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There are two basic types of purchasing: purchasing for resale and purchasing for consumption or transformation. The former
is generally associated with retailers and wholesalers. The latter is defined as industrial purchasing.
Purchasing can also be seen as either strategic or transactional. Also, the words "direct" and "indirect"
have been used to distinguish the two types. Strategic (direct) buying involves the establishment of mutually beneficial long-term
relationship relationships between buyers and suppliers. Usually strategic buying involves purchase of materials that are
crucial to the support of the firm's distinctive competence. This could include raw material and components normally used
in the production process. Transactional (indirect) buying involves repetitive purchases, from the same vendor, probably through
a blanket purchase order. These orders could include products and services not listed on the bill of materials, such as MRO
goods, but are used indirectly in producing the item.
Some experts relate that the purchasing function is responsible for determining the organization's requirements, selecting
an optimal source of supply, ensuring a fair and reasonable price (for both the purchasing organization and the supplier),
and establishing and maintaining mutually beneficial relationships with the most desirable suppliers. In other words, purchasing
departments determine what to buy, where to buy it, how much to pay, and ensure its availability by managing the contract
and maintaining strong relationships with suppliers.
These functions obviously entail no insignificant amount of responsibility.
As the role of purchasing grows in importance, purchasing departments are being charged with even more responsibilities.
Newer responsibilities for purchasing personnel, in addition to all purchasing functions, include participation in the development
of material and service requirements and related specifications, conducting material and value-analysis studies, inbound transportation,
and even management of recovery activities such as surplus and scrap salvage, as well as its implications for environmental
management.
In the 1970s and 1980s purchasing fell under the rubric of "materials management." Many corporations and individual
facilities employed executives who held the title "materials manager," responsible for purchasing and supply management,
inventory management, receiving, stores, warehousing, materials handling, production planning, scheduling and control, and
traffic/transportation. Today, the term materials management has expanded to include all activities from raw material procurement
to final delivery to the customer, to management of returns; hence, the newer title supply chain management.
As purchasing personnel became even more central to the firm's operations they became known as "supply managers."
As supply managers, they are active in the strategic-planning process, including such activities as securing partnering arrangements
and strategic alliances with suppliers; identification of threats and opportunities in the supply environment; strategic,
long-term acquisition plans; and monitoring continuous improvement in the supply chain.
A study by found that strategic purchasing enables firms to foster close working relationships with a limited number of
suppliers, promotes open communication among supply chain partners, and develops a long-term strategic relationship orientation
for achievement of mutual goals. This implies that strategic purchasing plays a synergistic role in fostering value-enhancing
relationships and knowledge exchange between the firm and its suppliers, thereby creating value. In addition, supply managers
are heavily involved in cross-functional teams charged with determining supplier qualification and selection, as well ensuring
early supplier involvement in product design and specification development.
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