The purchasing function can have an overwhelming impact on the bottom line of an organization. The purchasing department helps to maintain the financial health of organizations by procuring goods and services that meet operational needs and keep operations moving smoothly while providing the highest value.
Selecting suppliers is one of the critical aspects of the purchasing department. Any inaccuracy in the supplier selection process can lead to time will be a loss, poor performance, supply disruptions and inefficiencies in the business process.
Failures in supplier selection can be defined in two categories, i.e., quality failures and failures of timing. Quality failures may cause costs to the buying firms, whereas failures of timings come in the form of late deliveries, back orders, variable lead times and incorrect shipments. Frequent changing suppliers can also negatively impact the price, quality of products and lead to stability issues.
Price, Delivery, and Quality
Unit price should not be the only factor but the total cost of ownership is an important factor. Total ownership not only includes the unit price of the material, but also the labour cost, payment terms, cash discount, logistics cost, maintenance costs and other more qualitative costs that may not be easy to assess.