Page 319 - DMGT501_OPERATIONS_MANAGEMENT

Unit 14: Purchasing

Notes
Did u know? Purchases represent about 55 percent of the cost of the finished product. This
figure is typical for manufacturing firms. Labour constitutes about 10 percent, with the
remainder being overhead expenses.

Because materials comprise such a large component of the sales, companies can reap large
profits with a mall percentage reduction in the cost of materials. That is one reason why purchasing
is a major component in supply-chain management as a key competitive weapon.
Though purchasing is a major constituent of the supply chain, it is also important that an
organization have an integrated view of the elements within the supply chain. Are the policies
and procedures used in purchasing consistent with those used in inventory control? Are the
proper material-handling and control devices available for the type and quantity of material
ordered and for the way the material is packaged? These are basic questions that have to be dealt
by most organizations.
This is especially important as many organizations do not have an integrated supply chain
function. The manager of purchasing, the materials manager, and the logistics manager, etc.
may all report to different supervisors. This makes the co-ordination of policies and procedures
and the integration of decisions difficult. Successful organizations devise innovative ways to
integrate the elements of material management into the supply chain.

14.1 Purchasing Interfaces

The purchase department interacts with many departments within the organisation and it
interacts with the suppliers which are external to the organisation. There is a two way interaction
between various departments and purchasing function.

This is shown in the Figure 14.1 as given:
Figure 14.1: Purchasing Interfaces

Source: ocw.kfupm.edu.sa/user062%5COM2100102%5CPPT/Chap016.ppt

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