Operations Management

Chapter 9 : Purchase Management

Importance of Purchasing
Impact of Costs on Profits, Increasing Prominence of Automated manufacturing, Increased Global Competition
Organizing Purchasing
Responsibilities of Purchase Manager
Vendor Development, Selection of Suppliers, Contract Negotiation and Communication Interface, Value analysis- Purchasing Process
Duties of Buyers
Make-or-Buy Analysis
Ethics in Buying

Chapter Summary

Purchase departments buy raw materials, parts, machinery, and services used by production systems. The objective of purchase management is to procure the right equipment, materials, supplies and services in the right quantity, of the right quality, from the right suppliers, at the right time, at the lowest price.

While the value of purchased items varies from industry to industry, it adds upto more than fifty percent of sales in all industries. Purchase management is regarded as a significant activity in many organizations because of the high cost involved in carrying out purchasing activities, increasing quality benchmarks, and increasing global competition.

Purchase activities can be organized by using two basic approaches: centralization and decentralization. Many manufacturing organizations use a blend of these two approaches to organize their purchase activities. The purchase manager, who heads the purchase department, is responsible for developing vendor networks, selecting suppliers, negotiating contract terms and conditions with suppliers, and ensuring the timely delivery of the required supplies.

Whenever a new item is indented, the purchase manager must determine whether to make the item in-house or buy the item from external vendors and suppliers. Many people are of the opinion that the employees working in the purchase department are corrupt because the regular activities of the department involve huge sum of money. Organizations should therefore develop guidelines on ethics for employees in the purchase department.

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