Key Functions: Purchasing and Public Relations (Grade 10 NSC Matric Business Studies): Revision Notes
Key Functions: Purchasing and Public Relations
The purchasing function
Understanding the purchasing function
The purchasing function plays a crucial role in any business by being responsible for acquiring quality raw materials and services that the company needs to operate effectively. This department acts as the bridge between the business and its suppliers, ensuring that everything needed for production or operations is available when required.
The purchasing team must continuously search for suitable suppliers who can provide better quality goods and services. They need to stay updated about new suppliers in the market and regularly evaluate existing ones to ensure they meet the company's standards. A reputable supplier is one who consistently meets current regulatory requirements and industry standards, making them reliable partners for the business.
Key Definition: The purchasing function is responsible for buying quality raw materials and services for the business. This includes everything from office supplies to manufacturing materials, making it essential for smooth business operations.
Purpose and objectives of purchasing
The purchasing function serves several important purposes in business operations:
- Stock management - Ensuring there are always sufficient stock levels to support daily business operations without running out of essential materials
- Supplier relationships - Building and maintaining strong relationships with reputable suppliers who can provide quality goods and services
- Departmental coordination - Working closely with other departments to understand their specific needs and requirements
- Quality assurance - Making sure that damaged or faulty goods are returned to suppliers and properly replaced
- Financial verification - Checking that all deliveries match the agreed specifications and that invoiced prices match the quoted prices
- Payment negotiations - Working out the best possible payment terms with suppliers to benefit the business
Key activities in purchasing
The purchasing department carries out many important activities to ensure smooth business operations:
Market knowledge and research: Purchasers must have expert knowledge about the products they need to buy and understand the market conditions. This includes knowing which suppliers offer the best quality, prices, and delivery terms.
Needs assessment: The purchasing manager regularly communicates with other departments to find out what materials, equipment, or services they need and when they need them.
Supplier evaluation: The team continuously searches for new suppliers and evaluates existing ones based on factors like quality, price, reliability, and delivery times.
Stock monitoring: They ensure adequate stock levels are maintained to support continuous production and sales operations, while avoiding overstocking that ties up cash.
Order tracking: Following up on orders placed with suppliers to ensure timely delivery and proper documentation.
Record keeping: Maintaining accurate records of stock levels, costs, and selling prices for proper inventory management.
Effective purchasing requires balancing multiple priorities: maintaining adequate stock levels, controlling costs, ensuring quality, and building strong supplier relationships. Success depends on having the right information at the right time.
The purchasing procedure
A systematic purchasing procedure helps ensure efficiency and accountability. Here are the key steps:
Worked Example: Complete Purchasing Procedure
Step 1: Determine the need The process begins when a department submits a requisition (an official order requesting specific materials or services). The purchasing team works with the financial department to establish budgets for purchasing activities and determines exactly what products or services are needed.
Step 2: Determine pricing The team researches current market prices by obtaining quotes from different suppliers and comparing costs to find the best value for money.
Step 3: Select a suitable supplier The purchasing department chooses reliable suppliers for raw materials (basic materials from which products are made) and other needs. They evaluate potential suppliers based on quality, pricing, delivery times, and overall reputation through thorough research.
Step 4: Place the order Orders are placed in writing to ensure clear documentation and avoid misunderstandings. The purchasing team confirms product prices to prevent unexpected costs during payment.
Step 5: Collect or receive the order When goods arrive, the purchasing department ensures correct orders are received and properly recorded. They check the quality and quantity of received stock against the original order and keep delivery documentation for record-keeping purposes.
Step 6: Pay the supplier The purchasing department instructs the financial department to process payment after satisfactory delivery. Suppliers must provide proper requisition forms and delivery notes, and the purchasing department provides delivery confirmation to the financial department.
Step 7: Distribute stock Received materials are distributed to relevant departments according to their requisition requests, ensuring proper allocation and avoiding waste.
Step 8: Complete the order All documentation is properly filed and recorded for future reference and audit purposes.
The importance of stock control
Effective stock control is essential for business success and provides several benefits:
- Financial management - Helps businesses determine the value of their stock and calculate accurate product costs and selling prices
- Customer satisfaction - Ensures sufficient stock availability to meet customer demand without disappointing buyers
- Inventory accuracy - Maintains correct stock levels and prevents overstocking or stock shortages
- Cost control - Records both cost prices and selling prices for proper profit calculation
- Theft detection - Identifies discrepancies between physical stock counts and electronic records, helping detect potential theft or loss
Critical Point: Poor stock control can lead to significant business problems including cash flow issues, customer dissatisfaction, and financial losses. Regular stock counts and accurate record-keeping are essential for business success.
Payment methods in purchasing
Differences between cash and credit payments
Understanding payment methods is crucial for effective purchasing management:
Cash payments refer to immediate payments made by cash or cheque for business purchases. These payments have an immediate effect on the company's cash flow, which means the business has less money available immediately after the purchase. However, cash payments often qualify for discounts from suppliers, helping reduce overall costs.
Credit payments allow businesses to purchase goods and services but pay for them at a future date. This creates assets (money owed to the business) or liabilities (money the business owes) on the company's financial records. While credit payments provide more flexibility, they typically cost more due to interest charges added to the final amount.
The National Credit Act (NCA)
The National Credit Act (NCA) is South African legislation introduced to provide both credit providers and consumers with clear guidelines about their rights and responsibilities. This Act applies to all businesses that offer credit to customers.
Definition: The NCA was introduced to provide both credit providers and credit applicants with clear guidelines regarding their rights and responsibilities, creating a more balanced and fair credit environment in South Africa.
Key purposes of the NCA:
- Promoting accessible credit markets for all South Africans
- Encouraging responsible buying behaviour among consumers
- Preventing over-indebtedness and ensuring fair treatment of both credit providers and consumers
- Addressing imbalances in negotiating power between consumers and credit providers
- Discouraging reckless (careless or irresponsible) credit granting by financial institutions
- Educating consumers about making informed credit decisions
- Providing guidelines for different types of credit transactions in South Africa
Consumer rights and credit provider responsibilities
Consumer rights under the NCA include:
- The right to apply for credit from registered providers
- Receiving information in their preferred official language
- Protection from unfair discrimination in credit applications
- Being given clear reasons when credit applications are refused
- Understanding all interest rates and costs before signing credit agreements
- Receiving copies of credit contracts and replacement copies when requested
- Access to debt counselling (professional financial help and advice for managing debt) when experiencing financial difficulties
Credit provider responsibilities include:
- Conducting proper credit assessments to ensure consumers can afford the debt
- Checking recent payslips or bank statements to verify consumer income
- Evaluating monthly debt-repayment obligations from existing credit agreements
- Considering all consumer expenses and existing debt repayment history
- Following responsible lending practices to protect consumers
Remedies and enforcement of the NCA
Several organisations help enforce the NCA:
The Consumer Tribunal reviews decisions made by the National Credit Regulator and the National Consumer Commission, providing an appeals process for disputed decisions.
National Consumer Commission promotes compliance with the NCA through advocacy (public support and promotion) and enforcement activities, while protecting consumer economic welfare.
Ombudsman services provide independent investigation and resolution of complaints from consumers about credit-related issues.
Impact of the NCA on businesses
Positive effects:
- Reduces bad debts, improving business cash flow
- Protects businesses from non-paying customers
- Increases cash sales as credit becomes more restricted to qualifying customers only
- Prevents irresponsible lending by financial institutions
- Ensures businesses pay their debts on time, helping them maintain good credit scores
- Creates transparent credit processes that benefit both businesses and customers
Negative effects:
- Forces businesses to maintain higher cash reserves for stock purchases
- Prevents businesses from selling lower-quality goods at high prices on credit
- Eliminates credit marketing as a sales strategy
- Reduces sales as many businesses no longer qualify for credit purchases
- Limits stock purchases due to reduced credit availability, potentially causing customer losses
- Increases administrative work in the credit approval process
- Requires purchasing departments to understand complex credit terms and NCA requirements
- May slow down purchasing processes, affecting overall business efficiency
- Forces businesses to maintain high product quality or face consumer protection consequences
Business Impact Alert: The NCA significantly affects how businesses operate their credit systems. Companies must ensure compliance to avoid penalties, but this may require additional administrative resources and changes to sales strategies.
The Consumer Protection Act (CPA)
Purpose and definition
The Consumer Protection Act was introduced to prevent consumer exploitation by businesses and ensure fair participation of previously disadvantaged individuals in the economy. This Act applies to all businesses selling goods and services to consumers in South Africa.
Legislative Purpose: The CPA was introduced to prevent consumers from exploitation by businesses, creating a more balanced marketplace where consumer rights are protected and businesses operate more transparently.
Key purposes of the CPA:
- Promoting responsible consumer behaviour
- Strengthening consumer rights and responsibilities culture
- Establishing national standards to protect consumers
- Creating the National Consumer Commission (NCC)
- Ensuring consumers access information needed for informed choices
- Providing guidelines for better consumer information and prohibiting unfair business practices
- Empowering consumers to take legal action when rights are violated
- Promoting consumer safety by protecting them from hazardous products (substances that could harm human health or the environment)
- Promoting fair and sustainable marketplaces
- Protecting consumers against unfair contract terms that limit supplier liability
Impact of the CPA on businesses
Positive effects:
- Protects businesses from dishonest competitors
- Provides protection when businesses are consumers themselves
- Prevents larger businesses from undermining smaller competitors
- May increase consumer loyalty through CPA compliance
- Enables fair resolution of disputes (disagreements or arguments) through official channels
- Helps build positive business reputation through consumer rights compliance
Negative effects:
- May expose confidential business information to competitors
- Imposes high penalties for non-compliance
- Creates additional administrative burden through legal processes
- Requires more detailed product and service information disclosure
- Necessitates staff training and legal consultation, increasing operational costs
Compliance Warning: Non-compliance with the CPA can result in significant penalties and legal consequences. Businesses must ensure they understand their obligations under this Act and implement appropriate systems and procedures.
The public relations function
Understanding public relations
The public relations function is responsible for maintaining positive relationships with all business stakeholders and ensuring effective communication between the business and its various audiences. This function focuses on creating and maintaining a good company image both inside and outside the organisation.
Public relations work involves managing how people perceive the business and ensuring that stakeholders have accurate, positive information about the company's activities and achievements.
Importance of public relations
Effective public relations provides numerous benefits for businesses:
- Media exposure - Businesses gain publicity for promotional events and important announcements through various media channels
- Crisis management - News conferences can be organised to address concerns and provide accurate information during difficult times, helping ensure business survival
- Community engagement - Employees may volunteer for community service projects like helping at orphanages, hospitals, or schools, creating positive community relationships
- Sponsorship opportunities - Businesses can sponsor community events, sports teams, or cultural activities to increase visibility and demonstrate community support
- Reporting and transparency - Annual reports help review business activities and achievements, building stakeholder confidence
- Information distribution - Brochures and other materials effectively share information about company products, services, and values
Stakeholder Management: Public relations is about building and maintaining relationships with all people who have an interest in your business - from employees and customers to suppliers and the local community. Strong relationships create business opportunities and provide support during challenging times.
Types of public relations
External public relations focuses on creating a positive company image and building awareness among people outside the organisation, including customers, suppliers, government agencies, media, and the general public.
Internal public relations concentrates on creating a positive company image and awareness among employees within the organisation, helping build team spirit, loyalty, and internal communication.
Methods of public relations activities
Media relations: Businesses use various media channels to gain publicity for promotional events and distribute information about their activities. This includes advertising and working with newspapers, radio, television, and online platforms.
Direct contact: Information about the business is shared directly with community members who have been previous clients or customers. This personal approach includes direct communication with employees and telephonic contact with stakeholders.
Brochures and printed materials: These provide an excellent and cost-effective way to distribute detailed information about products, services, and company values to target audiences.
Exhibitions and trade shows: Businesses participate in shopping centre displays and industry exhibitions to introduce themselves to potential customers and meet existing clients in person.
Social responsibility: Companies support their communities through various programmes, recognising that community support often translates into customer loyalty and business success.
Transit advertising: Businesses advertise on public transport vehicles like taxis, buses, and delivery vans to reach mobile audiences throughout the community.
Telephone communications: When potential customers phone with enquiries, professional and helpful responses can convert interested individuals into permanent customers, making every phone interaction a public relations opportunity.
Networking: This popular form of public relations involves building professional relationships where clients and customers can have direct contact with company employees. Business representatives attend networking events to promote products and services while building valuable professional connections. Companies may also incorporate corporate social responsibility initiatives into their networking activities to promote positive community relationships.
Worked Example: Comprehensive PR Strategy
A local bakery wants to improve its public relations:
External PR activities:
- Sponsor a local school's sports day (community engagement)
- Advertise on local taxi routes (transit advertising)
- Display products at the local shopping centre (exhibitions)
- Distribute flyers about daily specials (brochures)
Internal PR activities:
- Monthly staff meetings to discuss goals and achievements
- Employee recognition programmes for outstanding service
- Team building activities to improve workplace relationships
Result: Increased community awareness, improved employee morale, and higher customer loyalty
Key Points to Remember:
- The purchasing function manages the entire process of buying materials and services, from identifying needs to distributing stock to relevant departments
- Stock control is essential for financial management, customer satisfaction, and preventing theft or waste in business operations
- The National Credit Act protects both consumers and businesses by regulating credit transactions and promoting responsible lending practices
- The Consumer Protection Act prevents exploitation and ensures fair business practices, though it requires careful compliance to avoid penalties
- Public relations maintains positive stakeholder relationships through various communication methods, supporting both external reputation and internal team building
Success depends on: Understanding legal requirements, maintaining strong supplier relationships, implementing effective stock control systems, and building positive stakeholder relationships through consistent communication and community engagement.