Traditional Role of Purchasing

The process from purchasing to receipt, inventorying, manufacturing and storage of in-process and finished goods to the distribution of the finished goods is one continuous or integrated system where the material flows from the external supply market to the customers of the manufacturing company. However, integration is a frame of mind. In today’s fast changing business world, it should not stop at the level of integration stated above. It is essential for the concept to be intensive and extensive in scope. In addition to the inter-functional (purchasing and inventory control linkage, or, inventory and production linkage) and other intra-organizational linkages (e.g. for a multinational company with several facilities and customer sites located in different countries), a company needs to look at the inter-organizational links as well, even for managing the flows of materials and services.

Supplies on a War Footing:

Managing the flows of materials and services is a vital function in any organization. History is replete with several examples where battles were lost because of the problems encountered in managing supplies to the armies. In India’s history, the third battle of Panipat was a watershed. Marathas under the Peshwa of Pune were all powerful in those days. However they experienced problems in getting rasad (supplies) in time at a crucial juncture in the battle. Ahmed Shah Abdali took full advantage of that and the Maratha army was almost decimated. After that battle, Marathas were never as powerful. The control taken over by the British in the later decades could be attributed to this sudden power vacuum in this sub-continent. Quaint as it may sound, management as a discipline owes much to the military operations. Even a project that is implemented expeditiously is said to be done on a ‘war footing’. It is common knowledge that the Military Operations Research, performed during World War II, later transformed into Operations Research-the much useful discipline of management as a science.

The flow of the supplies in the form of materials, services, information and finances is a long chain extending from the company to its supplier and further backwards to its supplier’s supplier and even further backwards to its supplier’s supplier’s supplier and so on. The chain extends forwards from the company to its customer and further forward to its customer’s customer and even further to its customer’s customer’s customer and so on until the ultimate customer. Sometimes one may put a stop to this extension at some point beyond which it does not affect much.

Supplier’s ] Supplier’s]
Supplier’s ] >>> Supplier ] >>Supplier>>Company>> Customer >>
Supplier ]

>>> Customer’s >>>> Customer’s
Customer Customer’s

The chain is as much for the materials flow as to the equally important flows of information, services and finances. In a war, these things were intuitively realized and appropriate action was taken. But, this attitude did not spill over into the civilian activities like business and government for the simple reason that nothing was required on a war footing.

Competition on the Basis of Time and Quality makes a Closer Coordination Essential:
Today, as global business has become extremely competitive, companies are feeling the need to look at business and its processes in a different way. Goods producing (manufacturing) companies and the services providing companies as well-are competing more today on the basis of time and quality which have become the pre-requisites for running any business. Hence, a very close coordination with suppliers and distributors has become essential.

When supplies do not arrive on time or have inferior quality, it becomes a big problem for the company which cannot afford to waste precious money in keeping inventories of items and thus push up its own costs. It cannot afford to pass this increased cost to its customer who, in turn, cannot do so to his customer. Thus, what is required for the customer’s customer is as important as what is needed for the customer. It ought to be mentioned, in this context, once again that while there is always a need to be competitive on the basis of cost/price as well, that is not the sole determinant of a company’s competitiveness in the market. Besides price, quality and timely deliveries (or timely service) a company needs to be competitive on various other dimensions such as variety, flexibility, adaptability, innovativeness, cordiality, courtesy and empathy, all of which or a judicious combination of which spell value for the customer, his customer and further the latter’s customer leading to the ultimate customer.