A “Business activity directed to securing the materials, supplies, and equipment required in the operation of an organization” is how purchasing is defined.
Lewis defines purchasing as any primary materials, supplies, equipment, and so on that the maker obtains through any method. This procurement includes extraction from owned mines or forests, cultivation of owned agricultural lands, manufacture of owned plants, and purchase.
Purchase Objective and Functions:
Some of the broad areas of the specific objectives of the purchasing department are:
- Economic purchase operation: Purchase is an economic function that should contribute to the profits of an organization so, it should have working knowledge in the field of economics, engineering, law, transport, imports, government, and regulation policies.
- Consistent Market survey: systematic collection, compilation, analysis, and evaluation of collected data (primary and secondary) are vital in drawing definite conclusions.
- Proper Control over financial commitments: Material bills and services occupy essential. 50%-60% of the company’s turnover, so adequate control over financial burden is necessary.
- To provide information and assistance to top management and another concerned department: forecast of price trends, market situations such as possible scarcity of materials, and future investment commitments vs. working capital, are some the areas where management must be kept informed periodically and based on which specific purchase strategy and policy could be evolved.