Need Help to Design your Business Plan or Feasibility Study?

Call Us at:

(718) 485-6643

(347) 312-2006

or e-mail us now at:

business@jmcworld.com

Welcome to

Powered by James Management Consulting, Inc.^®

...Helping To Take Your Business To The Next Level

Sign Up for a jmc.world.com Membership. Get Unlimited Access to our Business Development Center

24 x 7

from anywhere

in the world

More Info...

The   purchasing of goods and services for your organizations  is one of the most challenging of the tasks that   entrepreneurs must undertake as they attempt to develop their   enterprises.  For small and medium sized businesses, even more challenging could be buying from big businesses We at jmcworld.com are pleased to    present you with important insights into how you may  implement a purchasing sector in your entity.   

About this Page

The information on this page is designed to assist you as you attempt to design     procurement, or purchasing sector of your organization. With respect to the operation of his business, two elements of which the entrepreneur must be extremely concerned are 1, purchasing and 2, sales. He must be concerned about purchasing because of the outflow of business related funds and other assets that may be associated with this aspect of the operation of the business and sales, because of the acquisition of funds without which the business cannot survive.

The care that entrepreneurs must take to ensure that the purchasing of elements on behalf of their  businesses  are closely monitored and orchestrated cannot be overemphasized. While  procurement will be written about from both the perspectives of purchasing in general, emphasis would be placed on that from government and big business. Our hope is that the entrepreneur will find tips here that are helpful to the   development of your business.

To understand the importance of the     implementation of  proper  procurement agenda for your business, it is important to understand:

• The dynamics of  purchasing,
• The significance of purchasing to businesses,
• The purchasing agent of a company,
• The need for cost effectiveness in purchasing,
• The purchasing function,
• The need for excellence in purchasing,
• Responsibility of purchasing departments,
• Characteristics, function and responsibilities of a purchasing department,
• Effective buying,
• Commitment, responsibility and authority, with respect to purchasing in a business
• Purchase planning,
• Purchasing reports,
• Quality vs. Mediocrity in purchasing,
• Purchasing and the business bottom line.

The Dynamics of  Purchasing/Procurement

Procurement or purchasing can  seen as the acquisition of elements on behalf of the entity towards achieving its goals. It is one of the most important agendas that a company must undertake during its tenure as business, and should be given significant attention. Because of the significance of purchasing to the development of an entity, especially with respect to the output of money from the company, this important function is usually implemented by  management.  

The Significance of Procurement to Businesses

The purchasing of elements with which a business must operate means incurring  significant costs with respect to the implementing such a business. Costs engender major depletions of  resources with which a business must operate and, therefore,  must be carefully monitored, if such an entity is to succeed. Indeed, the purchasing of materials on behalf of a company,  involves that for  manufacturing purposes, that of supplies, rents, if the entity pays rent and other purchases that would deplete the company’s financial resources.  The management of a business is obligated to ensure that purchases that are made on behalf of the entity are done with extreme care.  

The Characteristics and Functions of  Efficient Purchasing/Selling.

The effectiveness with which  the purchasing operation of a business is implemented   will depend   on the extent to which the entrepreneur can blend  the following attributes, functions, pitfalls  and objectives of the purchasing dynamics of the entity into an efficient operating unit of the businesses.   What are   some attributes of Good Purchasing?

They can be seen as:  

• Broad supplier contacts.  This enables the purchaser of the business  to locate  unusual, unfamiliar and necessary items quickly.
• Good relationships with suppliers.  This, for example,  should be ethical, transparent, fair and mutually profitable to the supplier and the business.
•  Effective Communications.  Your communications with your supplier, your staff and the rest of the company should be transparent, productive and unrestricted.
• Discounts.  Such should be sought and acquired when they can be obtained.   This may be acquired  by combining requirements for larger quantities and purchasing in bulk.
• Economic feasibility of bulk orders.  This should be tested, calculated and implemented if appropriate.
• Qualified alternate source of supply. This is  especially necessary with respect to  critical items, and should be available for implementation at all times.
• Appropriate levels of quality.  Materials and services must be adequate for manufacturing requirements and product demands.  Acceptance by all other departments of the quality received is a major measure of the competence of the purchasing department.
• Proper order quantities.  Quantities requisitioned often do not correspond with standard commercially packaged amounts.  Requirements should be questioned when it is possible to take advantage of buying economies.  Quantities should be adequate for current requirements plus proper inventory levels.
• Should be established after consultation with manufacturing and purchasing to be sure all possible quality and cost alternatives have been considered.  Here, specifications should be clear, and the buyer should be conversant with the source and knowledgeable regarding the needs.
• Cooperation with other sectors of the business. Should be a prime purchasing objective.  There should be a minimum of complaints or controversy with other departments or suppliers.  Use the team approach to solve company problems.
• Flexibility and adaptability  to changing conditions and unexpected developments should be coupled with a positive attitude toward change.
• Make or buy. Investigations of the feasibility of making or buying products should be set and met, and they should conform with overall company budgets and objectives.
• Sales of scrap and surplus materials.  Scraps sales and disposal of surplus equipment or materials are frequently assigned to purchasing departments because of that department’s familiarity with market prices and the business community.  These contacts and this knowledge should be used to produce the maximum income from such sales.

Education

·        New ideas.  For research and development of materials, products, processes, and equipment should be welcomed, solicited, and sought by purchasing.

·        Purchasing research. A continuing program of research should be implemented, which should be devoted to locating and developing cost-saving opportunities and proposing new materials and processes and more efficient methods.

·        Standardization.  Purchasing should have a major role in standardization.  Programs should be vigorously pursued when better value is obtainable.

·        Records-current and accurate.  Records maintained by the purchasing department should be current, and they should fulfill legal requirements as well as the operational needs of purchasing and other departments.  Accuracy is essential.

Leadership and Human resources

• Qualified personnel. Are essential in purchasing.  On-the-job training is a singular responsibility of the purchasing manager.
• Job descriptions.  Should always be in writing, and should be designed to give purchasing personnel guidance into the delegation of responsibilities  and activities.
• Effective leadership.  Should be practiced to gain the loyalty, confidence.
• Creative thinking and planning.  The department must continuously generate new ideas with respect to purchasing and projects and then develop programs that will assure their profitability of the department.
• Proficiency in Professionalism.  Should be an objective of every buyer and purchasing manger.
• Clearly defined policies and procedures.  Purchasing guidelines should be clearly defined in writing and should confirm with the overall policies of the company.
• Reports of managements. Such should be regularly submitted to management by purchasing department.  Included in such reports may be economic forecasts, price trends, and market conditions, as well as departmental operating data, cost reduction and cost avoidance methods should be included here.
• Definition of accomplishments.  Cost improvements, cost reductions  and other savings because of proper purchasing methods should be defined and acknowledged.  Credit should be given for initiative in the pursuit of improved value and profit contribution.
• Conflicts of interest.  This should be   strictly forbidden.  The probability that  investment or involvement in a supplier’s business by the purchaser of a business may compromise a buyer’s interest and interfere with his or her judgment s very high, and should be expressly prohibited.

Effectiveness

·        Expediting of deliveries as required.  Schedules should be met and deliveries should arrive on time in keeping with company requirements and minimum costs.

·        Proper handling of rush requirements. Crash programs may be necessary to support company objectives, and they should be handled enthusiastically and with initiative by the purchasing department.  Urgent demands, even if they result from matters that are beyond the control of purchasing, must be met.

·        Consolidation of requirements.  Items commonly used by various departments should be coordinated and combined in order to minimize frequency of ordering and to obtain lowest costs through quantity purchasing.

·        Statistical data.  Information pertaining to daily activity and workload may be helpful in measuring purchasing performance, but it does not provide a valid evaluation of proficiency.

·        Teamwork.  Within the department and between department should stimulate coordination and participation in advance planning, development of schedules, and the initiation of the requirements.

Legal

  The law.  As such pertains to purchasing contracts, commercial practices, organized labor, and antitrust should be respected and strictly followed.

Important Attribute for success

·        Technical assistance. And specialized service that are available from suppliers, governments and other businesses should be made known to those concerned with such matters within the company and should be used when appropriate.

·        Timing of deliveries.  Should allow for adequate lead time and yet meet production requirements while avoiding excessive inventories or safety stock.

Purchasing support

  Use of trade publications.  Purchasing literature is an excellent source of information on new materials, products, processes, and ideas.  Trade publications should be read regularly.

Labor Relations

• Trade relations.  And reciprocal matters should not unilateral decisions by either purchasing or marketing, and they should serve the best overall interest of the company.  They should not be detrimental to the cost or quality of the company’s products.
• Disputes, complaints and claims.  These should be promptly monitored,  processed and acted on in an orderly manner.

Finance

• Budgets of departmental costs and expenses re., purchasing.  Should have management approval to be used for the control purchasing on behalf of business.
• Targets.  For cost improvement should be realistically established, continuously and conscientiously pursued, and consistently achieved.
• Variances from standard cost. Variances from standard cost should be isolated, analyzed, and explained. When standard cost should be isolated, analyzed, and explained.  When standard costs are properly established, variances are one measure of purchasing proficiency and an indication of purchasing contribution to profit.
• Total cost of a production.  Is a function of service and quality as well as price.  Better quality and timely, reliable service may compensate for the payment of higher price and still provide the lowest final cost of acquisition.

Purchasing Agents: Their Significance to the Development of a Business

In the early days of business development in the Americas, purchasing on behalf of businesses was done by the management of such entities.  The industrialization of economic activities that took hold of the production processes of  the continents, even the world during the twentieth century generated the dramatic growth of organizations.  This, in turn, made the purchasing of element for organizations more and more significant. The growth of business organizations in the Americas generated the need for every cost, especially that of purchasing to be monitored and controlled. Management began to assign the task of purchasing on behalf of their entities to specialized personnel called agents. Such people were assigned the responsibility of ensuring that purchasing costs kept pace with the budgets and other constraints of the entity. The purchasing agent was born. It must be noted that this important task is still a big-company phenomenon. The management of most small and medium sized organizations still implements the purchasing on behalf of these entities.

  Qualities with which Purchasers for businesses should be equipped

Individual buyers, as well as purchasing departments, need to adopt certain qualities as the basis by which they could successfully implement their agenda.  These are some of the qualities you should look for in your attempt to select a buyer for your business. If they are not   already equipped with them, effective buyers need to adopt these characteristics:

  Acceptability.  The qualities that lead to one being considered a worthwhile individual by peers, subordinates, superior, and friends.

  Flexibility. The ability to adjust to changing conditions and the unexpected and to evaluate the actual worth of new information. A positive attitude toward change.

  Decisiveness.  The ability to arrive at a decision quickly after obtaining the necessary information and to live with the decision after it has been made.

  Energy and drive.  The capacity to act as a self-starter and approach activities and problems with energy.  The urge to get things done and resist discouragement.

  Intelligence.  The ability to solve everyday problems, adapt to new situations, and get along successfully in society.

  Leadership.  The ability to gain the confidence and loyalty of others and to motivate and manage them effectively toward a predetermined goal.

  Motivation.  The desire to develop planned goals to fulfill one’s individual needs, and thus to be realistically ambitious and willing to assume increased responsibility to realize these goals.

  Attitude.  The buyer feels that his or her job is important to the overall company operation and that the company is important to the standard of living in the area. The buyer’s attitude is that of giving good service for the department and the company.

  Oral communication skills. The ability to transfer by spoken word a thought or concept to another individual with a minimum of confusion.  Such communication includes accompanying facial expressions, voice intonations, and gestures. 

  Self-objectivity.  The ability to understand and evaluate one’s own needs, goals, and personality traits and to determine other individuals’ reactions to these.

  Written communication skills.  The ability to  transfer by the written word a fact or concept to another individual with a minimum of confusion.  This includes some facility with basic sentence structure, legible handwriting, and correct grammar and spelling.

  Adequate memory.  The buyer’s ability to recall incidents, names, and faces should satisfy reasonable requests.

  Telephone technique.  The buyer utilizes telephone time efficiently and is familiar with techniques that save time and minimize equipment tie-ups.  He or she also recognizes the value of courteous, prompt handling of calls.

  Personal appearance. The buyer is neat and clean, dresses in good taste, and keeps personal grooming above reproach.

  Availability.  The effective buyer is generally available when needed, leaves word where he or she can be reached, and specifies the circumstances under which interruptions are acceptable.

  Aptitude.  The buyer can persuade using departments to accept alternates that will do the job at lower cost.  Is convincing in arguments and strives to effect the best possible buy for the company.

  Ethics.  Business dealings touching purchasing are conducted on a high moral plane and avoid any situations that might place the buyer or the company under obligation or in an embarrassing position.  This applies to both buying transactions and social functions with suppliers.

  Independence.  A  member of the purchasing department conducts work independently and does not need constant guidance from supervisors; consolidates those matters which require guidance.

  Punctuality.  The buyer realizes the importance of being punctual on the job and in attending meetings;  doesn’t abuse lunch periods and coffee breaks.

  In addition to having the personal characteristics described above, a buyer should be able to perform efficiently in the following ways:

  Following directions and instructions.  The buyer follows directions and takes appropriate action with the minimum amount of supervision.  He or she should do this promptly and efficiently and thereby require very little follow-up.

  Weighs problems.  The buyer recognizes the relative importance of problems and put them in their proper perspective; does not waste time working on important details at the expense of more important matters.

  Accepts criticism.  The buyer gracefully accepts constructive criticism, alters methods to take advantage of the criticism, and is able to accept constructive criticism from supervisors, from persons in other departments, and from suppliers.

  Organizes work.  The buyer organizes work efficiently so that a good buying job can be done with a minimum of delay.

  Coordinates adjustments.  The buyer coordinates the prompt and reasonable settlement of all adjustments and claims involve in supplier transactions.

  Maintains standards.  The buyer maintains standards by reviewing requisitioned items for conformance to company standards; also assists in the establishment of standards within the company and often achieves stock reductions as a result of these efforts.

  Conducts interviews.  The buyer conducts interviews in a prompt and businesslike manner and encourages the development of pertinent information flow in both directions.

  Develops competition.  The buyer considers quality and service as well as price and maintains a competitive atmosphere by securing quotations from a reasonable number of qualified suppliers.

  Keeps informed.  The buyer is constantly on the alert for new ideas, products, processes, and potential suppliers; regularly reads purchasing and technical publications and maintains contact with suppliers, associates, associates, and industry and trade associations in pursuit of this knowledge.

  Ensures timely delivery.  Through the timely placement of orders with reliable suppliers the buyer negotiates firm delivery dates, and arranges for special handling and transportation when required.

  Develops commodity knowledge.  The buyer maintains a knowledge of the commodities purchased as well as a knowledge of any unique or special marketing conditions pertaining thereto.

  Leads conferences effectively.  The buyer is able to conduct conferences effectively and secure agreements that result in worthwhile decisions, uses good conference techniques to advantage, keeping brief and to the point, and holds meetings only when necessary.

JMC

Business Directory

James Management Consulting, Inc. is a business consulting and accounting firm. 

We do NOT provide legal advice.  For a list of the business services we offer, CLICK HERE.

Terms        Privacy