In any given organization, there are always goods and services to be procured. Whenever an organization is making any purchases, it needs to be assured that it is obtaining the best products from the market for its business demands and at the best prevailing market price for the product. In other words, it needs to ensure that it is obtaining valuable goods and services for every spending made from its budget (Independent Commission against Corruption, 2006). To completely be sure of this, there is need to strategically establish an organizational purchasing procedure to be used in conducting purchases for the organization. Different organizations have different purchasing procedures. This paper will discuss the purchasing procedures of two different organizations, i.e. a Fast Food Restaurant and a university to represent an educational institution.
Comparison between the Purchasing Procedures of a Fast Food Restaurant and that of an Educational Institution
Purchases at the Fast food restaurant Fast Food restaurant are conducted by a department of Purchases which is a permanent department within the organization. The department has been given the responsibility of looking for, collecting, storing and availing stocks to other departments. The stocks here refer to foods, beverages as well as other supplies and equipments.
Before making any purchases, the purchasing department has to take into consideration the various factors that may affect their purchases. These factors are such as determining how much money the organization is willing to spend on the particular batch of supplies, the amount of storage space available, what season of year it is and what the consumers will most likely demand, the size of the organizations operations, the geographical location from which the products are being sourced from etc (CTH, 2010).
The purchasing department is to a large extent intertwined with the Accounts department. This is because the department is under the direct management and supervision of the Accounts department. No purchases can be made without the approval of the Accounts department. The Accounts department has the discretion to disallow certain purchases if it is of the opinion that they are unnecessary. It also determines how much money goes to purchases.
The department is itself divided into several sections. These include; the purchasing section, whose role is to liaise with other related departments, find the best suppliers and obtain quotations from them, negotiate prices with them to ensure they obtain the best market prices for the organization and close the deals. The other one is the Receiving section who receives the products purchased and after checking on their general condition and signing for deliveries is required to hand it to the Store man for storage.
The storage section, which is the next section, will enter the new stocks into record, ensure that products are stored under the most suitable conditions in terms of hygiene and ventilation. The store man has to ensure that different goods are stored at their appropriate temperatures and that no contamination occurs between the various products. The issue of perishability of products also has to be taken into consideration (CTH, 2010). From here the section issues the products to the departments that require them.
The last section is the cost controller which is mandated with the role of ensuring that stocks take the minimum costs possible and that pilferage and wastage is as much as possible minimized.
The process of making purchases involves first identifying what the organization requires in relation to the level of demand. Then, the purchaser goes ahead to identify what product will best meet the business demands identified. After that, the purchaser will liaise with the storage section to determine what is already in stock and place orders for the deficit after comparing the offers of the various suppliers and determining the best deal for the organization.
Contrary to the procedure at Fast food restaurant, there is no department of purchases at the visited University. Departmental Purchases and making payments at the institution is mostly done using procurement credit card (Queen’s University, 2012). A procurement credit card will usually be issued by the Credit Card Program Administrator to employees of the institution who routinely conduct purchases for the University after being recommended by the departmental heads of their faculty.
Cardholders are required to adhere to certain policies and procedures such as obtaining appropriate approvals before making any purchases; at all times retaining the original receipts as well as ensuring they obtain the relevant signatures and authorizations on all applicable documents. Every month, the cardholders are required to reconcile their card statements and have their activity statement approved by their immediate supervisor. In other words, cardholders should exhibit a high degree of prudence and professionalism and failure to adhere to the set policies and procedures could see ones procurement card being canceled thus stripping him off his authority.
However, unlike at the Fast food restaurant where all purchases are made by the single purchasing department, here the procurement cards cannot be used to make all purchases. Purchases worth more than $5,000 are required to be done through a purchase order. Also there are a number of items that a procurement card will not be able to purchase. Some strategic purchases can also be made but only with the express authority of the Director concerned with Strategic Procurement Services.
The most important issue in using the procurement card is ensuring transparency and accountability. Once a purchase is made, one has to take a step further and ensure that this information is properly reflected in both the Universities records and the banks financial information.
Unlike the situation at Fast food restaurant where there are different sections for every role, at the university the cardholder does not only make the purchase but is also responsible for receiving the goods and sorting out any delivery issues that may arise with the suppliers. If there are any items to be returned to the supplier, this has to be done directly to the supplier himself and in the specific manner he authorizes. The cardholder must then ensure that the proper credit is made upon any return being made. Any disputes arising with suppliers such as returns made, non-delivery, defective merchandise, duplicate charges etc, are for the cardholder to follow up on.
One is then required to safely keep the documentation obtained from suppliers to be used for the monthly reconciliation. Even after the reconciliation, one will still be required to file all the documentation for an audit conducted by the administrator of the Credit Card Program.
Pros and Cons of the Purchasing Procedures of the Fast food restaurant
There are several advantages of this kind of purchasing procedure. The most important one is the fact that there is a wholly constituted department of purchasing. The department is composed of a proper combination of the required skills and competence thus the whole project is done to precision. There are several sections in the department meaning that there is specialization and division of labour within the department. Everyone knows what they are supposed to do and since they have been doing it repeatedly, they have developed various skills of performing the role thus doing it more efficiently and faster. The person purchasing is not the one receiving or storing the goods or services which ensures that a single individual is not overwhelmed by work.
The department is permanent and therefore it is easy to obtain its records even after a long period of time. A new employee will only need to go through such records to determine what his role is within the organization. It is also easy to conduct internal audits to determine any fraudulent deals taking place. The fact that there are different individuals each with distinct and well demarcated roles reduces chances of fraud as collusion with all these persons is a remote possibility.
On the other hand, the arrangement has its own disadvantages the main one being that since there are so many sections and consequently many individuals involved there are so many bottlenecks and bureaucracies involved before a single purchase can be procured (Gummerson, 2008). This may delay purchases and they may not be availed as and when they are demanded. This is further made complicated by the fact that the department does not exist in isolation: it needs to liaise with other departments such as the Finance and Production departments in order to fulfill its roles. In the vent that one department or one section does not perform its end of obligations; the entire department will have failed in the performance of its duties regardless of how diligent and punctual the other sections had been.
Pros and Cons of an Educational Institution Purchasing Procedure
Unlike in the case of Fast food restaurant purchase procedure, this procedure is less bureaucratic and hence easy to administer. This is because purchases can be made by several purchasers who hold procurement cards. One does not need to undergo through a long process of authorizations from various departments such as the Accounts department in the case of a fast food restaurant, before purchasing goods or services. This therefore ensures that purchases are made as soon as the need arises without resulting into any major delays. Besides, the fact that every department has its own procurement agent ensures that the person purchasing the product obtains exactly what that department requires as he understands the specific needs of the department.
On the other hand, the fact that there are several individuals who can conduct purchases for the organization leads to duplication of resources and staff which may have been saved by using only a few specific individuals and mandating them to make purchases for the University as their main role. It also creates chances for making double purchases for a particular item as there is no systemized way of confirming whether a product is already in stock before making a purchase.
Further, the many purchasers for the organization may not hold the high skills and competence required in the area of procurement (Palmer, 2010). This is because these employees may not have been trained in procurement as they are random employees picked from among other like employees and who are replaced every now and then. The institution may also not have a Training and Development program for these purchasers as may be the case in a situation where a wholly constituted department of purchases exists. As such, it is possible that the purchasers for the university may cause heavy losses to the institution as they may not be able to conduct market research to determine the best prices or even to run a background check on the various suppliers providing them with the products or services. Also, the University may not have any cost control program to ensure that there is minimized wastage and pilferage, (Kaufmann, 2001) which causes the institution to incur even more losses.
The other limitation is created by the fact that the more purchasers there are for the university who represent different personalities and characters, the more the likelihood of fraud and mismanagement of funds arises. Some of the individuals may be tempted to fraudulently enrich themselves at the expense of the University. As such, the University has heavily invested in a lot of checks and balances on their purchasers (Independent Commission against Corruption, 2006). Monthly reviews have to be done as well as periodic audits to ensure that there is no embezzlement of funds. The cardholders are required to keep the various documentations for even up to 7 years for nay time that a need for the same may arise. These are extra expenses that would have been saved if the University had delegated the role of purchasing to a certain permanent department with the necessary composition of skills and qualifications.
Any sound organization needs to come up with a purchasing procedure that is specific to its business needs and organizational goals. However, it is preferable to have a procedure that is the most efficient and yielding the most benefits to the organization. A department of purchasing that is permanent ensures that purchases for the organization are acquired through the best methods available as they are conducted by the individuals of high skills and competence obtaining the best value for the organization. However, organizations should ensure that bureaucratic technicalities are as much as possible minimized when dealing with such purchasing practices.