Question

why the importance of purchasing diminishes when a firm organises under supply chain management structure

Answer 1

A major component of a firm's purchase decision is to minimise the lead time, that is the time I takes for the new supplies to reach the production line. A longer lead time can be crippling for a firm as production will have to stopped if there are no supplies. To prevent this, they will have to purchase well in advance which puts a strain on their cash flows as they will have to arrange finances way before they can sell the product. If they borrow funds for this purpose, they will have to pay interest for a larger period. Thus a short lead time is crucial in any organisation.

This hassle can be minimised if the firm organises in a supply chain management structure as under this, there are a chain of supply and logistics firm, integrated in the system and this reduces the possibility of a delay in supply. Thus the firm will not have to purchase in advance