2. OVERVIEWOVERVIEW
PurchasingPurchasing
Objectives of PurchasingObjectives of Purchasing
Principles of PurchasingPrinciples of Purchasing
Functions of Purchasing Department.Functions of Purchasing Department.
Methods of PurchasingMethods of Purchasing
Steps in Purchase Procedure.Steps in Purchase Procedure.
3. PURCHASINGPURCHASING
PurchasingPurchasing refers to a business or organizationrefers to a business or organization
attempting to acquire goods or services to accomplishattempting to acquire goods or services to accomplish
the goals of the enterprise.the goals of the enterprise.
All production firms have the need of supplies ofAll production firms have the need of supplies of
materials and services from external sources.materials and services from external sources.
Purchasing function may include the purchase of rawPurchasing function may include the purchase of raw
material, spare parts.material, spare parts.
The chief function of the Purchasing manager is toThe chief function of the Purchasing manager is to
satisfy the materials and supplies related tosatisfy the materials and supplies related to
requirements of other depts. This is done in accordancerequirements of other depts. This is done in accordance
with the mission, purpose, goals & objectives of thewith the mission, purpose, goals & objectives of the
firm.firm.
4. The key issues involved in purchasing are:-The key issues involved in purchasing are:-
QuantityQuantity
QualityQuality
TimeTime
PlacePlace
5. OBJECTIVES OF PURCHASINGOBJECTIVES OF PURCHASING
Purchase of satisfactory material.Purchase of satisfactory material.
Proper negotiations with suppliers.Proper negotiations with suppliers.
Co-ordination with other departments.Co-ordination with other departments.
Timely deliveries.Timely deliveries.
Continuous and regular supply.Continuous and regular supply.
Minimized wastages.Minimized wastages.
QualityQuality
To control the qty. of materialTo control the qty. of material
Information about new material and processes, which canInformation about new material and processes, which can
reduce the cost of production and improve the performance ofreduce the cost of production and improve the performance of
the product.the product.
7. FUNCTIONS OF PURCHASINGFUNCTIONS OF PURCHASING
DEPARTMENTDEPARTMENT
1.1. Processing theProcessing the
requisition:-requisition:-
Purchase requisitionPurchase requisition
No………. Date………..No………. Date………..
S.NoS.No QtyQty
ReqdReqd
Qty. andQty. and
OtherOther
details ofdetails of
the itemthe item
PricePrice SuggestSuggest
eded
SupplierSupplier
BalancBalanc
e ine in
storesstores
Required By……… Authorized By...…Required By……… Authorized By...…
8. 2.2. Location and Choice of suppliersLocation and Choice of suppliers:-:-
Some guiding factors for the choice of supplierSome guiding factors for the choice of supplier
Reliability of SupplyReliability of Supply:- Past performance specially:- Past performance specially
in the time of crisis as well as sound financialin the time of crisis as well as sound financial
position of a supplier classifies him to beposition of a supplier classifies him to be
reliable.reliable.
Assurance of timely deliveryAssurance of timely delivery
After sales serviceAfter sales service
Attitude with regard to the goods rejected by theAttitude with regard to the goods rejected by the
purchaserpurchaser
Technical assistanceTechnical assistance
9. 3.3. Placing orders:-Placing orders:-
All purchases should be made through a purchase order in
a specified form and duly signed by some authorized
person.
PURCHASE ORDER
To
_____________ Date……
Order No……
Description of item
PRICE
Date of Supply…… Other reqd’s
Signature…………….
10. As a rule original copy is sent to the supplier,As a rule original copy is sent to the supplier,
one copy is retained by the purchase departmentone copy is retained by the purchase department
and one copy is sent to the concernedand one copy is sent to the concerned
department requiring the ordered items.department requiring the ordered items.
11. 4.4. Follow-up or progressing the purchaseFollow-up or progressing the purchase
orders:-orders:-
Receiving the ordered material at the right timeReceiving the ordered material at the right time
is most important for an org. Late deliveries canis most important for an org. Late deliveries can
close the enterprise. For this follow up theclose the enterprise. For this follow up the
purchase order after waiting for some reasonablepurchase order after waiting for some reasonable
time is essential. The priority of follow-uptime is essential. The priority of follow-up
operations should be given according to theoperations should be given according to the
importance or classification of items e.g. ‘A’importance or classification of items e.g. ‘A’
class items are to be given top most priority.class items are to be given top most priority.
12. 5. Invoices received from suppliers are checked and5. Invoices received from suppliers are checked and
verified with order specificationverified with order specification
6. Delay in availability of requisitioned material should6. Delay in availability of requisitioned material should
be conveyed to concerned departments in time.be conveyed to concerned departments in time.
7. To maintain records regarding suppliers , their7. To maintain records regarding suppliers , their
performance in past, products with them, probableperformance in past, products with them, probable
delivery period for each order etc.delivery period for each order etc.
8. To dispose off outdated and scrapped items.8. To dispose off outdated and scrapped items.
9. Control stores operation of receiving the items from9. Control stores operation of receiving the items from
vendors and issuing it to concerned department ofvendors and issuing it to concerned department of
the organisation.the organisation.
10. To handle damages and demurrage claims.10. To handle damages and demurrage claims.
13. 1.1. Purchasing according to requirements.Purchasing according to requirements.
2.2. Purchasing for some definite future period.Purchasing for some definite future period.
3.3. Market Purchasing.Market Purchasing.
4.4. Speculative Purchasing.Speculative Purchasing.
5.5. Contract Purchasing.Contract Purchasing.
6.6. Scheduled Purchasing.Scheduled Purchasing.
METHODS OF PURCHASINGMETHODS OF PURCHASING
14. PURCHASING ACCORDING TO THEPURCHASING ACCORDING TO THE
REQUIREMENTS:REQUIREMENTS:
This method is appropriate for those items which areThis method is appropriate for those items which are
not of regular and common use in the productionnot of regular and common use in the production
process. These items are generally not stored inprocess. These items are generally not stored in
inventories. And Purchasing department should keep ainventories. And Purchasing department should keep a
record of reliable and trustworthy suppliers who wererecord of reliable and trustworthy suppliers who were
sincere to the organisation in pastsincere to the organisation in past..
15. PURCHASING FOR SOME DEFINITEPURCHASING FOR SOME DEFINITE
FUTURE PERIOD:FUTURE PERIOD:
This method of purchasing is generally used for thoseThis method of purchasing is generally used for those
items, which are regularly consumed, but theitems, which are regularly consumed, but the
consumption is comparatively low and the priceconsumption is comparatively low and the price
changes for these items are not much.changes for these items are not much.
16. MARKET PURCHASINGMARKET PURCHASING::
Purchase of goods usually in smaller quantities or in anPurchase of goods usually in smaller quantities or in an
emergency without contract or negotiationsemergency without contract or negotiations..
17. SPECULATIVE PURCHASINGSPECULATIVE PURCHASING::
When purchasing is done purely from the point of viewWhen purchasing is done purely from the point of view
of taking advantage of a speculated rise in price of theof taking advantage of a speculated rise in price of the
commodity.commodity.
The intent is not to buy for the internal consumptionThe intent is not to buy for the internal consumption
but to resell the commodity at a later date when thebut to resell the commodity at a later date when the
prices have gone up & to make a profit by selling.prices have gone up & to make a profit by selling.
The items may be those that are needed for internalThe items may be those that are needed for internal
consumption but the qty. shall be much more than theconsumption but the qty. shall be much more than the
requirement so as to take the advantage of the comingrequirement so as to take the advantage of the coming
price rise.price rise.
18. CONTRACT PURCHASING:CONTRACT PURCHASING:
In this, the purchase department enters into agreement withIn this, the purchase department enters into agreement with
various suppliers to supply the items at some future periodvarious suppliers to supply the items at some future period
periodically.periodically.
In contract purchasing, a purchaser agrees to buy goods to beIn contract purchasing, a purchaser agrees to buy goods to be
paid for in a series of installments, each comprising a proportionpaid for in a series of installments, each comprising a proportion
of the capital and an interest element.of the capital and an interest element.
After a final payment, legal ownership passes to the user.After a final payment, legal ownership passes to the user.
19. SCHEDULED PURCHASINGSCHEDULED PURCHASING::
The purchasing is scheduled according to theThe purchasing is scheduled according to the
requirements of the various departments or of therequirements of the various departments or of the
organisation.organisation.
20. STEPS IN PURCHASE PROCEDURESTEPS IN PURCHASE PROCEDURE
1.1. Various departments are requested to send their requirementsVarious departments are requested to send their requirements
on a proper requisition form.on a proper requisition form.
2.2. Purchasing dept. consolidated the requirements from variousPurchasing dept. consolidated the requirements from various
departments to know the total requirement for each item.departments to know the total requirement for each item.
3.3. Market exploration is made to locate the goods and services ofMarket exploration is made to locate the goods and services of
desired quality and quantity at the reasonable price.desired quality and quantity at the reasonable price.
4.4. Potential suppliers are identified from catalogues, quotationsPotential suppliers are identified from catalogues, quotations
and past records.and past records.
5.5. Purchase order in specified form is prepared and sent to thePurchase order in specified form is prepared and sent to the
approved suppliers. Purchase order is the commitment of theapproved suppliers. Purchase order is the commitment of the
buyer to the supplier establishing a contractual relationshipbuyer to the supplier establishing a contractual relationship
between buyer and seller.between buyer and seller.
21. 6. After some time of placing the order, follow up6. After some time of placing the order, follow up
process starts to get quickly delivery of the items.process starts to get quickly delivery of the items.
7. Items received are compared with purchase order.7. Items received are compared with purchase order.
8. Defective items i.e. items which are not in8. Defective items i.e. items which are not in
accordance with the specifications laid down in theaccordance with the specifications laid down in the
purchase order are returned to the supplier onpurchase order are returned to the supplier on
credit note of exchange.credit note of exchange.
