Purchasing is a key factor in the profitability of a company. It should be perceived as a potential source of important savings and managed to ensure that it will achieve these savings. A small reduction in purchase costs can often have a greater effect than do large reductions in labor costs.
However, a lack of understanding of the true importance of purchasing is common. Moreover, poor purchasing commonly results from improper organization, poor operating procedures, and a lack of integration into business plans.
Purchasing needs long-range as well as short-range perspectives. Particularly, long-range supply relationships must be carefully built.
A step-by-step process is needed in dealing with a supplier in order to develop its ability supply goods with the quality needed at advantageous prices. Moreover, the purchasing function should be value oriented.
Purchasing needs to review its procedures and establish new goals such as buying more value and productivity, rather than just buying a physically described product. The purchasing function must have specific objectives that support and complement other objectives in the company's business plan.
Moreover, it must have cost reduction or containment targets that will have a significant impact on profitability and cash flow.