Purchasing: Policies and Processes

Abstract

This chapter discusses the role of purchasing in ensuring right price for the material purchased and its contribution to profitability given the fact that more than 50 % budget of any organization is spent by its purchasing department. Efficient purchasing also aims at making vendors perform contract on time and delivery of quality material. Various strategies of ensuring right price are listed – purchase price analysis, prepurchased research, competitive bidding, and price negotiations. A two-step bidding – technical bid followed by price bid – is now a common practice. Negotiation is very common practice in nongovernmental purchases. Thorough preparations help in successfully negotiating which includes SWOT analysis and game theoretic approach. The concept of Purchasing Chessboard is briefly outlined in evolving dynamic purchasing policies with 4 purchasing strategies and 16 levers leading to 64 feasible options depending upon the demand power and supply power. Benefits of centralization of purchasing function are listed, and conditions where decentralization may help are identified.