Effect of Purchasing and Supply on Selling Price

Introduction

The management of each and every medium and large organisation consists of different functions namely; general management function, marketing function, financial function, production function, and purchasing and supply function. These functions are important for long term profitability of the business. The purchasing and supply function is one of these crucial elements and has been the key to low production costs that eventually leading to maximisation of profits. “Purchasing and supply management entails the planning, organising, leading, and controlling of all activities relating to the purchase of materials and services from an external source” (Du Toit, Erasmus & Strydom ;2010:496).

This function is of importance because every business does, at some point, get involved in buying like every individual participant in the economy. Whitehead and Van Rensburg (1994:13) suggested that purchasing of raw material makes up most of the business’s operation expenses. This means ignorance or non-compliance of this function can cost the business its very life. In this essay the author will discuss the importance of purchasing and supply to consumer satisfaction and its contribution to the firm’s competitive advantage. The author will then point out the disadvantages or short falls of poor purchasing and supply function on the business’s continuity and growth.

Effect of purchasing and supply on selling price

All the other functions depend on the purchasing and supply department as it carries out the duties of choosing when, where and how to buy inventories or raw materials. This means the production function get its raw material from the purchasing department, the marketing function can only market the stock bought by the purchasing function and also the financial function gets funds through sales which are impossible without selling. The implication of all this is that the functioning of every business starts with the purchasing function (Whitehead et al., 1994:05). Furthermore the determination of the selling price of goods depends on their cost price. The target price of goods to be sold is dependent on how much they cost the business on acquisition and how much the business expects to gain from the sales. This amount is then compared to the market price.

Purchasing and supply contributes to the marketing of products

It may be very difficult for the marketing function to market a product that is not appealing to the target market. In the case of this occurrence there will be very high chances of marketing concept failure resulting to loss of goodwill. According Stettner (2003:36) marketing is based on four variables which are