Most major companies and even some government organizations have a purchasing or procurement department as part of everyday operations. These departments provide a service that is the backbone of many manufacturing, retail, military and other industrial organizations. Many individuals, even some who work for these companies, are unaware of what the purchasing department does, why it exists or what purposes it serves. To understand better what the role of the purchasing department is, consider some functions it performs.
One role of the purchasing department is to procure all necessary materials needed for production or daily operation of the company or government organization. For a manufacturing company, this might include raw materials such as iron, steel, aluminum or plastics, but it also might include tools, machinery, delivery trucks or even the office supplies needed for the secretaries and sales team. In a retail environment, the purchasing department makes sure there is always sufficient product on the shelves or in the warehouses to keep the customers happy and keep the store well-stocked. With a small business, it is especially important to keep inventory ordering at a reasonable level; investing large amounts of capital in excess stock could result in storage problems and in a shortage of capital for other expenditures such as advertising or research and development. Purchasing also oversees all of the vendors that supply a company with the items it needs to operate properly.
A purchasing department also is charged with continuously evaluating whether it is receiving these materials at the best possible price in order to maximize profitability. This can be challenging for a small business that may purchase in lesser quantities than a larger vendor and which thus may not receive the same type of bulk discounts. A purchasing department in a small business needs to shop around to find the best vendors at the most reasonable prices for the company's particular size orders. Purchasing department staff may communicate with alternate vendors, negotiate better pricing for bulk orders or investigate the possibility of procuring cheaper materials from alternative sources as part of their daily activities.
Paperwork and Accounting
Purchasing departments handle all of the paperwork involved with purchasing and delivery of supplies and materials. Purchasing ensures timely delivery of materials from vendors, generates and tracks purchase orders and works alongside the receiving department and the accounts payable department to ensure that promised deliveries were received in full and are being paid for on time. In a small business, this means working closely with the accounting department to ensure that there is sufficient capital to buy the items purchased and that cash is flowing smoothly and all payments are made on time.
The purchasing department also must ensure that it is complying with all company policies. For example, in a small business, individual staff members may communicate with the purchasing department about purchasing needs for things such as office supplies or computers. Before making a purchase, the purchasing department must ensure that it heeds the proper protocols for purchase and budget approval and must ensure that any items are purchased in accordance with the overall purchasing policy of the organization.