Purchasing

Purchasing is the procurement process a business or organization uses to acquire goods or services to accomplish its goals.

Purchasing is part of the wider procurement process, which typically also includes expediting, supplier quality, transportation, and logistics.

[citation needed] This involves three departments in the organization completing separate parts of the acquisition process.

The three departments do not all report to the same senior manager, to prevent unethical practices and lend credibility to the process.

A few examples are software delivered electronically, NRE work (non-reoccurring engineering services), consulting hours, etc.

Then, in an effort to decrease the administrative costs associated with the repetitive ordering of basic consumable items, "blanket" or "master" agreements were put into place.

These types of agreements typically have a longer duration and increased scope to maximize the quantities of scale concept.

When additional supplies were required, a simple release would be issued to the supplier to provide the goods or services.

There is still oversight in the forms of audits and monthly statement reviews, but most of their time is now available to negotiate major purchases and setting up of other long-term contracts.

This trend away from the daily procurement function (tactical purchasing) resulted in several changes in the industry.

Both of these functions permitted purchasing departments to make the biggest financial contribution to the organization.

This value was manifested in lower inventories, fewer personnel, and getting the end product to the consumer quicker.

On a side note, equipment bought for Research and Development are not added to inventory, but are capitalized as assets.

Often purchasing managers research potential bidders obtaining information on the organizations and products from media sources and their own industry contacts.

If the bidder passes both of these stages engineering may decide to do some testing on the materials to further verify quality standards.

This selection process can include or exclude international suppliers depending on organizational goals and criteria.

Other organizations may be looking to purchase domestically to ensure a quicker response to orders as well as easier collaboration on design and production.

It is also possible that the product or service being procured is so specialized that the number of bidders are limited and the criteria must be very wide to permit competition.

The sole source option is the part of the selection of bidders that acknowledges there is sometimes only one reasonable supplier for some services or products.

The very stringent procedures require bids to be open by several staff from various departments to ensure fairness and impartiality.

The manufacturing location is taken into consideration during the evaluation stage primarily to calculate for freight costs and regional issues.

One of the goals of purchasing agents is to acquire goods per the most advantageous terms of the buying entity (or simply, the "buyer").

Purchasing agents typically attempt to decrease costs while meeting the buyer's other requirements such as an on-time delivery, compliance to the commercial terms and conditions (including the warranty, the transfer of risk, assignment, auditing rights, confidentiality, remedies, etc.).

Good negotiators, those with high levels of documented "cost savings", receive a premium within the industry relative to their compensation.

Depending on the employment agreement between the buyer and the employer, buyer's cost savings can result in the creation of value to the business, and may result in a flat-rate bonus, or a percentage payout to the purchasing agent of the documented cost savings.