Budgeting the Purchasing Department and the Purchasing Process
DESCRIPTION AND DEFINITION OF THE PROCESS APPROACH
Traditionally, management has used the budget as a tool to track, control, and forecast the financial effectiveness of the business. Typically, budgets are prepared in some hierarchical manner by departments and then aggregated along organizational lines to create the business unit’s budget. Today, as a result of the use of such techniques as reengineering and right-sizing, and the use of cross-functional teams, there is an increased emphasis and need to manage and optimize along a process perspective as well as to use budgeting for control of the individual responsibilities, departments, and functions within the process. (To distinguish the purchasing department from the purchasing process, the term “procurement” is be used herein to identify the process perspective.) To be effective, an organization must control the spending of both the function and the process; in other words, the organization must consider:
- Purchasing as defined by the activities of the purchasing department
- Purchasing as defined by the activities of the procurement process
The control of the purchasing departmental budget is a very important piece of the procurement process. The purchasing budget, to begin, will be influenced by the manner in which the business is organized. Many purchasing ...