Role of purchase manager


Who makes the decision to make or buy depends to a large degree on the amount involved. It may be made by one person, but most often, it is made by several individuals.

Whatever the amount involved, it should be emphasized that, no simple rule can be applied to all cases of make or buy. Each case must be decided on its own merits with sufficient attention to all relevant considerations.

Although the final decision on a given make or buy question is usually with the top management of a company, many of the issues turn on purchasing possibilities and thus fall within the scope of the purchasing manager’s job.

The decision to make or buy is normally taken by a committee, comprising representatives from production, accounting, engineering, marketing and, of course, purchasing. Purchasing will advise on cost comparisons, production will specify needs and capacities, accounting will tabulate manufacturing cost data, engineering will check quality and suitability and sales may advise in trends and the likelihood that sales volume will be affected by the decision taking.

Speculative Buying

Speculative buying is conducted with the hope of making profit out of price changes. Two types of speculative buying may be distinguished. One is the usual type, where the purchasing department buys certain items at low prices and sells the same, when their prices shot up, thus making profit in the bargain. A second type of speculative buying is conducted by some purchasing departments. This type of buying involves the purchase of material in excess of foreseeable requirements in anticipation that, a need will arise for the material and that the firm will profit by making the purchase at the current price. Opportunity for purchase of this kind is possible when a market drops temporarily and the buying firm has sufficient working capital to finance the speculative investments.

Distinction lies between forward buying and speculative buying. Forward buying is the practice of buying materials in a quantity exceeding current requirement, but not beyond foreseeable requirements. The distinction between speculative buying and forward buying is that, in the latter case, a definite production need for the material exists, while in the former case, it does not.

Speculative buying, particularly of the type where profit is sought to be made by buying at low prices and selling at higher prices, has no place in industrial purchasing. If a firm wishes to engage in this type of speculation, it should be organized and administered from the normal purchasing activity.

Vendor Rating

The ability to select reliable vendors is a mark of successful purchasing action. The familiar saying ‘tell me who your friends are, and I will tell what you are’ can be applied to purchasing. Rather it should be: ‘tell me who your vendors are, and I will tell you what kind of purchasing department you have’ It is not always easy to identify good vendors; in many cases, purchasing department is unjustly criticized because of poor vendor performance. In this context, there is no substitute for an objective means of vendor appraisal.

An objective and accurate vendor rating can become an asset and a valuable tool in the hands of a buyer in making his purchase decisions as also providing feedback to suppliers with low rating to encourage improvement in their performance. In the absence of such an improvement over a reasonable time, black listing or grey listing the vendor may follow.

A drawback to vendor rating is that, despite considerable effort to set up a good system, the end results have too often been a group of antagonized suppliers and an impractical, meaningful mass of data, which take too much effort to comply and is worthless to the purchasing department. Some companies make the error of adopting without changes, a rating plan which was developed for another company when, obviously, each system must be lifted to the specific requirements of one particular organization.

Too often, in attempting to ensure precision, the goal of improving quality and reliability of the purchased item is lost. No system can be of any value unless it results in better vendor performance. Nor can it work well unless the people involved understand it and are convinced that, it is worthwhile.