What Are Purchasing Departments and What Functions Do They Serve?
Updated June 24, 2022
Purchasing departments are often an important part of large corporations and small businesses. They establish policies and procedures that try to ensure the financial health of a company. Understanding the functions and roles of purchasing departments may help you develop supply strategies and procurement goals to benefit your company. In this article, we explore what a purchasing department is, describe its main strategic and operational functions and list its additional roles.
What is a purchasing department?
A purchasing department is the division of a company that's responsible for acquiring the goods and services the business requires to operate. Some companies refer to purchasing departments as procurement departments or buying departments. These units are often an important part of helping companies meet their daily needs and their long-term strategic goals. How much responsibility a department has can vary on the size of the company, but they often help monitor the supply chain and help manage vendor contracts to keep the company's operations efficient.
What is the main function of a purchasing department?
A company's purchasing department may have a large influence on its ability to reach its strategic and daily operational goals. Its ability to acquire enough materials while lowering costs can allow a company to raise its profits, lower its expenditures and achieve growth. Purchasing departments can use their contacts with suppliers to improve the overall quality of a business' product and lower risks in a company's operations by effectively managing these relationships.
On the operational level, purchasing departments ensure businesses receive everything they need for projects. This can include raw materials for manufacturing, supplies for employees, office spaces or technology. When purchasing departments provide these goods efficiently, it can ensure production remains high and products and services reach customers on time.
Additional purchasing department functions and roles
Purchasing departments manage a variety of roles in a company, depending on its type or size. Some of their additional functions and roles include:
1. Assessing the needs of their company
Before making purchases, it's often important for purchasing professionals to understand the requirements of their company. They can communicate with department heads, regional managers and company leadership to determine what goods and services they require. They may also use analytics to examine reports of past consumption and evaluate how their company's plans may change the types or amounts of supplies they require. Procurement personnel often pay particular attention to how the needs of various business locations and departments differ.
2. Conducting research
After they determine the needs of their company, procurement professionals can research potential sources of goods and services. They may speak to other purchasing personnel or inspect company references to determine whether a supplier could provide quality goods in the proper amounts. Sometimes, they may travel to trade shows or to manufacturing plants to speak directly with potential suppliers and see whether they might be right for their business.
3. Comparing and negotiating prices
One of the primary tasks of a purchasing department is to find the most affordable ways to supply their company. When researching suppliers, they can learn about the prices they charge and compare them to similar organizations or markets to find the best rates. When they find a supplier, they may also work on building a relationship with them to help negotiate prices and a better deal for their company.
4. Coordinating deliveries
After locating suppliers, purchasing staff can work with suppliers to design delivery schedules for each branch of the company. They may also coordinate with logistics and warehouse staff at their company to ensure all deliveries arrive on time. Purchasing departments also may help resolve any obstacles to delivery or change delivery quantities and schedules based on the requirements of their business.
5. Managing supplier relationships
Purchasing departments often maintain relationships with important vendors. They may provide benefits for longtime suppliers to improve their relationship and avoid competition for resources. One of their responsibilities is ending contracts with suppliers if they raise prices, become unreliable or reduce the quality of their products. In some cases, procurement departments may build relationships with secondary suppliers to mitigate risk in case they have to change their primary supplier.
6. Managing competition
In some industries, regulations require businesses to choose suppliers in a competitive bidding process. This is often the case when government agencies award contracts to private businesses. In these cases, purchasing departments manage the bidding process and award contracts to a company that best meets their requirements.
7. Monitoring performance
As their relationships with suppliers continue, purchasing departments may monitor their performance and make necessary changes. They can assess the quality of the goods their company receives and return or replace any items that don't meet their standards. They may also watch for missing items or late deliveries and try to resolve these situations. Procurement staff also may meet with suppliers to assess their relationship and coordinate for any planned changes.
8. Obtaining subsidies and benefits
In some industries, companies may be eligible for government subsidies or benefits. In these cases, purchasing departments can apply for aid and ensure their company gets it. They may also seek additional benefits for their company from longtime suppliers, such as reduced prices or free shipping.
9. Maintaining compliance
Many industries have regulations that govern their procurement methods and ensure competition is possible. This is especially important for government agencies seeking contracts with suppliers. Purchasing departments in these industries work to maintain compliance with all regulations that affect their company or organization. Procurement staff also often ensure their companies honor all of their contracts with suppliers.
10. Improving quality
Another important role of purchasing departments is to improve the quality of their company's product. This often can help their company build customer loyalty, increase its profits and compete with other firms. To do this, procurement staff can monitor the availability of supplies and look for ways to get better goods without raising costs.
11. Managing budgets
Purchasing departments often develop budgets for their operations and submit funding requests to company leadership. The goal of budgeting is to ensure their company can operate effectively while maintaining low costs. They may also organize payments to suppliers and request refunds. Many purchasing departments work closely with their company's finance department, which can help financial staff provide funds for upcoming procurement expenses and allow staff to assess the financial resources available to them.
12. Developing strategies
Purchasing personnel often work closely with other professionals at their organization to plan for its future. For example, they may collaborate with executive leaders to learn how company growth might affect the supply requirements of the business. Procurement staff meets with product developers to understand the supply needs of a new product or with financial staff to learn the available funding for their department. Sometimes, they may work with suppliers to plan for changes in their company's operations to account for a new product.
13. Maintaining records
Purchasing departments help maintain documents related to their activities, including lists of potential suppliers, records of purchases, invoices and documentation of refunds and returns. Procurement departments may develop contracts with suppliers and create easily accessible documents that outline the terms of their agreement. They may also monitor and record inventory of essential supplies to ensure their business can complete its daily operations efficiently.
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