Purchasing Differences in Purchasing in

Purchasing Differences in Purchasing Purchasing in an organization will differ based on the amount of product being purchased, the importance of the products being purchased to the organization, and the significance of the cost of the products being purchased to the organization. This will be considered by comparing the purchasing process in two organizations. The first organization is a manufacturer of pianos with an annual gross income of $15,000,000. The second organization is a house-washing service with an annual gross income of $15,000.

The first difference between the two organizations is the amount of product being purchased. The piano manufacturer with the high annual gross income would have a significant need for raw materials and would spend a reasonably large amount on raw materials. This means that the suppliers of the raw materials would be likely to value the piano manufacturer's business. This gives the piano manufacturer power in the relationship. This would not be the case for the house-washing service, since the organization would only purchase a small amount of product.

For the purchasing process, this means that the house-washing service would have little control, while the piano manufacturer would have greater control. The piano manufacturer would be likely to be able to negotiate terms, including reduced prices and make demands of suppliers. In contrast, the house-washing service would not be able to make demands, would be limited in their negotiation abilities, and would be likely to have to accept the supplier's set prices and terms. Another difference between the two organizations is the importance of the products to the organization.

For the piano manufacturer, the raw materials purchased are a key component of the final product they create. This can be further understood by considering Porter's ideas on the value chain, which Porter (1985, p. 3) defined as the processes necessary to creating the product or service. The important point is that there are various processes necessary to creating the product or service, but that not all of them add value.

In the case of the piano manufacturer, the raw materials are a significant part of what creates value for the organization, since the quality of the raw materials determines the quality of the final product. In the case of the house-washing service, the materials needed are consumables and while they are necessary, they are not critical in creating value for the organization. These differences mean that purchasing is more important to the piano manufacturer than to the house-washing service.

A difference in purchasing will also occur because the quality of the raw materials is significant for the piano manufacturer. Schermerhorn (1989, p. 498) notes that "quality comes from defect prevention, not defect correction." For the piano manufacturer, purchasing would be likely to involve demanding a certain quality from suppliers, with this a means of ensuring the quality of the final product. The final difference between the two organizations is the significance of the cost of products to the organization. For.