The complexity of the product manufactured will also affect purchasing requirements. For example, an aircraft manufacturer whose single product requires hundreds of thousands of parts needs a larger complement of buyers than an auto manufacturer who makes thousands of cars in a day but uses fewer parts.
Another factor that is extremely important in determining the scope and the size of the purchasing department at any one location is the purchasing philosophy of the company. Many firms believe strongly in centralizing the purchasing function while many others feel just as strongly that decentralizing that function is the most efficient way to procure materials and services. Still another segment of the firm will develop the specifications and the master contracts in a centralized department but will allow the branches to determine their own requirements and do the actual ordering and receiving.
The size and complexity of the purchasing department depends upon the position of the company in the manufacturing-whole-sale-retail chain or sequence. In general, the retailer is involved in the procurement of a larger variety of items than the wholesaler or the manufacturer, depending upon the type of products involved. However, usually the buyer at the retail and wholesale level is less concerned about the scientific and technical aspects of purchasing.
As we described the purchasing function in the previous chapter, we concentrated more on the role of purchasing in a manufacturing setting in order to illustrate the diverse nature of the positions involved in the procurement of products and services. As some investigate the opportunities in purchasing, you should also be aware of the many opportunities in the wholesale and retail levels of the distribution process. As we describe the many positions available in purchasing in the following pages, keep in mind that most of these jobs are found at all levels of commerce, from mining the original raw material to stocking the retailer's shelf.
COMPANY ORGANIZATION
One of the simplest methods of understanding the role of purchasing in today's economy is to analyze its position within a typical company or agency organization chart. Within the past five decades, purchasing has gained its rightful spot as a top-level support department reaching the same status as marketing, sales, engineering, finance, and operations. Today purchasing is a vital part of strategic short and long-term planning and is a major player in every step of the evolution of those plans from concept to reality.
Currently purchasing is viewed as one of the principal roads to follow to achieve top-management levels of responsibilities. Purchasing has a major advantage, its role in the company's operations demands interrelating with every other department.
As the organizational chart below illustrates, the purchasing department, in a typical business, reports directly to top management or the CEO and is involved in every part of the business operations that deals with materials, materials handling, and costs. It is this broad range of involvement that provides purchasing with its high internal and external profile.
ENTRY-LEVEL POSITIONS IN PURCHASING
A recent survey reported in Purchasing Magazine substantiates the fact that people entering the purchasing field come from a wide range of diverse backgrounds: 61 percent from inventory, 56 percent from production, 36 percent from sales, 28 percent from accounting, and 9 percent from engineering. Although 50 percent of those reporting were assigned to purchasing by management, over 27 percent chose purchasing as a long-term career, a number that has almost doubled over the past five years. About 59 percent of purchasing professionals have a four-year college degree, and another 23 percent are currently working towards a bachelor's degree.
Usually those just entering the field from school or some lower-level unrelated position will be placed in a relatively complex clerical function or an expediting position. Expediting, however, is an ideal starting position because of the exposure to some aspects of materials handling. Those transferring from other departments or even firms will usually start as an assistant to one of the major functions such as traffic or buying.
Complex Clerical Positions
Purchasing involves some of the most intricate and complex information handling systems in the entire company, and, increasingly, these systems are computer based. Updated data concerning suppliers, sources availability, market conditions, projections, and costs must be available. Paper trails for purchase orders, receiving reports, long-term buying arrangements, invoices, bids, and quotes must be complete and accurate. The bidding or quote process, in politically sensitive organizations, is extremely complex and visible. In companies using time-delivery systems, the need for accuracy in preparing purchase orders or contracts is critical to the timely delivery of materials or parts. As can be surmised, purchasing administration is detail driven.
These clerical positions, however, provide an excellent opportunity for the beginner to gain an insight into the many facts of purchasing and how these facts relate to other departments. Many of the contacts with finance, production, engineering, accounting, and others involve purchasing administration. In one sense, purchasing is the hub of activity simply because nothing can be accomplished without the proper tools, raw materials, components, merchandise, and services.
The Expediter
A very basic and simple definition of an expediter is "one who monitors and controls the flow of materials and services." However, like most simple definitions, this one does not do justice to the importance or the complexity of this function. Once the purchase has been finalized it is the expediter's job to ensure that the conditions of the commitment or contract are adhered to.
Especially for organizations that do not maintain large inventories or raw materials and who depend upon delivery of necessary products or services being made at the proper time and place during the production process, the monitoring and control of materials and services is absolutely critical.
The expediter monitors a purchase from the time it is committed by following up on the purchase orders with the vendor to ensure that everything is on schedule. Sometimes he or she visits the vendor's facilities to monitor its production schedules to ensure timely deliveries. In many companies, the expediter's responsibilities do not end when the product is delivered. The expediter is also responsible for the handling of materials internally from inventory to production or from central receiving to retail. As noted before, the position of expediter is often used as a training ground because the duties offer the opportunity to gain experience in many aspects of materials handling management.
THE BUYER
The term buyer encompasses the widest variety of skills, responsibilities, and technical knowledge requirements of any job title in business and industry today. As in many other occupations, the buying or purchasing function is becoming increasingly specialized, and, consequently transfer from one buying specialty to another is not as common as it might have been a decade or two previously. To illustrate the variety and the complexity of the buyer's position, we will look at the buyer's job in three broad categories of organizational activity: wholesale/retail, manufacturing/ industrial, and service/governmental.
Wholesale/Retail Buyers
In reality, the retail buyer is at the end of the entire manufacturing, distribution, and merchandising chain. It is the retail buyer who purchases goods from the wholesaler or, occasionally, directly from the manufacturer for resale to the general public. The retail buyer must know potential customers, their likes and dislikes, their spending habits, and their motivation for buying. Equally as important, buyers must be able to identify trends and fads and to project the longevity of the swings of consumer preference. In such industries as clothing, toys, fashion accessories, and cosmetics, misjudgments on the part of both wholesale and retail buyers can be disastrous. The pages of the history of retailing are filled with the stories of those who misread consumer demands.
Retail buyers are market driven. They study market research data constantly to track the direction of consumer demand. They review sales records to identify the winners and the losers, and they are always seeking information about new products.
Both retail and wholesale merchandise buyers must constantly monitor economic conditions, regionally and nationally, to determine potential market strength, since this information will influence the size of an order. Inventory that does not sell is the recurring nightmare of every retail and wholesale buyer. Both types of buyers must thoroughly understand the merchandising system, how merchandise is priced, discounting practices, and shelf life.
Retail buyers are in constant contact with many others involved in retailing. They work with wholesalers to identify potential sources of supply, store executives to iron out delivery and promotional problems, and the advertising department to discuss sales promotions. They deal with salespeople to keep in touch with customer likes and dislikes and, equally important, the hints of developing trends in style or fashion.
Retail and wholesale buyers must be quality conscious, particularly in today's competitive marketplace. In order to buy for both high- and low-end markets, buyers must have basic technical knowledge of the products to be purchased. They must also be aware of the various government regulations concerning labeling, product safety, prohibited ingredients, and misrepresentation.
The life of a buyer in the retail or wholesale trade is often fast paced. The volume and the variety of products to be purchased require that decisions be made rapidly and sometimes under great pressure. Mistakes in anticipating the whims of the consuming public can be very costly, and, consequently, most buyers are very conscious of the risks involved. Generally there is considerable travel involved, as many of the purchase decisions are made at trade events, fashion shows, or product fairs. Buyers often have to visit production facilities to inspect quality control functions and to confirm product specifications. Often at both shows and on-site inspections, quasi-social functions are involved, requiring the buyer to exercise good judgment and resourcefulness in maintaining an objective and professional attitude.
Manufacturing/Industrial Buyer
Within the manufacturing/industrial environment, the buyer is directly involved in the acquisition of a variety of products, raw materials, and services used in the production process. A partial list of purchases may include such items as components, finished parts, chemicals, electrical and electronic parts and equipment, computer hardware and software, metals, plastics, construction equipment and materials, vehicles, and fuels. It is not at all unusual for a buyer in a larger company to specialize in the purchase of one category of items. In the raw material and commodity areas, for example, buyers specialize in grains, cattle, steel stock, and other high-volume products requiring an extensive knowledge of both the items and the markets.
Another area involving a high degree of specialization is the procurement of services such as insurance, maintenance contracts, pest control, or custodial services. Usually the buyer must have not only an extensive knowledge of the service but also must be familiar with basic contract law.
Generally it is the buyer who is in close contact with engineering and operations in order to develop specifications, supply requirements, delivery schedules, and quality levels. Knowledge of the technical aspects of the product or service is extremely important because the buyer must translate information about the required product into descriptions and processes clearly understood by potential suppliers. Since in many cases buying products by some type of brand name is not possible, the written specification of the required product becomes the only basis of common understanding between the buyer and the supplier.
The buyer, in cooperation with engineering and operations, is also responsible for establishing quality standards and criteria. Often, when buying component parts or basic items such as wire or metal stock, the specifications will state the materials and the processes that must be used by the supplier to ensure that quality standards are met. The buyer is also often responsible for developing quality inspection systems at the receiving point. It is not unusual for quality inspections to take place at the supplier's facilities before the purchased items are delivered to the user.
A common misconception about a buyer's job portrays an image of a person who does nothing all day but interview sales people. Actually, most buyers actively pursue their sources of supply. They discover new sources through trade shows, industry meetings with others in the same business, association meetings, or by reviewing product listings. Personal interviews are an essential part of the buying process, so buyers generally have excellent listening skills. They know the right questions to ask and become proficient in the interpretation of body language. Buyers obviously must be good negotiators because, throughout the buyer-supplier relationship, some aspect of the transaction, such as offer, counteroffer, compromise, acceptance, or denial, is being discussed.
The buyer's job is not over once the order is placed. Vendor performance in terms of quality, quantity, and delivery must continuously be evaluated and compared. In those companies with low or even without inventory systems, vendor reliability is critical to the production process. A vendor's lack of performance can shut down a production line.
Most buyers protect their positions by maintaining alternate sources of supply for every item required. Often they split orders or alternate suppliers to ensure that they do not have all their eggs in one basket. Vendors go out of business, have fires or natural disasters, strikes, or many other types of mishaps that prevent them from meeting delivery schedules, and buyers must be pre pared for every type of emergency. Although there is a trend in many companies to reduce the number of suppliers, buyers must be certain that their primary vendor poses little or no risk to the production process.
Buyers must have the ability to read the markets. The future availability of products and commodities will have an obvious impact on a company's short and long-term planning. In today's economy, forecasting the market and the supply has international implications. Companies are increasingly becoming partially or totally dependent upon foreign markets for raw material and component parts, particularly in the electronics and appliance fields. Consequently, some buyers are expected to travel abroad frequently.
A continuous interface with the sales department is important, particularly in those industries involved in customized products or component parts manufacturing. Often the customers require that component parts be manufactured according to their specifications, which will in turn dictate a specific material or process. Perhaps the most important requirement for a buyer is a standard of ethics that is beyond question. Obviously he or she is in a position to commit enormous sums of money, and some suppliers offer tempting inducements to swing the odds of getting the order in their favor. Buyers develop reputations very rapidly simply because salespeople talk, and the buyer that earns a reputation for being objective, fair, and knowledgeable has the opportunity to develop long-term business relationships with reputable suppliers. Suppliers will negotiate more fairly if they are assured they will not have to pay hidden inducement costs.
Although no one will deny that product knowledge is essential to the success of a buyer, a recent survey of purchasing executives revealed that the ability to develop long-term interpersonal relationships was among the top prerequisites for attaining success in the purchasing field.
Service/Government Buyers
The key factor in the field of service and government buying is the source of the money used for purchases. In most cases, the source of the funds will be either from the taxpayer, membership dues, or charitable donations. In all cases, the source is public and highly visible, a fact that demands that purchasing systems also be public and visible. Particularly in government purchasing, since the sellers are also taxpayers, the buyers are under a unique pressure to ensure that the system is fair and allows all qualified sellers to compete. Because of the extreme sensitivity to public scrutiny and criticism, most government buying systems are based on a highly structured formal quote or bid procedure,
The formal bid system is essentially defensive in nature; defensive in the sense that it is perceived to be completely fair and open by those interested in selling products to a government entity. The high visibility requires the government buyer to emphasize two important aspects of the buying process; the product or service specification and the ability of the bidder or seller to perform. While a non-government buyer is often free to use his or her judgment and experience as to the qualifications of a potential vendor, the government buyer must base his or her decisions on predetermined and publicized standards or criteria.
Specifications are extremely important in service and government buying. Often the buyer is required to accept the lowest bid, therefore, many of the intangibles that can influence a decision in the private sector cannot be considered by the government buyer unless it is stated as a bidding requirement.
The bidding documents are usually much more detailed in terms of both the product or service and the minimum qualifications of the bidder. Often the openings of the bids are public affairs during which most of the bidders are present and the award of the contract is publicly announced.
Because of the highly sensitive nature of service and government purchasing, documentation of every step of the buying process is essential. In most cases, this documentation is a matter of public record and, therefore, is accessible to anyone interested in the process.
Government agencies may also impose formal bidding requirements upon their contractors, which in turn, impose a responsibility upon the private sector buyer to follow government procedures.
Government buying requires a sense of integrity and fairness equal to, if not exceeding, other buying classifications, principally because of the possibility of extreme political pressure. Al though most systems are designed to insulate the buyer from these presses, the buyer still must be sensitive to their existence.
THE PURCHASE ANALYST
The position of purchase analyst is primarily a research function requiring a thorough knowledge of both products and the markets. By analyzing various types of statistical data, the purchase analyst determines the feasibility of purchasing certain types of products, establishes an acceptable pricing structure, and projects pricing trends. This position is usually found in larger organizations, and the data generated by the analyst are used in strategic planning and the actual purchasing process.
Both short-term and long-term strategic planning requires extensive information about potential markets, availability of raw materials and components, production cost analysis, market segmentation, and pricing trend projections. The purchase analyst maintains a continuous relationship with suppliers and the markets in general to develop a scenario of current and projected conditions affecting the company's position. The position is data driven but also requires considerable independent judgment in the analysis of the data.
The purchase analyst is also one of the primary sources of cost and pricing data for the buyers during their negotiations with potential suppliers. The purchase analyst position often requires considerable interaction with all segments of the market in order to obtain the broad range of necessary information.
THE PROCUREMENT ENGINEER
The procurement engineer is found primarily in the manufacturing portion of business activities. The position requires the ability to analyze technical data as they relate to the development of both preliminary and final specifications. Often this person is involved with engineering personnel in the development of performance criteria and standards. He or she may inspect suppliers' facilities to determine their capabilities to produce products according to specifications and may also be involved in collecting data on short- and long-term materials availability.
The procurement engineer is also a troubleshooter, in that he or she participates in the resolution of problems that involve the suppliers, buyers, inspectors and production personnel. These problems often arise when existing contracts must be modified because of unforeseen circumstances and consequently involve all levels of the materials handling and production process.
The scope of the duties of a procurement engineer usually goes beyond the buying process, in that he or she may be involved in many aspects of plant operations. Examples of such involvement may be the standardization of parts or equipment, product or process rework, materials salvage, and the use of equipment used in plant operations.
Obviously the position requires someone with a technical background. However, the person occupying the position must have a thorough knowledge of purchasing techniques and the ability to interrelate with all levels of both the company and the suppliers.
In order to arrive at workable solutions, the procurement engineer, in his or her troubleshooting function, must have a complete understanding of the acquisition and the production processes.
THE PURCHASING MANAGER
The term manager covers a multitude of duties and responsibilities in the purchasing field. Because purchasing is an active function within almost every type of a business or organization, for profit or nonprofit, there is always someone who must oversee and manage that function. How the management is structured depends on a variety of factors: the size of the company, the product or service involved, centralized or decentralized system, continuous standardized or custom production, the amount of subcontracting involved, the variety and number of components or raw materials required. These factors dictate the number of levels of managers and the nature of their responsibilities. In a complex aircraft manufacturing company producing a variety of aircraft for both military and civilian markets, there may be a multi-tiered management structure consisting of section, group, and project managers along with specialty administrators who manage support activities such as major subcontracting or traffic.
In smaller and less complex companies or organizations, the purchasing manager may do some of the buying in addition to supervising assistant buyers and clerical personnel. In retailing, managers are often identified with product classifications. A large department store chain, for example, may have managers for house wares, clothing, cosmetics, perfumes, and sporting goods. Again, these managers may purchase some of the products while also supervising other buyers and clerical personnel.
The broad responsibilities of purchasing managers are quite similar despite the variety of size and complexity. The purchasing manager must operate the department in conformance with general operating policy established by top management. He or she is responsible for meeting deadlines, scheduling and assigning work, supervising staff, and establishing training and development programs for employees. Often each level or classification of managers is given dollar limits as to size of purchases or contracts that they can approve. For example, section managers may approve up to five million dollars, group managers up to fifteen million dollars, and so on. Managers may also be identified by a project; that is, they may be responsible for all purchasing activities for only one item that is produced by the company. After setting up the procedures necessary for procurement for that product, the manager may then be assigned to a new project.
The multi-tiered management structure is important to the goal-oriented individual because the various levels represent the promotional or advancement track. Each level is the testing and training ground for the next, and, since most organizations prefer to promote from within in the purchasing field, an individual may easily set goals in terms of both levels and times. The project manager may also make advancement goals since promotions are often based on the size of the project. For example, a project manager from a five-million-dollar project to a twenty-five-million-dollar project and salary is usually adjusted accordingly.
Purchasing managers may report to one of several positions within the company or organization. In larger companies, purchasing managers may report to the director or vice-president of purchasing or materials management. In smaller companies, they may report directly to the CEO or president, the general manager, director of operations, or the manufacturing or plant manager.
In educational institutions and health care facilities, the purchasing manager is most often a position within the business office or administration. Unlike the industrial or manufacturing fields, it is not unusual to find purchasing managers reporting to the chief fiscal officer of the institution. Seldom will you find institutional purchasing managers arranged in multi-tiered structures. They are more often classified according to product or service categories, such as food service, maintenance, medical supplies, furniture, and books.
Regardless of the field- manufacturing, institutional, or retailing; purchasing managers usually serve on a variety of committees. Most are involved in one or more of the following: production, budget, capital spending, human resources, safety, planning, policy, standardization. At this level, practically all committees are internal or staff committees usually reporting to the chief executive officer or to the president.
THE HEAD OF PURCHASING
The top-ranked purchasing position is usually given the title of vice-president of purchasing, director of purchasing or procurement, or director of materials management. As head of the purchasing function, he or she is an important part of the management and executive team taking part in almost all aspects of corporate or organizational strategic planning as well as the direction of day-to-day operations. The position involves direct participation in the development and the implementation of operating policies usually through membership on both boards of director and staff committees. As either advisors or members of board of director committees (committees reporting directly to the chairperson of the board), the head of the purchasing function has a direct input into long-term strategic planning.
In educational and health care institutions, where the administrative and academic or medical activities are apt to be separated more than in the industrial or manufacturing fields, the head of the purchasing function usually reports to the chief administrator or president or to the vice president or director of administration. In this field, purchasing is considered to be a support service, and those working in purchasing are less apt to be involved with long-term strategic planning, except when such planning involves substantial expansion of facilities or major changes in the use of the existing physical plant. As the primary source of purchasing policy, the purchasing director must be ultrasensitive to the public relations aspects of procurement, particularly if the institution is partially or completely supported by taxpayers.
In the field of wholesaling and retailing, the purchasing function is an essential part of the company's purpose and activities. In a business activity that consists almost entirely of buying and selling, half of the emphasis must be on buying and the other half must be on sales and marketing, making the purchasing or buying function part of practically every dollar earned by the company.
Unlike the manufacturing plant, whose income is derived from a product, or the institution whose income is derived from a service, the retailer and the wholesaler must obtain their profits from the difference between the purchase price and the selling price. Therefore, corporate planning and policy revolve around these two functions.
The retail and wholesale buying function is directly driven by market projections, resulting in an extremely close working relationship with sales and marketing.
A VARIETY OF OPPORTUNITIES
There are few, if any, business or organizational activities that do not involve purchasing of some type of product or service. As you can see from the preceding pages, the terms buying, purchasing, and procuring involve an incredible variety of applications, each requiring different experience, knowledge, and personality types. The potential for a satisfying career in purchasing is enormous, especially considering the choices that are available. The following chapters are designed to help you make the right choice for yourself within the field of purchasing.
