Fundamentals Of Purchasing – How To Get What You Really Want
The fundamentals of purchasing are the foundation of your purchasing
department, which is the most important part of your business. There
are three main ways that purchasing is managed within company.
In smaller companies, there is the simple method where the fundamentals of purchasing are that there is a small group of suppliers from whom a set group of products are purchased.
In a larger company the fundamentals of purchasing become a little more complex. Whilst the business may have a small group of suppliers, they often have Master Agreements for each of them. This allows for flexibility in what products are ordered and gives the company the ability to obtain good terms and price levels in exchange for commitment to continue purchasing from them.
Many large companies have complex fundamentals of purchasing. They may have a group of suppliers under Master Agreements, but they also have a number of ad hoc purchases that they wish to make. These they will put out to tender. That is they will either ask a discrete group of suppliers to propose what price they will supply the goods at, or they will go out to public tender. In a public tender the RFQ (request for quotation) or in more complex cases a RFP (request for proposal) will be published in magazines or on the internet. In the RFQ they are asking for a price to supply a set number of items. In a RFP they are also asking for a solution to a problem. The latter usually involved the provision of goods and services.
If you look at training courses for new purchasing employees the fundamentals of purchasing are:
- Deciding upon and setting up a purchasing strategy.
- Gathering enough information about available suppliers and products available, in order to adhere to a purchasing strategy.
- Developing and writing a RFQ or RFP as well as the terms and conditions of supplier engagement.
- Evaluating the tenders and choosing the suppliers.
- Negotiating the terms and conditions with the intended suppliers.
- Implementing and managing the resulting agreement.
Understanding these concepts ensures that the employee selects the best suppliers for the company and that the optimum mix of goods is bought at the best prices.
Purchasing is a complex area and tendering for good suppliers and the consequential negotiating of firm and favourable contracts is a very beneficial skill for someone to learn. A poorly negotiated contract that ties the business to a bad supplier and high prices can quickly damage a company’s reputation and profit.
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