Purchasing organizations are responsible for all the purchasing activities from giving quotations or ordering supplies to the delivery of the order. Purchasing organizations negotiate with the vendors and suppliers and follow the strategies to get maximum discounts from the vendors. There are different purchasing strategies that can be used for different industries therefore the purchasing organizations have professionals who know about the industries well and can develop strategies for different industries and negotiate with the vendors and suppliers of different industries accordingly.
The purchasing organizations are responsible for the purchase of merchandise or capital at the lowest possible price from the vendors for an organization, which will help them save cost of spending more on a purchase of goods. Purchasing organizations have their own operational strategies that they implement in different places to get supplies at the right time and right locations at optimum prices they promise in the contracts they signs. (Sethi, Pg 183, 2009)
Since the purchase discount depends on the volume you purchase, the more volume you buy the vendor offers you more discount. Therefore, purchasing organizations get orders from different companies so that they can order a large volume of goods from vendors which ultimately get them huge discounts. In this way the purchasing organizations are able to supply goods to the companies at relatively less prices.
Mostly, the purchasing organizations charge a membership fees so that they can cover their administrative cost with the help of this money. As the purchasing organizations hire professionals having good negotiable skills, legal knowledge so that they are well aware of ethics and does not make any such contract for which the company can be sued, they need personnel who have a good knowledge about the business so that they may represent the organization in a good manner. For hiring such professionals the purchasing organizations have to pay a handsome salary in order to retain them as well.
The purchasing organizations make sure that the clients get the delivery of order on time and ensure good services. They also resolve the problems between the vendors and the clients with the help of their professionals with sound negotiation and communications skills.
The purchasing organization can help you avoid any fraud that can be committed by your staff in ordering the supplies as some managers can make a deal with a vendor to buy the product at high rates and then the extra profit can be distributed among them. By giving the contact to the purchasing organizations the company can get the product at the lowest possible rates in the market.
Similarly, sometimes the companies stick to one vendor only for a long period of time and the vendor realize that the company will buy the product from him at any price, they start increasing the prices if they see no one is keeping an eye on them and the market prices. Such cost can be avoided by the company if they make a contract with the purchasing organizations who find the vendors with lowest rates in the market offering the quality products. (Sethi, Pg 183, 2009)
S. Prakash Sethi, (2009), Group purchasing organizations, Palgrave Macmillan, Page 183