Buying for Business: A Guide to Purchasing and Supply Management / Edition 1

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Buying For Business provides a simple but comprehensive guide to purchasing and supply. With current literature often academic in focus and unsuited to modern business readers, it offers straightforward and engaging information on the principles and practice of purchasing and supply management that will be of great value to anyone in business who deals with suppliers. Experts Mark Whitehead and Christopher Barrat answer all the key questions facing purchasing in business today, and offer advice on everything from ethics to outsourcing. Diagrams, analysis tools and pro-formas aid understanding, while case studies and bench-marking exercises illustrate and reinforce the learning.

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Editorial Reviews

From the Publisher
“…Recommended reading for anyone already involved in or thinking about a career in the buying department…” (Reading Chronicle, 9th December 2004)
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Product Details

  • ISBN-13: 9780470092460
  • Publisher: Wiley
  • Publication date: 10/28/2004
  • Edition description: New Edition
  • Edition number: 1
  • Pages: 268
  • Product dimensions: 6.82 (w) x 8.22 (h) x 0.79 (d)

Meet the Author

Christopher Barrat started out armed only with a degree inlaw and a bus conductor's license. He now has over 25 years ofbusiness experience. Working in the UK chemical industry, he wasinvolved in sales, marketing and corporate purchasing before takingon more senior roles in ICI as European Sales Manager andPurchasing Director - experience that has given him a view 'fromboth sides of the table'. He is currently a director of theGreystone Partnership, where he specialises in developing skills inpurchasing, negotiation, management and communication. He is apopular speaker and proud to be the first person to get the word'Sex' into the CIPS annual conference agenda. He lives inManchester with his family, and works with major blue chipcompanies throughout Europe.

Mark Whitehead started his career with a brief spell as ateacher before finding his vocation in journalism. He coverededucation, HR, management and general news for a variety ofpublications before specializing in purchasing joining SupplyManagement as deputy editor. The baffled looks on people'sfaces when he tried to explain what his magazine covered led to theidea of writing it all down in a book. He strongly believes thatnothing is too complicated to be explained simply, which is onereason why he became a journalist and not a nuclear physicist. Theother is that he dropped sciences in the fourth form. He lives withhis wife and young son in north London, where he plays a variety ofmusical instruments and beats the congestion charge by cycling towork.

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Table of Contents

Preface and Acknowledgements.

Chapter 1: Everyone’s a Buyer.

Chapter 2: Managing Purchasing People.

Chapter 3: The Position of Purchasing.

Chapter 4: Managing your Customers.

Chapter 5: Relating to Suppliers.

Chapter 6: Negotiation.

Chapter 7: Measuring Performance.

Chapter 8: E-commerce.

Chapter 9: Outsourcing.

Chapter 10: Globalization.

Chapter 11: Ethics.

Chapter 12: The Future.


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First Chapter

Buying for Business

Insights in Purchasing and Supply Management
By Christopher Barrat Mark Whitehead

John Wiley & Sons

ISBN: 0-470-09246-7

Chapter One

Everyone's a Buyer ...

We all like to go to the shops and spend now and then, in fact every day most of us spend money one way or another. So we must be quite good at it.

It's the same at work. Most people spend their company's money from time to time. Nearly everyone likes to have a say in how money is spent on their behalf. In most organizations people at all levels are involved in one way or another with buying anything from paperclips to computers.

It's not difficult to pick up the phone to a company you deal with and put in an order, or to log on to a travel site on the Internet and book your own flights. Nowadays, it's not too much of an exaggeration to say that everyone's a buyer ...

... but not an expert buyer

While most people like to spend their employer's cash, very often they are not actually achieving real value for money. This means that a lot of the money being spent by organizations of all kinds, from small businesses to local authorities to big companies, is wasted.

However, many companies employ specialists to spend money in an efficient, well-organized way. These purchasing professionals have the training, experience and market knowledge to make a better job of it. They are not necessarily the only ones who can do the purchasing and look after suppliers,but they are the experts. Their skills, ideally, will be highly sought-after. Everyone should want to involve them in their purchasing decisions because of the benefits they offer.

The hidden bonanza

There are big prizes to be won. Every organization wants to make more money, or at least to make sure that its limited resources are deployed effectively. The obvious way for a commercial organization to increase profitability is to raise prices, or sell more, or both. As Figure 1.1 illustrates, while fixed and variable costs will probably rise too, the profit margin is likely to grow faster.

However, businesses are realizing that another way of becoming more profitable can be just as effective, if not more so - improving the purchasing operation. As Figure 1.2 shows, driving down variable and fixed costs through effective purchasing is just as effective in increasing profits as improving sales figures. And, as we shall see, concentrating on the purchasing function may also bring other benefits.

Undiscovered territory

Progress towards reforming purchasing functions is uneven. Many big, established companies have reformed their procurement, although often this merely reveals how much there is to do before they will become truly efficient. It's among small and medium-sized enterprises that purchasing remains largely unorganized and inefficient.

In the public sector, reform of purchasing is now high on the political agenda. The government has realized just how much can be saved through streamlining buying by Whitehall departments, local authorities, the NHS, universities and other public bodies. At the time of writing, huge savings in the public sector were being discussed, based largely on greater centralization of buying operations and the adoption of e-procurement. The government has also made it clear that big increases in NHS spending must be effectively controlled to ensure value for money.

The surprising fact is that most organizations in the private, public and voluntary sectors simply don't know:

1. How much money they're spending with third-party suppliers.

2. Who's spending it.

3. What they're getting for their money.

This is partly because many people in business, often running large, well-known organizations, prefer to concentrate on more glamorous activities: sales, marketing and advertising, for example. Or finance, where the real decisions affecting the bottom line are made, or HR, where the huge amounts spent on the most important assets for any organization - its people - are controlled.

These functions attract enormous interest in the commercial and academic world. Go into any bookshop and look at the business section: there is likely to be a large selection of titles on marketing, selling and, quite likely, advertising. Look at the shelves filled with books on finance. And you won't be able to miss the huge numbers of 'inspirational' books by big-name management gurus offering recipes for instant commercial success, often focusing on sales and people management.

In contrast, there will be few books on purchasing and supply management. In most bookshops there are likely to be no more than a couple of academic and highly technical tomes. Some general management books will probably contain references to purchasing or certain subsections of the field, inventory management, for example.

Click on to the website of any major business school and search for 'marketing' or 'advertising' and there will be a plethora of courses specializing in these subjects. Now look for 'purchasing' or 'supply management' and you might discover a module or two buried in another more general course.

Examine the structure of contemporary companies and you will almost certainly find marketing and sales as separate functions, most likely with a representative at board level. Purchasing and supply management, though, are probably lurking within the manufacturing or finance department, or as part of central administration or some other branch of the company structure. Representation at board level is rare.

What is purchasing and supply management?

As a relatively young area of activity, many people are unclear what purchasing and supply management involves. This is almost certainly one reason for its relative obscurity on the business scene.

Roles within these functions vary enormously and the definitions are often somewhat hazy. But essentially, anyone who is involved in buying goods or services on behalf of their organization, arranging their delivery and monitoring their cost and effectiveness, can fall within the definition of a purchasing or supply management professional.

This extends from the junior buyer in a small or medium-sized company right up to the procurement director of a major multinational. Purchasing and supply management professionals can be found in all sectors of industry and commerce, and in the public and voluntary sectors. Organizations ranging from small companies to major multinationals and from town halls to government departments are all quite likely to employ people responsible for buying goods and services.

It's estimated that in the UK there are perhaps 150 000 people working in purchasing and supply management roles. If the wider field of logistics is also included - people concerned with the movement of goods rather than specifically with their purchase - the number of professionals involved could be 250 000.

In the smallest enterprises, a separate role for a purchasing specialist may not have emerged: the managing director or finance director or one of the partners may do the buying. Or quite likely, everyone chips in as necessary.

But as with other functions, once an organization reaches a certain size, specialism tends to become necessary for efficiency and someone is likely to be tasked with managing purchasing.

A typical SME with a few hundred staff might have a purchasing department of two or three people. In the biggest companies, purchasing departments often comprise several dozen people responsible for different aspects of the buying and supply management operation.

Raising the profile

Purchasing has traditionally been a low-profile function. Very often it has been the department where people deal with the administration surrounding purchases: signing invoices and matching them to purchase orders, answering enquiries from suppliers and keeping records.

It has often been an unglamorous, bread-and-butter department where life passes uneventfully. In this kind of scenario, the department's boss doesn't wield much influence with the higher-ups and is unlikely to be involved in discussions about the organization's strategy. The board doesn't pay much heed to what purchasing is up to because it isn't considered very important.

While it's still like this in many organizations, it is changing. In the past ten or twenty years many companies have taken the first steps towards giving purchasing and supply management the attention it deserves. In part, circumstances have forced the change. Increasing competition and a difficult economic climate have led companies to look for ways of becoming ever more efficient.

In the 1980s 'downsizing' was the order of the day, when companies cut costs by reducing the number of staff on their payroll. This had the advantage of being quick and effective, but as many organizations later realized, the danger is that expertise gained by individuals over many years is thrown out and proves impossible to replace when it is needed again.

The ability to squeeze costs by cutting numbers is limited, so many organizations looked for other ways to become more competitive. Some realized that there was money to be saved from the huge amounts spent on goods and services. They saw that reducing purchasing costs could improve profitability - often dramatically. In the case of public-sector organizations such as schools or the health services, this means that the money saved can be diverted to paying for what really matters: the frontline services of teaching children or treating the sick.

The new interest in the purchasing function has continued to grow as reform of spending operations in companies and public bodies has steadily produced results. Purchasing has been given a new lease of life and those involved in it are gaining status, not only in their own organizations but also in the wider business world.

It is a trend that seems certain to continue. In 1997, according to research by business analysts Gartner in the US, very few chief executive officers would have even known the name of their senior procurement professional. But 'the recent intense interest in procurement means that senior executives across all industry sectors are beginning to realize the true potential of procurement'.

By 2007, Gartner says, at least half of the biggest global companies will have a chief procurement officer reporting directly to the CEO.

What do purchasing people do?

As we have said, everyone is in some sense a buyer, but many organizations are now appointing specialist purchasing professionals. Nevertheless, there is a long way to go in most organizations before purchasing becomes a highly developed function on a par with sales, finance, marketing or HR.

The potential for change in many companies and public-sector organizations is thus huge. But the study of purchasing and supply management as a business function is still in its infancy and for most people it is difficult to know where to start.

Much of the research into purchasing and supply chain theory so far has been concerned with mapping out what is involved in it. Unlike more developed functions, people studying this still often ask themselves: 'What do purchasing and supply management professionals actually do?'

A major study due to be completed in 2004 will attempt to answer this question. The four professional institutes whose members work in purchasing, supply management and logistics have joined forces to analyse the skills needed by people in more than 50 identified roles. The findings of the Polemics project will be used to make sure that professional qualifications are more relevant to industry as part of a government drive to raise skills levels in the UK workforce.

Information is key

The basic ideas involved in professional purchasing and supply management are fairly simple. There is no need to grapple with complex statistical formulas or difficult management concepts, though these have their place. More important is to understand the ideas involved. Once you can see where you're going, the means of getting there will become clearer. As psychologist Kurt Lewin once said: 'There's nothing so practical as a good theory.'

Often the basic information needed to make real changes is lacking, because historically very little attention has been paid to the way in which purchasing is organized and what it does. Consequently, there is often a complex web of purchasing activities in most organizations that is very difficult to analyse, and even more difficult to organize into a rational and controllable function.

That means that purchasing and supply management consultants - a growing breed of experts - spend a great deal of time grappling with questions about who is spending money in organizations, how much they are spending, who they are spending it with and whether they are getting good value.

Supply chains

Terminology is often a stumbling block when trying to understand the issues involved in purchasing. 'Supply chain', for example, is one of the expressions commonly used to describe a concept of which most people in purchasing will have heard. It's important that they should understand what it means, because they are part of it, and if they feel they are involved in something more important than merely placing the next order, it will help develop an understanding of the bigger picture. For many purchasers, seeing themselves as crucial players in the economy as a whole will be highly motivating.

The idea of a supply chain is based on the concept of a string of organizations along which items are passed while in the process of being developed. A manufacturing company will typically buy raw materials - metals, plastics or other commodities, for example - and transform them into an item that may then go on to the next link in the chain. The next company in the chain will carry out further processes before the item finally ends up being sold as a product in the shops and supermarkets.

In the motor-manufacturing sector, for example, several thousands of suppliers are typically linked together to contribute to the finished product that ends up in the car showroom.

This basic understanding applies just as much in the services sector, even though the product on sale is not a tangible object. IT services, for example, often involve highly paid teams of people installing expensive machinery or providing business advice. These activities are probably a crucial aspect of the company's operation and a high-cost one at that. If a company is selling IT services, it is a supplier and is therefore, it can be argued, part of a supply chain.

However, many experts now question the concept of the supply chain, pointing out that in reality the links between organizations are far more complex than the term suggests. They often look not so much like a chain as, for example, a network of many organizations linked to one another in different ways. So they argue that 'supply networks' is a more accurate way of describing these relationships than 'supply chains'.


Excerpted from Buying for Business by Christopher Barrat Mark Whitehead Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

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