One of the commonly discussed questions that have to be answered is, where should purchasing be located in the organisation structure? The answer depends upon the type of industry, variety and volume of purchase. The modern approach is to have an integrated materials department headed by a materials manager with the purchase manager under him.
The other functions included in the integrated materials set up would be stores, inventory control, planning, cost reduction, transportation, value engineering etc. If there is no separate integrated materials department, it would be ideal to place the purchase manager directly, under the chief executive in the head quarters.
In this process, separate sections deal with various sub-activities of purchasing, like source development, vendor rating, follow up, tendering, bazzar purchase up, imports, procurement of capital equipments, spares, consumable raw materials, components etc. and application of cost reduction techniques.
Even today there are a few traditional organisations, where the material function is subordinate to production or finance. But from the point of corporate objective of profitability or cost reduction, this may not be ideal situation, because the production manager may like to have as much inventory as possible, in order to ensure an uninterrupted production run, while the finance manager would like to lock up minimum working capital in inventories and delay the suppliers’ bill as far as possible.