Purchasing plays an important role in the operational functioning of any business. Purchasing is required by businesses to acquire raw materials, equipments, and stock to assemble or manufacture their products. Businesses need to have a good purchasing plan so as to minimize costs and maximize efficiency. To have a successful purchasing plan, each step of the purchasing process needs to be reviewed and analyzed to remove flaws and defects. Nowadays, the process of purchasing is considered to be a key strategic function which is used to control costs and increase output.
These plans were designed to include the basic elements in the purchasing process such as requisitioning, purchase orders, and invoicing. This process was commonly used by businesses in the late 20th century and was considered to be sufficient for their operating activities. The purchasing process was considered to be more clerical than strategic and focused on ensuring that the right quantity of goods were purchased at the right time at a lower cost. Less emphasis was placed on quality control as raw materials were not thoroughly looked at when they were being purchased which led to many product recalls.
Traditional purchasing plans focused on negotiating with suppliers and ensuring that the right price was being charged for the product. Traditional purchasing plans followed a policy of divide and rule, which was to purchase different supplies from different vendors instead of purchasing from just one. This was used so that the business would make price concessions on the purchases that were made.
The way businesses organize their departments nowadays are considered to be more strategic and thorough. Each department has a specific set of policies that have to be adhered to so that the business is administratively sound. There is a growing competition in the market as more and more competitors are entering the industry on a frequent basis. This has prompted businesses to be more efficient and organized in the way they conduct each operational function. The purchasing department, which was once considered to be a clerical function is now being strategically planned to improve the productivity of the business.
In modern purchasing plans, members of the purchasing department are constantly observing the buyer's market to discover new ways to reduce costs on acquisitions. Instead of only focusing on the price of the raw material or product, purchasing analysts take into consideration other factors that could affect the true cost of the transaction. These factors include taxes, letter of credit costs, inventory carrying costs, storage requirements and payment terms. One of the methods that are being currently used by purchasing departments is strategic sourcing. This method involves an in-depth analysis of the product that the business purchases in high volumes, and to develop a strategy to procure those products easily. This involves creating strong relationships with vendors by studying their business conduct. By observing the way that suppliers operate, businesses can maximize their supplier's contribution to the process.