Both large and small businesses need to buy goods and services. These can be anything from rent and utilities, to components and inventory. For most medium and large-sized businesses, this responsibility falls to the purchasing department.
What’s the purchasing department?
Simply put, it’s an area of the company that helps procure what the business needs to operate. They will source a supplier for each item using purchasing software or other means. Then, they will continue the procurement process by contacting each potential vendor for bids.
Once the purchasing department gets bids from qualified vendors, they will select a supplier. After negotiations, they issue a contract, called a purchase order, for the supply of goods at a determined price.
Finally, the procurement process ends when each supply arrives at the warehouse and payment is approved.
Why is the purchasing department important?
A purchasing department helps expedite the rest of the company in many ways. For instance, if each department has to contract for goods and services, it would divert their resources away from their primary mission. In addition, centralized procurement allows a company to buy things in bulk across departments.
Of course, there’s also cost savings. When purchasing is done by one department, it’s easier to manage each department’s budget. Not only can the company get more favorable contract terms, but companies can avoid paying too much for an item or buying things in duplicate when it isn’t necessary.
Finally, the purchasing department can help with regulatory concerns. Not only do they buy things from compliant vendors as needed, but they can also document what each item costs. This way, there’s no confusion about profit margins or losses.