Management of Procurement Cost in Commercial (Trading) and Manufacturing Enterprises

Purchasing function is, along with a sale, one of the most important functions of every commercial (trading) company. Management of procurement is related to selection and number of suppliers, policy relations with them, setting of purchasing (procurement) quotas as well as to methods and types of payments. The role of procurement in relations between suppliers and buyers has been changing with market developments. Purchasing is no longer just a passive function for selecting the best suppliers to send orders to, but it establishes partnership relations with suppliers. The objectives of procurement function, among others, are timely and safe delivery, professional relationships with suppliers, product quality, inventory optimization and cost reduction. Due to strong competitive pressures in the markets where they operate that limit the possibility of significant influence on individual forming of selling prices of goods and services, commercial (trading) companies are forced to find appropriate methods to reduce their operating costs. One of the business areas where a company can realize cost reductions is procurement. The complexity of business operations and market relations are influencing the value of costs of procurement of goods and services that represent a significant share in the sales value of commercial companies. In order to reduce and control procurement costs, enterprises must develop and implement appropriate cost management systems. Reducing procurement costs can be achieved in two key areas, namely in the area of prices of procurement objects and in the area of cost reduction of procurement function. Traditional approach of procurement cost management, which is oriented on management of prices of procurement objects and for which needed information is supplied by financial accounting, is not suitable to actual needs of the enterprises. Therefore, it is necessary to develop appropriate contemporary cost management models that are based on information of management accounting and, in general, of management information systems, in order to increase the profitability of commercial enterprises.