Operations Management: An Integrated Approach, 5th Edition

THE ROLE OF PURCHASING

A company's purchasing department plays an important role in supply chain management decisions. Purchasing is typically responsible for selecting suppliers, negotiating and administering long-term contracts, monitoring supplier performance, placing orders to suppliers, developing a responsive supplier base, and maintaining good supplier relations. Since material costs may represent at least 50–60 percent of the cost of goods sold, purchasing significantly affects profitability. Moreover, changes in product cost structure, with materials comprising the bulk of the cost of goods sold, have elevated the role of purchasing in many organizations.

Let's look at how purchasing has been done traditionally and also look at e-purchasing.

The Traditional Purchasing Process

Requisition request

Request indicating the need for an item.

Before companies introduced e-purchasing, purchases were made following a flow similar to that shown in Figure 4-6. Typically, the process began when a requisition request was created, often by a production planner, an inventory planner, or an administrative staff member. A requisition request is simply a form used to inform purchasing that an item or a material needs to be purchased. Before any action is taken on the request, it may need to be authorized, by either a supervisor or a manager. The level of authority needed is often based on ...