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The Importance of Purchasing and Supply Management


Most of the materials and services are to be purchased, which implies that many dollars have to be used in the whole process due to the inclusion of the wages, amortization and dividends of the company at large. Purchasing is well known in saving costs and making of profit in a company that is willing to grow to bigger levels (Bender, 2000). Assuming that the profit margin of a given country is 15 percent and the cost of the goods that have been purchased by the company is 60 percent of the sales, this implies that the cost of the good and services purchased by 15 percent was a representative of the 60 percent profit increase. There is the need of the sales to be improved by a 60 percent of the original 15 percent in combination of all the cost of the products and services. The much percentage increase in sales is as a result of the reduced cost of products and services that were purchased by the organization. The achievement of the buyer in the identification of the product that best suits him highly depends on how best the supplier selection has been made since he is best known in the supply business. The goods provided by the supplier must be in a position to conform the needs of the buyer and this can be gauged by the buyer who the one is buying the products. The buyer is self-evident in making the choice to choose a supplier of his choice to avoid any disappointments that may occur as a result of his choice. In the context of self-evidence is the major part where the supplier has been able to receive high evaluation from the buyer following his services provided effectively thus, receiving greater attention. However, to source reliable and most dependable suppliers a lot of systemic procurement approach has to be done in the business to the supplier (Johnson, Leenders & Flynn, 2010). The buyer ought to select the right supplier to enhance timely delivery, obtain the right desired level of quality products and even enjoy high and necessary technical support.

The buyer should highly consider the supplier oriented actions that enhance the whole process of delivery through the development of the good supplier base that is reliable. The actions of the supplier should address all the tactics issues in a well appropriate strategic manner that is very crucial in identifying the right source for the supplies that need to be made. If the best way a supplier can choose source selections through negotiations with the buyer, it is prudent for him to do that to save the cordial relationship between him and the buyer (Jacobs & Chase, 2010). The buyer should be in a good position to control the buyer in ensuring that he makes the right delivery at the right given time and at a reasonable cost that is friendly and reasonable to the both parties.

A good supplier is the one who makes deliveries on time, responsible for the clients need, is trustworthy in keeping his promises and gives a good price to the client thus does not take advantage of the situation. The supplier ought to have a well-established known background of supplying goods and services to other clients effectively and this is to mean that he always keeps the buyer informed on the progress that he’s about to make to satisfy his needs. In case of service in availability he should provide a service back up to cater for the needs of the buyer; hence, avoiding disappointing him at all costs Johnson, (Leenders & Flynn, 2010).

There are different types of sourcing, including the subcontractors, services and consumable supplies that require immediate consumption on delivery. When one is out to identify strategies for the use in a bid to negotiate for prices, he need not to compromise on communication as they need to be sold as much as possible. When an entrepreneur is responsive to issues this can be a good stepping stone in the construction of his good rapport with the suppliers thus gaining good say in the near future meetings. David (2013) argues that, in carrying out good negotiations the buyer need to research the actual price of the goods that he or she need supply of. It is prudent also for the supplier to know the lingo in that he need to know the clients who best understand his industry basics and if not familiar to the basic they must be ready to learn through the supplier guidance. This will help make the negotiations more effective and prudent to all parties.

The buyer need to be in a position where he can be able to pitch the supplier dreams in the sense that, he can understand the money talks and can therefore; trust the credibility of the supplier that will enhance the partnership. When other suppliers, especially three and above are able to quote a supplier then it is prudent to carry negotiations with such a supplier (Chopra & Meindl, 2012). The buyer needs to play high and quality games in that he should give reasonable prices that make sense during the negotiation process. It is crucial to inquire for a list of customers whom the supplier you are negotiating with has supplied goods to. It is reasonable to convince the supplier as to why you think you are the best customer of choice and if after evaluation you prove reliable in the long term profitable relationship then you will win the supplier with ease. When carrying a negotiation with a supplier, it is very good to have your deposit ready with you because the higher you go the more the negotiation power will be at the overall rate; hence, to win the negotiations. Money is the best leverage that a person can best use in negotiation following that at the end the suppliers are only concerned with getting paid their money. Most of the people who win in negotiations are the ones who least want it because even when the suppliers are out of stock, the supplier can provide backup supplies (Jacobs & Chase,. 2010). It is good to treat suppliers as one of the partners in the business in that you help them in saving their money from their vendors or even betters their lives by ensuring that you save them time with your order because time wasted is never recovered. During negotiations one should challenge the suppliers to ensure if they can be in a position to use the limits provided by the authority to make the required decisions.

In the creation of a project supply, service and material budget, there are different steps that need to be followed inclusive of the direct labor cost that will be incurred in the whole process. This involves research to analyze how other supplies have been made and the time involved in the supplying process. Another step that is to be involved is the assembling of the required materials for use either software’s that will be used to update the information put across in the computing system. The travelling cost need to be estimated and clarified in terms of payments that need to be made. The other assembling step is the indirect costs that include the office costs like electricity usage, renting of offices for use within the given time and the availability of internet in the office. The wear and tear equipment’s need to be considered together with the administrative costs that is the administrative assistant in use (David, 2013). The other step is estimating the indirect costs, which is useful in the budgeting of goods and services that will be used in advance to avoid any inconveniences that may take place. Clients need to be asked questions to settle on the right project of his choice and this is done in the double checking of the specifications in brief. Clarifications about clear timelines need to be clearly stated to ensure that the tight deadline is not abused despite the impacts evident on the scheduled castes. The client needs to be asked if he may require the breakdown of the cost involved. Once the direct costs and the indirect ones are all put in place, one will need to brief the client the information that he has before further steps are taken to enable changes to be made in advance. In case the estimates are too high than expected, it is prudent for one to get to the contractors and explain the reason as to why the high cost occurrence. The cost means that the writer of the costs needs to offer even free advertising of the company through his website to help cut their advertising cost following the much they have incurred in the direct and indirect costs.

The other approach in the assembling the steps for creating a project is the bottom-up approach inclusive of the hourly rates versus overall charges, which may be regarded as the best due to high charges of payments made by the client per hour. Bottom-up approach helps in the simplification of the estimates be it in the indirect costs that can give a concise estimate to the client or give a direct cost that does not have any breakdowns. Chopra & Meindl (2012) argue that,  any given report ought to be appearing professional; simply this will be useful in enticing the client as to why the project is a good idea to him thus, regarding your professionalism as a good recommendation to him. This explains why professionalism ought to be a key factor that needs to be considered in doing any type of business.

Outsourcing happens when a company entrusts the process that includes their business functioning from the outside vendors and this happens to all the business that are done from any location that is offshore. Inventory management is among some of the functions that a business can use to entrust an outside vendor to handle not forgetting the payroll systems and the transaction processes, which are known to be outsourced by the business. Outsourcing is well known to be of great benefit to any given business as it comes along with cost advantages. In this case, a job can well be done at lower cost and high quality, thus helping in saving the much cost that might have been incurred. Whenever there is the low cost that input in the business with the aim of obtaining profit from the same it does not mean low quality is provided rather quality is of high standard (Chen and Paulraj, 2004). Increased efficiency occurs when a business is outsourced to experienced business men who tend to bring their experience in the business, resulting in new job due to the high level of knowledge used and the understanding of the domain.

Outsourcing a business gives enough time for the owner to focus on core areas inclusive of the value added services and get enough funds from the saving to improve on research and business developments. Outsourcing is well known to aid in the saving on the infrastructure and technology that is changing on a daily basis just to keep the business activities at ease. The outsourcing partners are the one who is now in charge of developing the business infrastructure and even investing in various aspects of life. There is no need for the owner to think of investing matters as the people in charge of the business are now responsible to make the investment. Outsourcing is what helps a business to be in a position of accessing skilled resources that it could not accessed on its own due to lack of finances or even lack of the access of trained resources following that they are very expensive to acquire. When the flat world outsources a company, then they will employ the respective and well educated business members who will be of great benefit to the company. This will mean that the business gets the best expertise, access and the capabilities that come along as a reward of outsourcing their business to the flat world solutions (Chopra & Meindl, 2012).

Outsourcing will bring changes and benefits like obtaining of ideas in a faster manner, which are later, converted into products with value added proposition a factor that makes the business choice for many. Outsourcing is well known in adding of continuity and reduced risk that may occur as a result of substandard operations in the company (Chopra & Meindl, 2001). The problem of outsourcing is that some of the companies have been outsourced too much thus eroding the domestic manufacturing jobs that were earlier available to increase in the collateral costs increase. Outsourcing has brought along the problem of lack of flexibility and manufacturing of goods is being offset in low-wage countries. The infrastructure of many companies has as well been eroded through the outsourcing program.

They’re successful cost leadership strategies employed by Wal-Mart most are known to be the use of the fastest growing technology which aid in connecting the company with its customers all over the world. Customers are able to purchase goods online and get them delivered at their doorstep at a good and reasonable convenient time. The use of technology by Wal-Mart has become its supply chain leader and aid in its fast growth that has led to its high and impressive growth. According to Chen and Paulraj (2004), the supply chain management of Wal-Mart is more focused on enabling its customers to save money and be in a position to live a good and better life of their choice. There is the application of the most and the efficient supply chains by the company following that all the products can easily be tracked from the manufacture to the final customer and this saves wall-mart a big loss that it might have incurred from faulty product management. Wal-Mart is well known for its distribution strategies and efficiency in its operations knowing that the distribution costs are below average a factor that impresses their customers to continue enjoying their services.

Tesco is a retailer that is well known in the buying of its products at rock bottom prices and in return it exchanges high purchase low cost at low cost thus, classifying as the world best supply chain. Tesco’s customers have a low bargaining power that is as a result of a very broad base of customers who have very weak bargaining power due to the demand for low prices of the goods and services they obtain at the retailing company. The retailing company is well known to work with manufactures directly to reduce cost and be able to manage the supply chains that were operated by other officials before. The retailer has been sourcing its products and this has helped it to purchase goods at a reasonable price from the suppliers well advocated to cater for the fast growing demand of goods (Bender, 2000).



Bender, P.S. (2000).“Debunking 5 supply chain myths,” Supply Chain Management Review, Vol. 4, no. 1, pp. 52-58

Chen, I.J. and Paulraj, A. (2004).“Strategic purchasing, supply management, and firm performance,” Journal of Operations Management, vol. 22, no. 5, pp. 505-523

Chopra, S., & Meindl, P. (2012). Supply Chain Management (5th Edition). Prentice Hall

Chopra, S. &Meindl, P. (2001), Supply Chain Management: Strategy, Planning, and Operation. Prentice Hall, Upper Saddle River, New Jersey

David, P. (2013). International Logistics: The Management of International Trade Operations. Cicero Books LLC; 4 edition

Johnson, F., Leenders, M., & Flynn, A. (2010). Purchasing and Supply Management (McGraw-Hill/Irwin Series Operations and Decision Sciences). McGraw-Hill/Irwin; 14 edition

Jacobs, R., & Chase, R. (2010). Operations and Supply Chain Management (The McGraw-Hill/Irwin Series). McGraw-Hill/Irwin; 13 edition