Purchasing Cycle &

Fundamentals
 Functions of Purchasing Dept.
• Scrutinizing purchasing indents and deciding
suitable method of buying.
• Sending enquiries , Processing quotations,
conducting negotiations, and releasing P.O.
• Pre-delivery Follow up & Shortage chasing.
• Co-ordination with inward inspection .
• Endorsing suppliers invoices for payments.
 Functions of Purchasing Dept.
• Locating, Selecting and developing
qualified source of supply.
• Processing suppliers request for price
increases.
• Disposal of scrap ,obsolete, and surplus
materials.
• Vendor analysis , visits,& vendor rating.
 Purchasing cycle

Identify Need

Choose a Procurement Method

Evaluate Offers

Select Supplier & Specify Terms

Release P.O

Monitor Order Status

Make Payment
 Common Procurement Method

• Buying according to Requirement

• Scheduled Buying
• Forward Buying
• Contract Buying
• Blanket orders
• Tender buying
Common Procurement Documents

• Purchase Requisition
• Request for Quotation (RFQ)
• Request for Bid (RFB)/(IFB)
• Request for Proposal (RFP)
• Request for Information (RFI)
• Purchase Order
 Purchase Requisition

• A purchase requisition is an authorization

for a purchasing department to procure
goods or services.
• It is originated and approved by the
department requiring the goods or
services.
• Typically, it contains a description and
quantity of the goods or services to be
purchased, a required delivery date
 Request for Quotation (RFQ)
• This is a flexible and expeditious method
for acquiring goods & services.
• RFQ’s are generally used for items of
lesser value.
• RFQ’s is used where formal discussions
aren't required with suppliers.
• Price is generally the main or only factor
in selecting the supplier.
 Request for Quotation (RFQ)
• Expected Supplier’s Response:

“ Quotes” should

• completely conform to the RFQ requirement

• Include a firm Price.

• Include delivery time
 Request for Bid (RFB) or Invitation for Bid(IFB)

• The RFB method is the formal & more systematic

method of acquiring goods & services.
• In this method a document issued to prospective
bidders to obtain pricing for a specified quantity of an
identified product or service.
• Specification are detailed & negotiation is not allowed
• Contract award is based on the lowest price received
from a responsive & responsible bidder.
 Request for Bid (RFB) or Invitation for Bid(IFB)

• A responsible bidder should :

• Submit the bid on or before the published date and
time of receipt at the purchase office.
• As price is the sole determinant in making an award, the
bidder should do enough research before quoting the
Price.
• Note :Request for Bid is Used When Lots
of competition exists.
 Request for Proposal (RFP)
• The RFP method is used when importance of
technical considerations dictates the contract
award.
• RFP is issued to prospective supplier requesting a
"best solution" based on specifications and a
defined scope of work.
• Unlike RFB, in a RFP the requirement is generally
expressed in terms of performance specification &
required outcome.
• Factors other than price are evaluated .
 Request for Proposal (RFP)
A responsible bidder should :
• Prospective supplier is expected to
provide innovative ideas .
• As, RFP allows for negotiations in order to
obtain the best value, customized
proposals suggesting different approaches
to the same business need, should be put
forward at the time of negotiation.
Request for Information (RFI)
• A RFI is a proposal requested from a potential
seller or a service provider to determine what
products and services are potentially available in
the marketplace to meet a buyer's needs and to
know the capability of a seller in terms of
offerings and strengths of the seller .
• RFIs are commonly used on major
procurements, where a requirement could
potentially be met through several alternate
means.
Request for Information (RFI)
A responsible Supplier should:
• give input into the RFI document based on
current industry practices and market
factors.
• These inputs can help customers in pre-
qualifying vendors and assist in the
development of either an RFQ or RFP.
 P.O
• A purchase order (PO) is a commercial document
issued by a buyer to a seller, indicating the type,
quantities and agreed prices for products or services the
seller will provide to the buyer.

• Sending a PO to a supplier constitutes a legal offer to

buy products or services.

• POs usually specify terms of payment, incoterms for

liability and freight responsibility required delivery date,
and specifications and reference or part numbers of the
items to be purchased, with quantities and prices.