Purchasing is a basic business activity. It can be defined as the acquisition of some kind of property or services and the giving of an accept price or consideration in return.
It is the basic philosophy of the purchasing department that all dealing must reflect the highest ethical standards and personal integrity. The best interests of Southern Pacific are and must be the only consideration.
The purchasing department is responsible for the acquisition or procurement of rolling stock, equipment (automotive, roadway, shop, and so on), maintenance materials, and supplies, as well as certain specified services. These functions are performed by means of contractual arrangements, direct purchases, or a combination of both. It is also responsible for storage, handling, and distribution of materials, inventory control, purchase research, material standardization, inspection of forest products, as well as being accountable for establishing and administering policies and procedures to promote sound material management objectives. Disposition by sale of scrap, surplus, and obsolete or retired equipment is also a responsibility of the department.
The department must establish and maintain sources of supply for competitive pricing in acquiring suitable equipment, material, supplies, and certain services necessary for Southern Pacific’s operations which, considering all factors involved, will result in the lowest ultimate cost to the Company.
Purchasing policy requires the development of maximum qualified competition and, subject to patent limitations, to have several active potential suppliers for each commodity, as well as active competition when sales of scrap or other commodities are undertaken. This gives assurance of fair prices on either purchases or sales and builds good will in a wider circle of contracts.
It is the function of this department to obtain all quotations for purchase, lease, or for preparing estimates to obtain necessary authority of approval.
Submission of alternate quotations is encouraged if vendors have knowledge of substitute materials, equipment, or services which may be better adapted to Southern Pacific’s needs and perhaps result in a lower price.
All quotations received, except where legal requirements provide otherwise, are kept in strictest confidence and not divulged to competitors. We expect bidders to submit their best price and stand on that basis, unless there is obvious evidence of error.
Minimum inventories of material and supplies are carried to protect continuity of operations, consistent with good purchasing practice. The purchasing department neither buys nor sells speculatively.
The department’s officers and employees have the responsibility of complying with all applicable government laws and regulations. These personnel must not and will not knowingly violate or evade the statutes or procedures of any governmental body or agency.
The responsibility for conducting and concluding negotiations affecting leases, purchases, prices, deliveries, terms or conditions in the acquisition of materials, supplies, and equipment also rests with the purchasing department.
Many items of equipment or material offered require careful evaluation, engineering, or other analysis to determine what is most suitable for the Company’s needs. In such cases, the other departments of Southern Pacific are given the opportunity to review and present their recommendations.
The routing of shipments, legal questions, tax, insurance, and accounting matters are all subjects which require handling with the various departments of the Company.
The policy of having material delivered directly to users, often from local sources, does not relieve joint responsibility to protect Southern Pacific’s interest from possible financial loss due the acceptance of inferior materials, damaged materials, non-receipt of all material purchased, any malfunction of machinery, or other problems that may occur with respect to anything covered by a purchase order or agreement. Beyond the financial loss factor that could be involved, acceptance of substitute materials could conceivably impact the proper functioning of a certain item of equipment, compromise accepted safety standards, or result in the use of a higher priced material than is actually required for the particular job.