Purchasing

Purchasing is the process by which an organization obtains goods and services needed to operate. It encompasses identifying needs, specifying requirements, sourcing suppliers, obtaining and evaluating bids, negotiating terms, issuing purchase orders, receiving and inspecting goods, and processing payments. In many organizations, purchasing is part of a broader function known as procurement, which additionally covers strategic sourcing, contract management, and supplier relationship management. Direct procurement concerns raw materials and components used in production; indirect procurement covers items not tied to production, such as office supplies and maintenance services.

Key activities include needs assessment, specification development, market analysis, competitive bidding or negotiation, contract formation, order placement, logistics coordination, goods receipt and quality inspection, and invoice processing. The purchasing process is governed by procurement policies and internal controls to ensure compliance, transparency, and accountability, including delegation of authority, segregation of duties, and ethical standards.

Information technology tools such as e-procurement systems, enterprise resource planning (ERP), and supplier performance analytics support purchasing operations. Metrics commonly used include cost savings, total cost of ownership, cycle time, supplier performance, fill rate, and compliance with procurement policies.

Risks in purchasing include price volatility, supply disruption, supplier bankruptcy, quality issues, and regulatory changes. Effective purchasing aims to balance cost, quality, risk, and service levels, while increasingly emphasizing sustainability and supplier diversity.