Purchasing is the process of how goods and services are ordered.

Purchasing: 6 Major Principles of Purchasing – Explained!

Right Quality:

Right Quantity:

Right Time:

Right Source:

Right Price:

Right Place:

Role of purchasing in the supply chain

A company's purchasing department plays an important role in supply chain management decisions.
Purchasing is typically responsible for:

Selecting suppliers – process by which firms identify, evaluate, and contract with suppliers. The supplier
selection process deploys an enormous amount of a firm's financial resources and plays crucial role for
the success of any organization.

Negotiating and administering long-term contracts – process that procurement professionals go

through to create favorable terms as part of a new supplier contract. This can involve negotiating
different terms with an existing supplier when a contract is renewed, or discussing terms from scratch
with a brand new vendor.

Monitoring supplier performance – A supplier performance scorecard (supplier scorecard) is a tracking

tool used to monitor supplier performance. Supplier scorecards track metrics such as quality, delivery,
lead time, price and responsiveness of suppliers over time. Supplier performance professionals use
scorecard data to improve supplier relationships.

Placing orders to suppliers – When the order is placed with the suppliers for the supply of goods, the
items, quantities, date of receipt, and so on, details are given with the purchase order number. Later,
when these goods are received, the purchase order is tracked for the order details either in the receipt
note or in the purchase invoice.

Developing a responsive supplier base – Responsiveness the ability of the supply chain to respond to
problems and queries in an appropriate timeframe.

Maintaining good supplier relations –

1. Choose suppliers that align with your values

If excellent customer service is important to you then choose suppliers for whom this is also paramount.
It’s vital for good customer relations that any products, materials or services you supply your clients
have warranties or return policies that match your own.

It’s a bit like personal relationships – it’s very difficult to maintain a relationship with a person who
differs in core values.

When selecting suppliers consider their ethics, values, positioning and reputation.

2. Understand your suppliers’ needs

What’s important to them? Do they need you to follow a process or complete paperwork in a certain
way?

Respect their way of doing things and make it easy for them by following their processes and timelines.
Give them what they need, when they need it. Stay on top of supplying things like insurance certificates,
business information and purchase order numbers.

3. Be a great customer

Think about what you love about your customers and do the same for your suppliers. Pay on time and
keep your records in order so you don’t have to waste your suppliers’ time by getting them to re-send
things.

In the same way that you go the extra mile to look after a great customer, so will your suppliers if you
are a great customer to them. Putting some deposits in the goodwill bank can be very helpful if you
need a favour from your suppliers at a later stage.

4. Maintain regular communication

Keep in touch with your suppliers and try and schedule a time to get together over a coffee or a beer.
Reflect on what’s working well and talk through areas for improvement.

Having the opportunity for both parties to provide feedback on what’s been helpful or difficult can be
the spark to develop innovative ways to strengthen the relationship even further.

5. Give timely feedback

Don’t ring up and yell at your supplier if stuff isn’t going right. Instead, be calm and direct so things don’t
fester and become the proverbial storm in a teacup.

Despite the very best preparation and planning, mistakes and miscommunication can happen. It’s
important to tackle them with your supplier quickly and in a professional manner. Always allow your
supplier the opportunity to be part of a solution.

In a good supplier relationship, it’s essential to speak up when something is wrong.

6. Reward good service with loyalty

Many businesses complain that customers aren’t very loyal these days and are always chasing the best
deal. Are you doing the same thing with your suppliers?
If your supplier has done the right thing by you, reward them with your loyalty – just the way you like to
be rewarded.

Business relationships are a two-way street. One party doesn’t hold more power over the other – it
requires commitment and maturity from both sides.

Understanding each other’s perspectives and respecting differences is key, along with an understanding
of how each party benefits themselves as well as each other.

It requires open and honest communication, and the ability to have difficult conversations if required.
It’s worth it though, as a great supplier relationship can make a world of difference in serving your
customers and lowering your own stress levels.

Purchasing departments are at the center of successful supply chain management.

Typically, they help other departments identify their needs, manage the requisition process and source
competitive prices, and generally act as controllers to ensure adherence to budgets.

To ensure quality and to prevent unethical practices, purchasing is usually separate from receiving and
accounts payable.Thu

1. Lower costs - A well-run department should allow you to achieve immediate savings by choosing
a mix of suppliers who can provide the best prices and terms. In this process, relationships with
suppliers who cannot provide the right level of quality at the prices required are terminated.
The purchasing department can also provide savings by taking advantage of warranties and
discounts often forgotten by non-specialists.
Purchasing can also help you save by providing better transparency in how your company
spends. This will, in turn, allow you to negotiate better contracts and free up your cash flow.
2. Reduce risk and ensure the security of supply – Supply chain management involves sharing and
managing risks with suppliers. This can be done by moving the risks to the suppliers who are
best able to manage it. Or it can be done through diversification of supply.
The purchasing department has to identify what goods and services are crucial to the company
and take the appropriate steps to secure their supply chains accordingly. Often, this comes
down to an economic decision, where higher risks can result in lower prices, or vice-versa.

3. Manage relationships – Purchasing is not only about sharing risk, it is also about sharing
benefits.

Passing on risk to a supplier or outsourcing a service often requires more management of the
supply chain, not less.
 The department also has to manage relationships within your company. It has to work with
internal stakeholders such as marketing, finance, logistics and distribution to ensure that they
are all aligned.

4. Improve quality – Purchasing departments can help to improve quality by establishing target
performance levels for quality and then tracking performance against those targets. Critical to
quality characteristics is a typical metric used to measure things such as durability, the look and
feel of the product or the timeliness of delivery.

Some companies work closely with their vendors to develop their processes and assist them in
improving quality.

5. Pursue innovation – Because the purchasing department is always in contact with a variety of
outside businesses, it is in an ideal position to source innovative goods and services that can
provide a competitive advantage to your business—an edge in either price, quality or
convenience.

The purchasing department will also play an important role in helping you source supplies for
innovative products or services developed by your own firm. Commercializing R&D can often
require close cooperation with suppliers.

6. Leverage technology – Your purchasing department should identify technology solutions to

address your supply chain problems. The purchasing department should also play an important
role in the selection and implementation of ERP systems, inventory control systems and other
technology that aims to improve the efficiency of your supply chain management.