THE PURCHASING FUNCTION

PURCHASING FUNCTION: Definition

Must ensure that production means

 of the right quality are supplied
 in the right quantities
 at the right time
 to the right place
 from the right suppliers
 at the right price
 PURCHASING FUNCTION

Role and importance

Purchasing management

Purchasing activities
 PURCHASING FUNCTION

Role and importance

Purchasing management

Purchasing activities
 ROLE AND IMPORTANCE

If the purchasing function does not supply

enough raw materials on time, the other
functions cannot function at optimum levels

The operations function cannot manufacture

enough products on time
The marketing function does not have enough
products to sell
 ROLE AND IMPORTANCE

The cost of raw materials directly influences

the price of the end products
The quality of raw materials directly influences
the quality of the end products

Purchasing function has a direct influence on:

 Sales of the enterprise
 Profitability
 Image
 Survival and success
 PURCHASING FUNCTION

Role and importance

Purchasing management

Purchasing activities
 PURCHASING
MANAGEMENT

PLANNING ORGANISING CONTROL

Objectives Performance
Centralisation
Policy of purchasing
Personnel
Budget management
 PURCHASING PLANNING

Objectives

Policy

Budget
 PURCHASING PLANNING

Objectives

Policy

Budget
 Continuity

Good
relations: Quality
functions

OBJECTIVES

Good
Stock
relations:
control
suppliers
Alternative
suppliers
 CONTINUITY

The right means of production must be

available at the right time and place

If deliveries are late

 Production cannot produce in time
 Marketing cannot sell in time
 Workers have to work overtime
 ALTERNATIVE SUPPLIERS

Must not depend on one supplier

Must have more than one supplier for
the same production means
This will ensure that another supplier can
deliver the order if the usual supplier can’t
 GOOD RELATIONS: SUPPLIERS

If suppliers have a good impression of

your enterprise

They will go out of their way to help you

in crisis situations
Willing to deliver orders on short notice
Willing to change orders on short notice
 GOOD RELATIONS: FUNCTIONS

Marketing
General
Financial manage-
ment

Purchasing
Human
Operations
resources

Public Administra-
relations tion
 PURCHASING PLANNING

Objectives

Policy

Budget
 POLICY

The policy determines:

The guidelines according to which
suppliers are identified and selected
The basic principles according to which
suppliers are treated
 PURCHASING PLANNING

Objectives

Policy

Budget
 BUDGET: STEPS

1. Marketing must first indicate what they

expect their sales to be (sales forecast)
2. Operations then work out what raw
materials they require to manufacture
the products
3. Purchasing must then determine the
purchasing needs according to
operations function’s needs
 PURCHASING FUNCTION

Role and importance

Purchasing management

Purchasing activities
 Cycle

Timing Quality

ACTIVITIES

Prices Quantity

Suppliers
 Cycle

Timing Quality

ACTIVITIES

Prices Quantity

Suppliers
 1
Determine
9 Close needs 2 Select
order suppliers

3 Get
8 Payment
quotations
CYCLE

7 Handle 4 Place
errors orders

6 Receive
5 Follow-up
& inspect
1. DETERMINE PURCHASING NEEDS

1. Forecast expected sales

2. Compare forecast with current stock
levels and production schedules
3. Decide what means of production to
be purchased, when it should be
purchased, the quality and quantity
2. SELECTING SUPPLIERS

Compile a list of suppliers

Set criteria for evaluation

Evaluate and select suppliers

Monitor suppliers
 3. GET QUOTATIONS

Get quotations from suppliers, compare

quotations and decide on a supplier
The cost of production means is
extremely important
 4. PLACE ORDERS

Order form contains

 Date of the order
 What is ordered and in what units
 Quantity
 Quality
 VAT
 Date of delivery
 Reference number & order form number
 5. FOLLOW-UP

Follow up to prevent late deliveries

 6. RECEIVE & INSPECT STOCK

Inspection on arrival of stock

Deviations must be noted down on the
delivery note
A proof of receipt must be signed and kept
for future reference or issue an
acknowledgement of receipt
The person who finally receives the stock
must also inspect the consignment
 7. HANDLING ERRORS

Communicate with supplier on how

to handle defective consignments and
how to prevent future defective
consignments
 8. PAYING THE ORDER

Compare invoices with:

 The order form
 The quotation
Make sure that the quantities, quality,
price and specifications on the invoice
corresponds with order and quotation
9. CLOSING THE ORDER

File all documents

 Cycle

Timing Quality

ACTIVITIES

Prices Quantity

Suppliers
 QUALITY CONTROL: STEPS

Set quality standards

Compare quality of production means with

set standards

Report deviations

Take corrective action

 QUALITY CONTROL PROCESS

1. Set quality standards

Operations manager must specify the

minimum standards for a specific means
of production
This information must be communicated
clearly to the purchasing function
 QUALITY CONTROL PROCESS

2. Compare quality with standards

Production means must be inspected on

delivery to compare the delivered quality
with the set standards
Deviations must be identified
 QUALITY CONTROL PROCESS

3. Report deviations

Purchasing must draw up a report

commenting on the delivered quality
Must inform operations about the deviations
and explain the extent of the deviations
Accept stock that comply with standards
 QUALITY CONTROL PROCESS

4. Corrective action

Three choices
 Return the order
 Replace the order
 Accept the order at a lower price
If deviations resulted due to poor
communication of the purchasing officials,
it should be corrected immediately
 Cycle

Timing Quality

ACTIVITIES

Prices Quantity

Suppliers
 INVENTORY
COSTS

Ordering Carrying Insufficient

Placing orders Storage

Running out
Receipt Insurance
of stock
Inspections Opportunity
 Cycle

Timing Quality

ACTIVITIES

Prices Quantity

Suppliers
SELECTING SUPPLIERS

Compile a list of suppliers

Set criteria for evaluation

Evaluate and select suppliers

Monitor suppliers
 Cycle

Timing Quality

ACTIVITIES

Prices Quantity

Suppliers
 COST CONTROL

Purpose of cost control

Cost of raw materials directly influences

the price of the end products
Has a direct influence on the sales of the
enterprise and the profitability
 Cycle

Timing Quality

ACTIVITIES

Prices Quantity

Suppliers
 TIMING FACTORS

INTERNAL EXTERNAL
FACTORS FACTORS

Availability of funds Market conditions

Marketing and Government

operations forecasts regulations
Storage space Seasons

Internal policies Reliability of suppliers

 CHAPTER 7

THE HUMAN RESOURCES

FUNCTION
 HUMAN RESOURCES: Definition

 Responsible for the provision and

maintenance of a competent workforce
 Ensures that the enterprise employs the
right number and type of employees
 Includes the recruitment, selection,
employment and induction of an
efficient labour force
 HUMAN RESOURCES

HR Provision

Training & development

HR Maintenance
 HUMAN RESOURCES

HR Provision

Training & development

HR Maintenance
 Planning

Legislation Recruitment

HR
Provision

Orientation Selection

Employment
 Planning

Legislation Recruitment

HR
Provision

Orientation Selection

Employment
 JOB
ANALYSIS

Job description Job specification

Training
Duties
Skills
Responsibilities
Experience
 JOB DESCRIPTION JOB SPECIFICATION

1. Draw up a list of all the 1.Take the job description

tasks that must be for a specific post
performed in the
enterprise
2. Determine what
2. Group together tasks
background the person
that can be done by one
person needs to be able to do
the job –
3. Combine these tasks to qualifications, skills,
be one person’s job experience
4. Compile a written job
description
 Planning

Legislation Recruitment

HR
Provision

Orientation Selection

Employment
 RECRUITMENT

Searching for and inviting potential

employees to apply for available posts
 RECRUITMENT

Internal External

Promotions Training institutions

References Recruitment agencies
Proficiency surveys Advertisements
 INTERNAL OR
EXTERNAL
RECRUITMENT

Current labour Type of post –

force job description
 Planning

Legislation Recruitment

HR
Provision

Orientation Selection

Employment
 SELECTION

The process in which the most suitable

person for the post is chosen from among
the applicants for the post
 STEPS OF SELECTION

1. Conduct a provisional interview

2. Complete application form

3. Selection tests

4. Check references

5. Conduct employment interview

 STEPS OF SELECTION

6. Medical examination

7. Final employment decision

8. Final offer

9. Appointment
 Planning

Legislation Recruitment

HR
Provision

Orientation Selection

Employment
 EMPLOYMENT AND PLACEMENT

 Finalise administrative matters –

complete forms and provide personal info
 Placed in the post applied for
 Planning

Legislation Recruitment

HR
Provision

Orientation Selection

Employment
 ORIENTATION

Employees are introduced to:

 The enterprise, procedures, environment
and work situation
 Co-workers, subordinates and supervisors
 ORIENTATION

Employee is introduced to:

 Activities of the department
 How and when employees are paid
 Working hours, tea-times
 Leave procedures
 Dress code
 Recreation facilities
 Planning

Legislation Recruitment

HR
Provision

Orientation Selection

Employment
COMPLIANCE WITH LEGISLATION

 Labour relations Act

Basic Conditions of Employment Act
Employment Equity Act
 HUMAN RESOURCES

HR Provision

Training & development

HR Maintenance
 INDUCTION TRAINING DEVELOP-
MENT

Teaches the Teaches the Prepare

employee what employee how employee for
to do to do it promotion/
management
posts
 STEPS OF TRAINING

1. Determine training needs

2. Set training programme objectives

3. Determine training methods

4. Present the training

5. Evaluate training
 HUMAN RESOURCES

HR Provision

Training & development

HR Maintenance
 HR MAINTENANCE

Remuneration

Labour relations

Administration

Working conditions
 HR MAINTENANCE

Remuneration

Labour relations

Administration

Working conditions
 REMUNERATION

Direct Indirect

Salaries and wages Fringe benefits

 GUIDELINES ON SALARIES AND
WAGES
1. Look at salaries of similar posts in other
enterprises

2. Do job appraisal – compare value of post in

other enterprises with value of post in this
enterprise

3. Arrange posts in sequence from lowest to

highest level

4. Draw up remuneration policy and attach

salary scale to each level
 OTHER FACTORS TO CONSIDER

 Supply and demand of labour

 Ability of the enterprise to pay
 Prevailing minimum wages
 HR MAINTENANCE

Remuneration

Labour relations

Administration

Working conditions
 POLICY DOCUMENT

 Conditions of service
 Leave codes
 Rights and privileges
 Grievance procedure
 Disciplinary procedure
 HR MAINTENANCE

Remuneration

Labour relations

Administration

Working conditions
 Unsafe
conditions

Working Unsafe
Legislation
conditions practices

Causes of
accidents