Purchasing and supply is an important aspect of both human and national economic development. There is no organisation or human being, which directly or indirectly do not use materials, supplies, information, works and services to forge ahead and achieve its intended objective. The route whereby the materials, supplies, and services pass through to the users or operational areas is purchasing and supply management who has the managerial ability for the task.
In an ideal situation this function is typically handled by the purchasing and supply professionals who is versed in the intricacies of materials management concept.
The purchasing personnel are basically concerned with an aspect connected with effective and efficient utilisation of the limited materials resources that are available to us. In this regard, the Science and Art of purchasing and supply deals with methods and techniques used for the judicious disbursement of funds to acquire materials resources. In this regard, with special reference to the right quality of materials, the right quantity from the right source, at the right time, to the right place and at the right price to support operation management.
In a nutshell, purchasing and supply is a humanitarian profession that is out to solve all problems involving the use of materials, supplies, information, funds, works and services to the best advantage of the nation and her associated organisations. Arising from this, therefore, the science and art of purchasing and supply are evolving.
From the foregoing we can logically describe the purchasing and supply as the life-wire in operation management, the KingPin in any From the foregoing we can logically describe the purchasing rational effort to make a nation self-reliant.
In a report issued only a short time ago, by the World Bank, purchasing and supply function top the list of most important ingredients of success in government business during the years ahead. Since purchasing and supply strategy led others by a considerable margin, it means then that the business man and government authorities in particular who does not have some knowledge of the rudiments of modern procurement cannot hope to rise far in the business world of tomorrow. It is worthy of note also that, in all strategic forward planning and forecasting being done by business today whether private or public, the purchasing techniques serves as the foundation of all.
This is to tell the general publics that the purchasing function of any organisation whether profit or non-profit organisation is central to the smooth running of the activities of the organisation. From the pre-incorporation stages of the organisation, when a business or services objective is being mounted all through to the incorporation process. The purchasing development at this level is highly needed across the globe not only in Africa and Nigeria in particular.
Purchasing development in this sense connotes the ability of the nation to locate its resources, to transform such raw materials into more useful products, to substitute for scarce (usually imported) resources with local (and more abundant) ones and generally to ensure the most economical and productive use of what the country has.
These functions can only be adequately performed by the country when it has a large body of competent men and women trained in the relevant purchasing and supply management sciences and art. The role of purchasing and supply management in raising level of the productive forces and hence the standard of living of any given society is well documented in advanced countries like USA, UK and many more.
Purchasing Definition and Types
Purchasing and supply management is the processes of planning, organising, directing and controlling the activities responsible for obtaining equipment, goods and services either by purchase, lease, hire or by other legal means.
Purchasing (private sector usage) or supply (public sector usage) may be defined as the procurement of right quality of material, at the right time, in the right quantity, from the right source, at the right price. Compton H.K., defines purchasing as an establishment that deals with the acquisition stages of supplies from receipts of the notice of need to the clearance of the invoice, including negotiation, placing of purchase order, order closing, delivery, recording purchases and clearance price checks on invoices.
Lysons C.K., defines organisational purchasing as that function responsible for obtaining by purchase, lease or other legal means, equipment, materials, supplies and services required by an organization for use in production. The term production is used in an economic sense of creating utilities i.e goods and services that satisfy wants. Purchasing is not, therefore, confined to manufacturing output but also applies to servicing, distributing, etc organisations.
Baily and Farmer, described purchasing as a pro-active function involved in the management of inputs to the organisations, and as a key element in all business in which purchase costs are a significant proportion of revenue or budget.
Giwa, E.O also described purchasing as “management of materials in-flow, from establishment of sources, purchases, through inventory stores to the ultimate delivery of production lines as needed” In Glwa’s definition of purchasing, its function can be classed into three; Establishment of sources of purchasing, inventory and storing, and ultimate delivery to production lines.
Types of Purchases
The problems usually confronting a purchasing and supply vary depending upon the type of purchases being made. The behaviour of each type of purchases is however different for a given set of economic situation. Hence it is very essential to differentiate the following major types of purchases for better understanding.
Meanwhile, the attribute, and factors responsible for the variation in prices must not be overlooked. Purchasing may be classified into organisational purchasing and domestic purchasing (buying for individual/family use of consumption)
1. Industrial Buyers
Those buying goods and services in some tangible productive and commercially significant purpose e.g manufacturers, primary (extractive) producers.
2. Institution Buyers
Those buying goods and services for institutions in the sense of providing a service which is often intangible) e.g schools, hospitals, armed forces, Federal, State and local government, hotels etc.
3. Intermediate Buyers
Those buying goods and services for resale or for facilitating the resale of other goods, in the industrial or ultimate consumer markets e.g. distributors, dealers, wholesalers, retailers, service traders, e.t.c. There will be similarities and differences in the buying behaviour of organisations pursuing similar or different objectives respectively.
Classification of Purchasing goods
The purchasing process may concern a large variety of goods and and, of course, services. In general, purchased materials and services can be grouped into the following categories,
Raw Materials: Raw materials which have undergone no transformation or a minimal transformation, and they serve as the basis materials for production process. We may differentiate between physical raw materials, such as iron ore, copper ore, coal, and natural raw materials, such as grains, soya and coffee.
Supplementary materials: These are materials which are not absorbed physically in the end product; they are used or consumed during the production process. Examples of this type of product are lubricating oil, cooling water, polishing materials, welding electrodes and industrial gases.
Semi-manufactured products: These products have already been processed once or more, and they will be processed further at a later stage. They are physically present in the end product. Examples are steelplate, rolled wire and plastic foils
Components: Components are manufactured goods which will not undergo additional physical changes, but which will be incorporated in a system with which there is a functional relationship by joining it with other components. They are build into an end product. Examples are headlight units, lamps batteries, engine parts, electronic parts and transmissions. A distinction can be made between specific components and standard components. Specific components are produced according to design or specification of the customer, whereas standard components are produced according to specification of the supplier.
Finished products: These encompass all products which are purchased to be sold, after negligible added value, either together with other finished products and / or manufactured products. Examples of this product category are accessories which are supplied by car manufacturers, such as stripings, car radios and ornamental wheel rims. The manufacturer does not produce these products, but obtains them from specialised suppliers. Commercial products and articles sold by department stores are also in this cateogry.
Investment goods or capital equipment: These are the products which are not consumed immediately, but whose purchasing value is depreciated over a period of time. In general the book value is stated on the balance-sheet annually. Investment goods can be machines used in production, but they also include computers and buildings. These examples illustrate the varied character of this category of goods.
Maintenance, repair and operating materials (MRO items): These products, sometimes referred to as indirect materials or consumable items, represent materials, which are necessary for keeping the organsiation running in general, and for the support activities in particular. These products are often supplied from stock; examples are office supplies, cleaning materials and copy paper, but also maintenance materials and spare parts.
Services – Services are activities which are executed by third parties (suppliers, contractors, engineering firms) on a contract basis. Services can range from providing cleaning services and hiring temporary labour to having a new production facility for a chemical company designed by a specialised engineering firm (a contractor).