types of requirement is important and requires sound control by qualified staff. Usually the purchasing officer will be a senior member of staff, though not necessarily of boardroom level. He/she will certainly be asked to sit in at board meetings where agenda items affecting the Purchasing Department are to be discussed. A purchasing officer is usually a member of the Institute of Purchasing and Supply, one of the most important professional bodies. Their address for students interested in securing membership is Easton House, Easton on the Hill, Stamford, Lincs. PE9 3NZ.
