THE ROLES AND IMPORTANCE OF PURCHASING AS A BUSINESS ACTIVITY IN AN ORGANIZATION
Successful business management rely mostly on well co-ordinated function of activities, these include finance, personnel, production, marketing and purchasing. All of these functions form this activities that makes up a business organisation, however if one these functions is weak, it will definitely affect the overall efficiency of the other functions. Purchasing which is one of the business activities is as old as the birth of business enterprise itself and it is considered to be the basic function of activity in an organisation.
Purchasing is the attempt by business organizations to acquire goods or services or materials needed in order to accomplish the goals of the enterprise. This can be viewed from two perspective namely as a function and as a system.
Purchasing as a function is that aspect of business enterprise which ensures the uninterrupted flow of needed materials into the organisation having in mind profitability and economy, while purchasing as a system involves the acquisition of materials, equipment goods and services which are essential for the operations of a business organisation.
Unfortunately, since top management historically had focus on Marketing, Finance, Research and Development and Production, purchasing which is a basic function was not given much recognition, it was seen as a minor function and this led to the recruitment of clerks who were not skilled in the profession as purchasing officers. These created a lot of quality problems to the firms and led to the closure of some, but the Second World War, industrial revolution and the emergence of competition created a problem of scarce resources, then there was the need for tactical purchasing, this was when management started given more recognition to purchasing.
Purchasing simply mean procurement and this include some processes which are sourcing, preparation of purchase order, expediting, receiving and inspection of order, invoice audit and invoice settlement, all of those will depend on the purchase requisition sent by the needing department to the purchasing department.
The purchasing department is the heaviest spender of the organisation resources and contributes directly to the profit of the organisation through purchase discount and efficient buying.
The purchasing department is charged with the purchasing functions and any purchase made by this department is known as organizational purchasing.
1.1 DEFINITION OF KEY TERMS
– PURCHASE REQUISITION: This is a precise document generated by an internal organization to notify the purchasing department of items needed or the items it need to order.
– PURCHASE ORDER: This is a commercial document issued by a buyer (i.e Purchasing department) to a seller (i.e Supplier) indicating types, quantities and agreed prices for products or services the seller will provide to the buyer.
– SOURCING: This refers to a number of procurement practice aimed at finding, evaluating and engaging suppliers of goods and services.
– EXPEDITING: This is a concept in purchasing for securing the quality and timely delivery of goods and services ordered for.
– PURCHASE DISCOUNT: This is an offer from the supplier to the purchaser to reduce the selling price if the payment is made within a certain period of time.
– PROCUREMENT: This concept purchasing mean to obtain or take possession of materials needed for smooth operation.