Importance Purchasing Management

Question: Write a report about the importance of purchase management. Answer: Introduction Purchase management is one of the integral functions of an organization. Purchase management is one of the crucial areas of an organization and involves material management and management of purchasing activities of an organization. It can be seen that an organization involves in purchase, which is critical for its production. Purchase department is responsible for conducting this managerial function and making sure that the purchase is carried out correctly and it is in optimum quality. Purchase management is carried out with the intention of keeping the prices minimum and the cost of department low. The purpose of this management is to critically evaluate the benefit given by supplier and to further improve the relations with the suppliers and develop new suppliers. It is also important for the company to train employees regarding purchase management and stress on the fact that is holds strategic role in escalating the profitability of the company (Baily, 2013). The report is prepared on The Cocoa Trees. The Cocoa Trees is a retail organization dealing in chocolate and confectionary brands. The retail store is a reputed organization functioning in Singapore. It is the largest and biggest distributor and retailer in chocolate and confectionary brands in Singapore. It has more than 70 stores in Singapore and Asia Pacific. The goals and missions of the company are to the biggest and the most notable confectionary brand in Singapore and Asia Pacific. The company intends on being a global organization and embarks on extending the branches beyond the boundaries to other countries to expand the business and strengthen the expansion policies. Achieving high profitability is one of the main objectives. The company strategizes on achieving economies scale to induce low cost and high profit for the company. Expansion policies also positively affect the company. The company receives stiff competition from Ferrero Rocher and Kinder Bueno. Ferrero Rocher gives a strong and stiff competition to the Cocoa Trees. It can be seen that the strongest and the closest rival to The Cocoa Trees are estimated to be Ferrero Rocher, which enjoys a market share of 23%. However, the company is the largest distributor and retailer of chocolate and confectionary products and it can be seen that the company enjoys a competitive and a comparative advantage over its rival. The company deals in products like Fazer, Droste, Daim and Fritt etc. The company deals in a variety of chocolates and confectionary products that are traded around the globe (Fitzsimmons Fitzsimmons, 2013). Supplier Selection Criterion and Issues Suppliers form one of the most important pillars for an organization. Suppliers are one of the biggest stakeholders of the company. The company relies heavily on suppliers as the production process and the operational activity depend on the supplier. A purchase manager is vested with the responsibilities of making sure that the purchases are made in the right quantity at the correct rate and most importantly from the correct source. There are certain areas that need assessment and evaluation before selecting a suitable supplier for the organization. The Cocoa Trees need to use a Sourcing Hierarchy of Constraints and Criteria to evaluate and assess the supplier selection. There are eight grounds, which need to be assessed before selecting a suitable supplier. Cost: One of the important factors while selecting a supplier is cost. One of the main objectives of the company is profit maximisation and economies of scale. Now in order to get economies of scale, the cost incurred on suppliers need to assessed. Low and reasonable cost is usually preferred by a company in order to keep the cost low. Therefore one of the important factors is cost. This is an important factor from the viewpoint of the company as it heavily depends on economies of scale and low cost to escalate the profitability of the company (Baily, 2013). Quality and Safety: One of the marketing strategies adopted by the company is providing quality products to the consumers and customers (Lu, 2014). Therefore, one area that needs to be assessed is the quality of the materials given by the supplier and the safety quotient attached it. Quality and safety are the two parameters that decide the goodwill and the success of the company. The company deals in the best quality goods and therefore, it is very important to see that the suppliers do provide quality materials that have a good amount safety level attached to it. Employees are one of the biggest stakeholders and the presence of hazardous material develops peril for the employees at workplace and in order to develop a reputation for the company, it is important such areas are assessed and scrutinised. Delivery: One of the important areas of assessment and evaluation for selecting a supplier is the time span involved in the delivery of the material and the convenience provided in the delivery of the material. For an organization, it is important to assess and evaluate, which supplier provides a quick delivery of materials as this increases the time and place utility of the product (Lu, 2014). Service: another important criteria and parameter for an organization to assess is the service provided by the supplier to the organizations. The quality of service provided the supplier reflects the quality of trade that the supplier undertakes. It sheds critical light to the company on choosing between the correct services that deems more appropriate for the organization. The constraints need to be evaluated and strategically assessed. It has to be evaluated whether the constraints and limitations are eligible. Certain areas need to be assessed for selecting suppliers. The previous and past experiences regarding the service and the materials provided by the supplier plays a critical role in assessing the suitable supplier for the organization. The ability of the supplier to meet the necessary quality system and the ability to maintain the sophistication needed in the quality of the materials. It is important for the organization to assess whether the supplier can meet the requirements of the organization and supply it within the delivery schedule. The Cocoa Trees intend on mass scale turnover and also aim at economies of scale. Therefore, it has to choose a supplier that can provide the supply within the time constraints and can also adjust to the varying demands of the organization (Kanapathy et al. 2016). A track record of the supplier and its contribution to the improvement of the business needs to be assessed by the organization. Total cost of dealing with the supplier includes the cost materials, cost of communication, inventory and other related costs need to be assessed and therefore the total cost has to be evaluated before selecting a suitable supplier. It is important for the organization to look after the financial stability of the organization. These are the parameters that need to be assessed before selecting a suitable supplier for an organization. The goals and objectives of the organization need to be assessed, which serves as the framework for selecting a suitable supplier (Monczka et al. 2013). Certain issues like managing suppliers cost needs to be carefully assessed. The company needs to assess whether it will employ Activity Based Costing method or Historical Costing method. All these factors have to be assessed during certain issues, which arise during the evaluation of suppliers. ICT for Purchasing Operations The purchasing goals and objectives of The Cocoa Trees is cost saving and the ability of the organizations to save cost and achieve economies of scale for the organization. The company enjoys a good market share and good brand image. As a result of which, the company follows the policy of providing high quality products and therefore, seeks to procure quality materials for its business. One of the goals and objectives of the organization regarding purchase is resolving issues related to supplier and developing good relationship with suppliers as they are one of the major stakeholders of the organizations. One of the objectives and goals of the purchasing department is maintaining quality and eliminating unethical practices. The main objectives of the purchasing department of The Cocoa Trees is purchasing materials and equipment for the organization, bidding prices and negotiating with the suppliers to achieve a fair and the best deal for the organization, which will reflect on the pr ofitability of the organization (Monczka et al. 2013). The relevance of choosing the correct Information and Communication technologies is important for the organization in reducing wastes and increasing profitability. The ICT that the organization needs to apply is Electronic Data Interchange. This technology states the transmission of messages from one computer system to another without the need of the human effort and follows a specific standard messaging format. It allows different organizations in different countries to exchange information electronically through serial links and peer to peer sharing. It allows the organization to forward the purchase requirements to a supplier electronically. The message given in an EDI contains strings of data that represents a specific fact like price or model number of the product. The entire string is called a data segment. This data segment that is framed by trailer and header form the transaction set that is the message in the EDI. This transaction set resembles to what a business document look like. Thus, it assists in the purchase invoice and the purchase operations of the organizations. This strategy offers good technique for improving the information technology and communication system and also assists the organization sin achieving customer satisfaction. It helps the organization in reducing wastes and achieving high profitability (Fitzsimmons Fitzsimmons, 2013). Thus, Electronic Data Interchange is one of the best techniques in terms of Information and Communication Technology for the organization. Purchasing Cost Analysis The goals and objectives of the purchasing department of the organization is to obtain low cost on purchase and receive best and high quality inputs. Evaluating the goals and objectives of the organization, one can infer that the company seeks to achieve economies of scale for which it requires to procure materials from suppliers at a low cost and achieve high profitability. In order to achieve competitive advantage and maintain a high brand image, it is important for the company to employ correct techniques for estimation and correct evaluation of purchase cost. One of the best costing techniques is Activity Based costing. Activity Based Costing technique is the methodology that recognizes different activities in an organization and assigns cost as per the activities and is based on actual consumption during each activity. Comparison of bids is a useful tool in analysing purchasing cost. The competitive bids refer to the price offered by the suppliers for similar products. The lowest bid is the rational choice. However, the lowest bid is not the lowest cost and the total purchasing cost needs to be assessed in this scenario. The use of suppliers analysis would be useful and beneficial for an organization in these circumstances (Kanapathy et al. 2016). Comparison of previous quotation of purchase price needs to be carried out. Comparing recent quotes with the current quotation might be useful in assessing the price analysis of the product. Inventory analysis is one of the best techniques used for purchase cost analysis. The evaluation of cost of storing materials and the cost of not offering inventory for sale is possible through inventory analysis. It is important for the organization to estimate its current inventory and predict the future inventory level. In this process it will be able to incur the optimum cost for purchase. Thus, one can see that inventory analysis is one of the best methods of evaluating the cost of purchase. Conclusion Thus, on concluding the report, one can see the importance of purchase management. Purchase is noticed as one of the important elements in the operational activity of an organization. In the case of The Cocoa Trees, it is important to evaluate and analyse the purchasing system of the organization.one can see the purchasing goals and objectives of the organization, which is to procure high quality materials at low cost. It can be seen that certain necessary grounds for selecting a supplier is the code of conducts, past records, quality of the material and the delivery time required by the supplier to supply the products. The report highlights the importance of Information and Communication Technology and underlines the importance of Electronic Data Interchange. The importance of better purchase cost analysis is highlighted, which determines the purchase of the materials at the lowest cost. Some of the techniques are cost analysis, including activity based costing technique, inventory and suppliers analysis are some of the important tools for evaluating purchasing costs. Reference List Ancarani, A., Zsidisin, G. A. (2013). Past achievements and future directions for the Journal of Purchasing Supply Management.Journal of Purchasing and Supply Management,1(19), 1-4 Baily, P. J. (2013).Purchasing and supply management. Springer Barney, J. B. (2012). Purchasing, supply chain management and sustained competitive advantage: The relevance of resourceà ¢Ã¢â€š ¬Ã‚ based theory.Journal of Supply Chain Management,48(2), 3-6. Bozarth, C. C., Handfield, R. B. (2015).Introduction to operations and supply chain management. Prentice Hall. Fitzsimmons, J., Fitzsimmons, M. (2013).Service management: Operations, strategy, information technology. 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