Structure of the Purchasing Function in Simple Organisations

modified in many respects, this function is still important and, therefore, the purchasing manager should pay close attention to the development of the organisational structure for the purchasing function. Organisation is concerned with the division of work and the delegation of authority and responsibility in such a way that the objectives of the organisation can be achieved. It also involves defining the duties of personnel and the relationships between them. The task of developing an organisation structure has become a complex one, and there is no longer a simple prescriptive model that can be applied in all situations. The business environment is now populated by a wide variety of different types of organisation. It is recommended, therefore, that an organisation structure should be tailored to the particular circumstances of the particular organisation. What is suitable for one organisation would not necessarily be copied by another. In discussing organisational problems for purchasing management, it is essential to take into account some of the important differences. Of course, the development of an organisation for the purchasing function is but part of a general problem of developing an organisation structure for the organisation as a whole. Thus, purchasing considerations will reflect the needs of this broader framework as well as internal factors.

In this example it is necessary to concentrate upon the organisation of a centralised purchasing function within a relatively simple, single product, single site firm; assess the advantages of specialisation and then map out the possible range of activities that could be included. Having portrayed a typical structure diagrammatically, the place of the purchasing manager within the overall management structure of the organisation will be examined.

Benefits of a Centralised Purchasing Function

In very small firms the scope for specialisation is limited and purchasing activities would not be sufficient to occupy a person full time. Once a firm employs around a hundred or above, however, it should be possible to introduce purchasing as a specialist job. As the volume of work expands so the number of purchasing personnel will grow and the opportunities for specialisation within the function increase. Parallel with this growth, therefore, the problem of organisation assumes greater importance.

The introduction of a specialist department to handle purchasing activities means that its members see purchasing as their major responsibility and can develop expertise in conducting their work. Previously, purchasing jobs were done by other people for whom purchasing was a major activity for which they had no particular skills. Thus, full-time specialists can develop their abilities and use progressive purchasing techniques to obtain better value for money. The department can coordinate the previously fragmented purchasing pattern and can introduce a common system of procedures. Knowledge of supply markets can be built up, an efficient record system introduced and negotiating skills can be applied. What may have started as a simple clerical function can become a sophisticated independent department. The basic argument for the development of the centralised function rests upon the point that efficiency in controlling the flow of inputs to the firm is increased by the application of specialist expertise. The opportunities to make such improvements in efficiency can be found in different types of organisations in all sectors of the economy. Most large organisations already appreciate the advantage to be gained by effectively controlling purchasing activities, but many medium and small organisations have yet to reap the full rewards because insufficient recognition has been given to this function. The purchasing function can make a major contribution towards the achievement of corporate objectives in both the public and private sectors.

Activities in the Purchasing Function

A wide variety of arrangements can be found concerning the activities that should be included under the control of the purchasing manager. The most effective pattern is one in which the purchasing manager is given authority for all those activities which lead to the supply of goods and services to user departments. Such a range might include:

• Categories of goods purchased. With reference to basic categories of goods purchased by an organisation we can point out that the area of authority concerning this range varies in different organisations. In manufacturing companies, the purchase of industrial materials is regarded as the major area of expenditure to be controlled, but many purchasing managers have no control over the purchase of plant and equipment at all. In spite of this difference in delegation of authority, the arguments in favour of the application of specialist purchasing skills are relevant to all purchases. It follows that the purchasing department should be given responsibility for purchasing all bought out goods that are required. This does not mean that

other departments should be excluded from the decision-making process, but that the purchasing department should contribute its commercial expertise to this process to complement the technical skills of the other departments. A purchasing research team should also be attached to the buying area to provide information to the buyers, which may include cost analysis. • Progressing or expediting. An essential phase in the purchasing process, for the more important needs at least, is the progressing activity, to ensure that goods arrive at the desired time. The organisational problem here revolves around whether buyers should also progress the orders they have placed or whether a specialist or specialist team should be formed to carry out these duties. The division of work between buying and progressing sections allows each to develop its own particular skills for the different activities. The buyer can concentrate attention on market analysis and contract negotiation and the expeditor can build up contacts and persuasive skills to obtain deliveries from suppliers. On the other hand, others argue that having to do the progressing work helps to discipline the buyer in selecting reliable suppliers. On balance, the first approach is preferable (as long as the workload is sufficient), as long as the buyers are informed about poor delivery performance. • Purchasing in distributive organisations. Whilst the principles of purchasing management apply equally to the wholesale and retail sections of industry as to manufacture, procedures differ. Because there are normally no production processes involved (the raw material stockholder may offer a cutting or shearing service), sales and purchasing personnel are involved in product selection and programming as a total merchandising operation. Many large organisations are headed, as far as supplies are concerned, by a merchandise executive or director, who is responsible for sales and purchasing, and who organises and coordinates the expertise and information available to both. In a dynamic, consumer-demand situation, such as retail multistores or supermarkets, purchasing requirement forecasting and expenditure based on product sales, subject to changing preferences, promotions, and seasonal peaks and troughs, require continuous updating to data and flexible purchasing arrangements. Product knowledge, ability to interpret sales data, short and long term, allied to continuous supply market research, are essential to successful buying for direct resale to the consumer. • Stores and stock control, including goods receiving. It can be argued that there are advantages to be gained by grouping stores and stock control activities under the control of the purchasing manager. The achievement of the objective of lowest cost of supply implies that both purchasing and stock