BMNG5122 Exam Preparation
CH.15 - Purchasing and Supply Management
, Main Definitions
● Purchasing and supply management entails the planning, organising, leading and
controlling of all activities relating to the purchase of materials and services from an
external source. Aimed at maintaining and improving the business’s sustainability and
efficiency of customer service.
● A supply chain is a network of organisations linked to each other through buying and
selling or materials, products or services.
Importance of the Purchasing and Supply Function
Purchasing and supply function does the following:
● Selects suppliers
● Purchases and arranges for the transport of materials to the business
● Decides what prices to accept
● Determines the quantity and quality of materials/services
● Expedites (finding the products) and receives materials
● Controls warehousing and inventory holding
● Determines the timing of purchases
This function is the greatest expenditure for the business → represents an area where saving on
costs can make a vital contribution to the business profits.
● Stock is held to prevent disruptions when there is an interruption in the flow of material to
a business – the goal is to keep inventory level low without risking an interruption in the
operational process.
● Profit-leverage means that purchasing costs are a major portion of total cost, therefore,
saving on these costs results in a greater profit potential than a similar increase in sales
● Purchasing materials of the right quality and at the right time allows final products to be
available in the right quantities at a competitive price, at the right time for customers
Management Tasks of the Purchasing and Supply Manager
1. Purchasing and Supply Planning
● Subject to overall business planning, should be conducted in consultation with other
functional areas of the business and takes place in the following levels:
○ Strategic level
○ Tactical or middle-management level
○ Operations level
● Formulations of objectives – one of the most important planning tasks
2. Organising the Purchasing and Supply Function
● Four main issues need to be addressed in organizing the purchasing and supply function
CH.15 - Purchasing and Supply Management
, Main Definitions
● Purchasing and supply management entails the planning, organising, leading and
controlling of all activities relating to the purchase of materials and services from an
external source. Aimed at maintaining and improving the business’s sustainability and
efficiency of customer service.
● A supply chain is a network of organisations linked to each other through buying and
selling or materials, products or services.
Importance of the Purchasing and Supply Function
Purchasing and supply function does the following:
● Selects suppliers
● Purchases and arranges for the transport of materials to the business
● Decides what prices to accept
● Determines the quantity and quality of materials/services
● Expedites (finding the products) and receives materials
● Controls warehousing and inventory holding
● Determines the timing of purchases
This function is the greatest expenditure for the business → represents an area where saving on
costs can make a vital contribution to the business profits.
● Stock is held to prevent disruptions when there is an interruption in the flow of material to
a business – the goal is to keep inventory level low without risking an interruption in the
operational process.
● Profit-leverage means that purchasing costs are a major portion of total cost, therefore,
saving on these costs results in a greater profit potential than a similar increase in sales
● Purchasing materials of the right quality and at the right time allows final products to be
available in the right quantities at a competitive price, at the right time for customers
Management Tasks of the Purchasing and Supply Manager
1. Purchasing and Supply Planning
● Subject to overall business planning, should be conducted in consultation with other
functional areas of the business and takes place in the following levels:
○ Strategic level
○ Tactical or middle-management level
○ Operations level
● Formulations of objectives – one of the most important planning tasks
2. Organising the Purchasing and Supply Function
● Four main issues need to be addressed in organizing the purchasing and supply function
