Question

The Purchasing Department had three functions:

1) Drive the vendors to deliver the lowest possible price for each component purchased.

2) Measure and improve delivery performance by vendor.

3) Review and measure quality of incoming components.

Purchasing had no influence over choice of products, or vendors - the engineers did all vendor relations, product selection, qualification, etc. Nor did purchasing have the ability to substitute competing products (if we, for example, were deemed to be charging too much) without complex internal negotiations and qualifications with the engineers.

Nowadays, Purchasing Departments have become much more visible.

Question:  Why has Purchasing become such an important function in today's marketplace?

Answer 1

Sol:

During these years, the purchasing function was isolated from the other functions of companies and was subordinated to other functions, especially production.

Purchasing policy was to ask large quantities of products to suppliers in order to get discounts. Besides, large orders reduced the risk of running out of some components because large stocks were available in warehouses. Additionally, more efficient purchasing transactions were obtained. Although other variables were considered, such as quality and delivery, the lack of responsibility and information in the purchasing department made it difficult to consider other aspects but price. Purchasers and suppliers used to have very competitive relationships. There used to be a kind of winner-loser relationship in which both sides considered the other side as a competitor rather than a support. Companies tried to have access to a wide range of suppliers so that they didn’t depend on a single supplier. Therefore, close and helping relationships didn’t exist. As it has been previously mentioned, companies purchased those items which belonged to a competitive market so that they could purchase to several suppliers at the same time and change from one to another very quickly and without negative consequences.

Companies had changed due to the modifications in the environment. Consequently, the purchasing function was also forced to adapt to the new environment in which it had more importance within the firm.

When companies decided to diversify their products, there was an increase in the variety of components and products purchased. As technology evolved, purchasing departments had to pay attention to technical specifications. It also implied life-spam reduction, which made it necessary to reduce the time that the purchasing function had to deal with suppliers as well as to focus on different aspects than price such as quality and time delivery so that no delays in the final product were produced.

The importance of quality requirements rose for customers and so did for companies. Not only because quality became essential to get customers’ satisfaction but also because products were more complex and it absolutely necessary to fix all the components properly. Therefore, higher quality components were needed so that the development of the final product was feasible.

Transport, communications and information exchange improvements allowed companies to buy all over the world. The purchasing department had much more suppliers to consider as well as currency exchange rates to analyze. In other words, they had many more aspects to consider in order to do a good purchase.