In this article, you will learn the definition of purchasing in its simplest form, the objectives and different types of purchasing.
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What Do You Understand By Purchasing?
Purchasing is one of the basic functions common to all organisation. It refers to the process of acquiring goods, services, and equipment from another organization in a legal and ethical manner.
It can also be defined as the process of buying right materials, in the right quantity, at the right price, made available at the right time and using the right supplier to meet the operational need of an organization.
It has been described in so many ways by different authors and scholars. Some of those definitions are mentioned as follows:
According to LYSONS, “Purchasing is that function responsible for obtaining by purchase, lease or other legal means, equipment, materials, supplies and services required by an undertaking for use in production”.
According to BAILEY and FARMER, “Purchasing is the procurement of right quality of material, at the right time in the right quantity, from the right source at the right price”.
From the above definitions, some key variables or elements are noted:
- RIGHT QUALITY: To purchase the right quality of materials.
- RIGHT QUANTITY: To purchase the materials in right quantity.
- RIGHT TIME: To make the materials available at the right time.
- RIGHT PRICE: To purchase the material at the right price.
- RIGHT SOURCE: To purchase the materials from the right source.
Objectives of Purchasing?
The main objectives of purchasing are:
- To maintain an uninterrupted flow of materials to support the operation of the organization.
- To procure materials economically at a cost consistent with the quality and service required.
- To develop and maintain a good buyer-seller relationship.
- To provide the necessary expertise, advice and information to the organization regarding the best quality of material available in the market, suppliers’ capability and performance, etc.
- To maintain organization reputation and credibility in the market by fair dealing and prompt payments.
Types of Purchasing
The two main types of purchases are for buying and for resale. The buying function is generally for industrial use and resale falls under the wholesalers, retailers, distributors, and agencies. However, the following are the different types of purchases:
- PERSONAL: This type of purchase is met for individual consumption. Consumers are those people or buyers that ultimately use all the products manufactured by business firms.
- INTERMEDIATE: This type of purchasing is done for resale. The categories of people under this purchasing group are middlemen (i.e. distributors, wholesalers, retailers, and agents) who purchase from manufacturers directly for the consumption of end-users.
- INDUSTRIAL: This involves buying of raw materials, components, consumable stores, tools, machine and equipment, office supplies and office appliances for business use.
- INSTITUTIONAL: This is the buying of goods and services by government agencies, institutions for utilities. They form an important group of purchasers because they purchase in bulk.