PURCHASING

MANAGEMENT

OVERVIEW

Purchasing
Objectives of Purchasing
Principles of Purchasing
Functions of Purchasing
Department.
Methods of Purchasing
Steps in Purchase Procedure.

PURCHASING
Purchasing refers to a business or
organization attempting to acquire goods or
services to accomplish the goals of the
enterprise.
All production firms have the need of supplies
of materials and services from external
sources. Purchasing function may include the
purchase of raw material, spare parts.
The chief function of the Purchasing manager
is to satisfy the materials and supplies related
to requirements of other depts. This is done in
accordance with the mission, purpose, goals &
objectives of the firm.

The key issues involved in purchasing

are:Quantity
Quality
Time
Place

OBJECTIVES OF
PURCHASING

Purchase of satisfactory material.

Proper negotiations with suppliers.
Co-ordination with other departments.
Timely deliveries.
Continuous and regular supply.
Minimized wastages.
Quality
To control the qty. of material
Information about new material and processes,
which can reduce the cost of production and
improve the performance of the product.

PRINCIPLES OF
PURCHASING
RIGHT
QUALITY

RIGHT
SOURCE

RIGHT
QUANTITY

PRINCIPLES

RIGHT
PLACE

RIGHT
PRICE

RIGHT
TIME

FUNCTIONS OF
PURCHASING
DEPARTMENT

1. Processing the
requisition:-

Purchase requisition
No.
S.No Qty
Qty. and
Reqd Other
details of
the item
Required By

Date..
Price Suggest Balanc
ed
e in
Supplier stores
Authorized By...

2. Location and Choice of

suppliers:-

Some guiding factors for the

choice of supplier

Reliability of Supply:- Past performance

specially in the time of crisis as well as
sound financial position of a supplier
classifies him to be reliable.
Assurance of timely delivery
After sales service
Attitude with regard to the goods
rejected by the purchaser
Technical assistance

3. 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
_____________
Order No

Date

Description of item
PRICE
Date of Supply
Other reqds
Signature.

As a rule original copy is sent to the

supplier, one copy is retained by the
purchase department and one copy
is sent to the concerned department
requiring the ordered items.

4. Follow-up or progressing the

purchase orders:Receiving the ordered material at the
right time is most important for an org.
Late deliveries can close the enterprise.
For this follow up the purchase order
after waiting for some reasonable time is
essential. The priority of follow-up
operations should be given according to
the importance or classification of items
e.g. A class items are to be given top
most priority.

5. Invoices received from suppliers are checked

and verified with order specification
6. Delay in availability of requisitioned material
should be conveyed to concerned departments
in time.
7. To maintain records regarding suppliers , their
performance in past, products with them,
probable delivery period for each order etc.
8. To dispose off outdated and scrapped items.
9. Control stores operation of receiving the items
from vendors and issuing it to concerned
department of the organisation.
10. To handle damages and demurrage claims.

METHODS OF
PURCHASING
1.

2.

3.
4.
5.
6.

Purchasing according to
requirements.
Purchasing for some definite future
period.
Market Purchasing.
Speculative Purchasing.
Contract Purchasing.
Scheduled Purchasing.

PURCHASING ACCORDING TO THE

REQUIREMENTS:
This method is appropriate for those items
which are not of regular and common use in
the production process. These items are
generally not stored in inventories. And
Purchasing department should keep a record
of reliable and trustworthy suppliers who
were sincere to the organisation in past .

PURCHASING FOR SOME DEFINITE

FUTURE PERIOD:
This method of purchasing is generally
used for those items, which are regularly
consumed, but the consumption is
comparatively low and the price changes
for these items are not much.

MARKET PURCHASING:
Purchase of goods usually in smaller
quantities or in an emergency without
contract or negotiations.

SPECULATIVE PURCHASING:
When purchasing is done purely from the
point of view of taking advantage of a
speculated rise in price of the commodity.
The intent is not to buy for the internal
consumption but to resell the commodity at a
later date when the prices have gone up & to
make a profit by selling.
The items may be those that are needed for
internal consumption but the qty. shall be
much more than the requirement so as to take
the advantage of the coming price rise.

CONTRACT PURCHASING:
In this, the purchase department enters into
agreement with various suppliers to supply the items
at some future period periodically.
In contract purchasing, a purchaser agrees to buy
goods to be paid for in a series of installments, each
comprising a proportion of the capital and an interest
element.
After a final payment, legal ownership passes to the
user.

SCHEDULED PURCHASING:
The purchasing is scheduled according to
the requirements of the various
departments or of the organisation.

STEPS IN PURCHASE
PROCEDURE
1.
2.

3.

4.
5.

Various departments are requested to send their

requirements on a proper requisition form.
Purchasing dept. consolidated the requirements from
various departments to know the total requirement
for each item.
Market exploration is made to locate the goods and
services of desired quality and quantity at the
reasonable price.
Potential suppliers are identified from catalogues,
quotations and past records.
Purchase order in specified form is prepared and sent
to the approved suppliers. Purchase order is the
commitment of the buyer to the supplier establishing
a contractual relationship between buyer and seller.

6. After some time of placing the order,

follow up process starts to get quickly
delivery of the items.
7. Items received are compared with
purchase order.
8. Defective items i.e. items which are
not in accordance with the
specifications laid down in the
purchase order are returned to the
supplier on credit note of exchange.