Most employees asked about the impact of the purchasing function on their company’s performance results will say it is very significant. We will get slightly lower ratings if we ask about the rank of the purchasing department in their enterprise. Of course, this statement does not apply equally to all enterprises. There are both objective and subjective reasons for this.
An objective factor determining the importance of purchasing is the share of procurement expenditures in the company’s total expenses. For most manufacturing industries, this indicator is at the level of 50-80%, for trading companies 60-85%, and for service companies 10-40%. The higher this share and the faster the asset turnover, the greater the impact of purchasing savings on the company’s results. This relationship can be derived from the DuPont model, presented in Fig. 1.
This indicator depends not only on the specifics of the industry in which the business is conducted but also on the company’s business strategy. A strategy based on focusing on core activities to gain a competitive advantage leads to an increase in the importance of outsourcing, and therefore an increase in the importance of the purchasing function. The importance of purchasing also grows if the enterprise operates in volatile, uncertain markets, procurement and final products are characterized by short life cycles, and frequent innovations are introduced in operational activities. While the above-mentioned factors can be defined as objective, characterizing the conditions under which purchasing activities are conducted, the way this function is implemented depends on the purchasing policy of a given enterprise.
Purchasing can be treated as a transactional, commercial, or active function. However, limiting purchasing activities to conducting commercial transactions, ensuring proper deliveries, or even executing them at the lowest prices, narrows the scale of benefits that active cooperation with suppliers or other company departments can bring. For a specific enterprise, the impact of purchasing on company results also depends on the level of professionalism in purchasing management.
Purchasing departments are usually directly responsible for only a certain range of goods and services purchased in the enterprise. This range can be estimated at 40-80% of total expenditures. The rest of the purchases are carried out by other company departments as a function supporting their main tasks. The influence of purchasing departments on this part of purchases varies: from providing consultations, assistance in negotiations, and concluding contracts, to establishing company purchasing procedures, creating interdepartmental purchasing teams, or even gradually taking full responsibility for these purchasing areas.