Organisations and management accounting
Organisations and management accounting

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Organisations and management accounting

4.4 The Purchasing function

The Purchasing function is concerned with acquiring goods and services for use by the organisation. These will include, for example, raw materials and components for manufacturing and also production equipment. The responsibilities of this function usually extend to buying goods and services for the entire organisation (not just the Production function), including, for example, office equipment, furniture, computer equipment and stationery. In buying goods and services, purchasing managers must take into account a number of factors – collectively referred to as ‘the Purchasing Mix’, namely, Quantity, Quality, Price and Delivery.

  • Quantity. Buying in large quantities can attract price discounts and prevent inventory running out. On the other hand, there are substantial costs involved in carrying a high level of inventory.
  • Quality. There will usually be a trade-off between price and quality in acquiring goods and services. Consequently, Production, R&D and Marketing Functions will need to be consulted to determine an acceptable level of quality which will depend on how important quality is as an attribute of the final product or service of the organisation.
  • Price. Other things being equal, the purchasing manager will look for the best price deal when procuring goods and services, although price must be considered in conjunction with quality and supplier reliability, in order to achieve best value, rather than lowest price only.
  • Delivery. The time between placing an order and receiving the goods or services, the lead time, can be critical for production planning and scheduling and also has implications for inventory control. Suppliers must therefore be evaluated in terms of their reliability and capability for on time delivery.

In short, the ‘purchasing mix’ can be considered as making sure that the organisation has the right amount, of the right quality, at the right price, in the right place at the right time!

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