Category Archives: Management

Evolution of Purchasing

The practice of purchasing has been in place since man inhabited the planet earth. Purchasing during the dark ages, old stone age and the new stone age was in pristine, crude and barbaric form.
Modern day purchasing has evolved through ages. It dates back to era of trade by barter/counter trade, through commodity market economy of which the major passing phases were era of great depression of production in which warehousing consciousness fully developed) era of sales in which various promotion efforts were invented to affect sales and during which need for purchasing dexterity also developed).

The era of marketing/purchasing in which the need to achieve purchasing objectives in terms of right quality materials, right quantity, from the right source to the right place of usage, at the right time with the right service both before and after sales and at the right price. Purchasing has gone a step further into the era of social purchasing which requires a buyer to look beyond mere technical and legal considerations of his duties. This requires buyers to design techniques of disposing off leftover materials such as redundant, surplus, scrap and waste materials, and to control packages and container in a way not injurious to the society. It also requires the buyer to perform his responsibilities without pursuing the unsought social cost to society at large e.g. pollution, etc.

Purchasing functions existed since the earliest day of mankind and civilization. A good example is found in the HOLY BIBLE, Genesis 41:25-27, elaborated how JOSEPH the chief overseer stored in every city the food from the field around him to be supplied during the years of famine. This is how Joseph became the father of purchasing and supply profession. From this, one can see that purchasing is a very ancient activity, it represents a stage in evolution of conquest, plunder and confiscation for the procurement of a desired object.
This is an evidence of purchasing practice far back into history. Arising from this, therefore, the importance of purchasing and supply in any organisation, profit or non-profit making cannot be over emphasized.
However, it was not taken too serious as an ideal business strategy until the early years of the last century that any serious thought was given to it by scholars to examine activities and institution involved in this dynamic professions.

In a nutshell, the history of purchasing and supply parallels that of civilisation, for it is both the cause and effect of the civilisation process in terms of economic development and exchange in particular.

Purchasing and supply’s role is to ensure the continuance in health and growth of development, the individual’s standard of living and economic development in particular.
Purchasing and supply management task in any organisation is not only to help it recognise business opportunities and serve the purpose of the various sector alone, but also to harness the organisation’s resource judiciously in order to enhance the quality of life in society. In short purchasing and supply is a problem solver.

This evolution of professionalism in purchasing is evidence by:

i. The establishment of institutions concerned with promoting the concept of professional purchasing. Such institutions include the chartered institute of purchasing and supply(CIPS) in Great Britain, the National Association of Purchasing Management (NAPM) in the USA, now Institute of supply management (ISM), Chartered Institute of Purchasing and Supply Management of Nigeria (CIPSMN) in Nigeria and the international Federation of Purchasing and Materials Management to which national purchasing associations throughout the world are affiliated.

ii. The identification of a body of specialized purchasing knowledge and techniques. The discipline contributing to the body of purchasing knowledge include: costing, economics,
electronic data processing, law, operations research, marketing and psychology. Techniques directly or indirectly related to purchasing include variety reduction, value analysis and value engineering, learning curve analysis, supplier analysis, the processes and procedures of negotiation and sophisticated developments such as materials requirement planning (MRP) and many more made possible by computerization.

The development and dissemination of such knowledge and techniques has been assisted by the growth of research into purchasing by universities and similar institutions and the publication in many countries of textbooks and specialist journals related to purchasing.

iii. The formulation by the purchasing institutions of the standards of academic achievement and practical experience which candidates for membership are required to satisfy.
While the practice of purchasing is not restricted to those who are members of a purchasing institution, examination schemes for those wishing to have certified proof of their knowledge of purchasing have been devised in many countries. In Nigeria as in many overseas countries the major examination body in the purchasing field is the Chartered Institute of Purchasing and Supply Management of Nigeria (CIPSMN).
iv. In addition to standards of knowledge and experience, some purchasing institutions have standards of conduct which their members are required to observe. This matter deals with Ethics
v. Most Institutions of higher learning now offer various Courses in purchasing, stores and materials management.

The Objectives of Purchasing

The cardinal objectives of purchasing and supply in any organisation may be summarise as follows:-
(a) (i) To supply the organisation with a steady flow of right quality and quantity materials and services to meet the operational needs.
ii. To ensure continuity of supply by maintaining effective relationships with existing sources and by developing other sources of supply either as alternatives or to meet emerging or planned needs.

b. To buy efficiently and wisely, obtaining by any ethical means the best value for every Naira spent.

c. To manage inventory so as to give the best possible service to users at reasonable cost.

d. To maintain sound co-operative relationships with other departments. Providing information and advice as necessary to ensure the effective operation of the organisation as a whole.

e. To develop staff, policies, procedures and organisation to ensure the achievement of the foregoing objectives

The Place/Status of Purchasing within the Business Function
The status may be defined as the position or standing of a person, group or function within an organisation. Or more commonly, as the evaluation of that person, group or function on a scale of relative esteem.

Within a particular organisation, purchasing may be accorded a high or relatively low status. This will depend partly on the contribution to profitability and other factors or reasons. The status of purchasing in any organisation is important for at least three reasons:
1. The status accorded by top management to the purchasing function influences the esteem in which the function is held at lower organisational levels.
2. The status accorded to the purchasing function affects the status of groups and individuals within that function.
3. Status has a motivational factor. If the needs for status, esteem and self actualization are not met, then performance may be adversely affected and staff turnover increase.

Factors influencing the location of purchasing in the organization
The organisational location of purchasing is very much dependent on the view management holds towards the purchasing function when management considers the purchasing function mainly as an operational activity, this will result in a position of the purchasing department relatively low in the organizational hierarchy. If management considers purchasing to be an important competitive factor, however, and of strategic importance to the organization, then the purchasing manager might very well be reporting to the board of directors. Management’s view of purchasing is, to a large extent, related to the following factors.

Purchasing’ share in the end-product’s cost-price – The higher the purchasing content, the more strategic the pruchasing function is considered by the management The financial position of the company. In times of severe financial losses, management will become more demanding on its purchasing operations and purchasing related costs, resulting in a greater accountability being demanded
The extent to which the company is depending on the suppliers. Market – Supply markets with high concentration ratios usually get more attention from management.
The implementation of materials requirements planning or just-in-time principles leads to a greater need for intergrating purchasing and supply management with logistics management.
As a result the purchasing manager in those companies will often report to the logistics manager. In technically oriented companies, however, which are confronted with rapid changes in product and /or process technology, the purchasing manager may report to the production manager.

Where Purchasing has a High Status
1. It will have strong support from top management in its efforts to negotiate economically and effectively.
2. There will be equality of standing between purchasing and other departments such as design, finance, etc.
3. Considerable freedom of action will be given to purchasing staff.
4. Purchasing will be consulted in the stages of product development with regard to preparation of specifications and the price, quality, and availability of materials.
5. The contribution of purchasing to organisational profitability and effectiveness will be regularly evaluated.
6. The professionalism, expertise and morale of purchasing staff will be high.

Where Purchasing has a relatively Low Status
1. Buyers may seek to gain status and authority by rule of the book procedures, e.g insisting that all contract with suppliers are through purchasing department. The tendency for purchasing to be by passed is an indication that, the unit is held in low esteem
2. Purchasing will not be consulted regarding the preparation of specifications, sources of supply or the procurements of capital goods and equipment.
3. The buyers may not have a knowledge of the use to which his purchase are to be put, thus preventing him from buying economically from alternative sources
or ensuring that quality specifications are related to the requirements of the product.
4. Buyers will tend to do what they are told by design and production departments.
5. The ability of the buyers to provide a high level of efficiency and job performance may be impaired by the failure of ordering departments to make

Requisition early or rationalize quantities.
6. The professionalism, expertise and morale of purchasing staff will tend to be low.
Indicators of Purchasing’s Status
The status of the purchasing function within a particular organisation is indicated by structural and influential factors.

Structural factors Include:
1. What is the job title of the executive in charge of purchasing?
2. To whom and at what level, does the executive in- charge of purchasing report?
3. What salary does the chief purchasing executive receive?
4. Of what committees is the chief purchasing executive a member?
5. How many staff are directly involved in purchasing and the associated functions for which it is responsible?

Influential factors include:
1. What recognition is given to the purchasing function, by top management?
2. What is the total annual expenditure for which the purchasing function is responsible?
3. How crucial is efficient purchasing to the success and profitability of the undertakings?
4. What financial limits are placed on the various grades of Purchasing staff to commit the undertaking without reference to higher authority?
5. What is the influence of purchasing in organisational buying decisions as perceived by persons internal (e.g sales person) and external (e.g users,) to the enterprises?
6. What is the influence of purchasing as a member of the buying center?

Qualities of a Good Purchasing Manager
The personality characteristies or qualities, which are likely to be found or to help in building success as a purchasing manager are:-
1. Ability to organize, plan and control his department.
2. Ability to bargain effectively, to interview, and select suitable suppliers.
3. A vast knowledge of an ability to study market forecast, economic trends i.e. technical skill.
4. Ability to interpret the corporate policy of the company and relate the purchasing function to it i.e. conceptional skill.
5. Acknowledge of human beingsi.e social and human Skills.
6. Ability to work co-operatively with other department of the organisation and serve them effectively.
7. Working hard with little or without supervision.
8. Should wear a business face and courage to face difficult situation

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