Purchase Policy

Purchasing is responsible for obtaining the materials, parts, supplies, and services needed to produce a product or provide a service. In manufacturing, upward of 60 percent of the cost of finished goods comes from purchased parts and materials. The percentage for purchased inventories is even higher for retail and wholesale companies, sometimes exceeding 90 percent. The importance of purchasing is more than just the cost of goods purchased; other important factors include the quality of goods and services and timing of deliveries of goods and services, both of which can have a significant impact on operations. The goal of purchasing is to develop and implement purchasing plans for products and services that support operations strategies. Among the duties of purchasing are identifying sources of supply, negotiating contracts, maintaining a database of suppliers, obtaining goods and services that meet or exceed operations requirements in a timely and cost- efficient manner, and managing suppliers. Thus, purchasing select suppliers, negotiates contracts, establishes alliances, and acts as liaison between suppliers and various internal departments. Purchasing is taking on increased importance as organizations place greater emphasis production, on supply chain management, Moreover quality improvement, to business lean and outsourcing. business buying

relationships are changing.

Purchasing Interfaces
Purchasing has interfaces with a number of other operating areas, as well as with outside suppliers. Purchasing is the connecting link between the organization and its suppliers. In this capacity, it exchanges information with suppliers and functional areas.

The Purchasing Cycle
It is a series of steps that begins with a request for purchase and end with a notification of shipment received in satisfactory condition. The main steps in the cycle are these:
1. Purchasing receives the requisition. The requisition includes (a) a

description of item or material desired, (b) the quantity and quality necessary (c) desired delivery dates, (d) who is requesting the purchase.
2. Purchasing select a supplier. The purchasing department must identify

suppliers who have the capability of supplying desired goods. If no suppliers are currently listed in files, new ones must e sought. Vendor ratings may be referred to in choosing among vendors.
3. Purchasing places the order with a vendor. If the order involves a large

expenditure, particularly for a one time purchase of equipment, for example, vendors will usually be asked to bid on the job and operating and design personnel may be asked to assist in negotiations with a vendor. Large-volume, continuous-usage items may be covered by blanket purchase orders, which often involve annual negotiation of prices with deliveries subject to request throughout the year. Moderate-volume items may also have blanket purchase orders, they may be handled on an individual bases. Small purchases may be handled directly between the operating unit and the supplier.
4. Monitoring orders. Routine follow-up on orders, especially large orders

or those with lengthy lead times, allows the purchasing department to project potential delays an relay that information to the operating unit. Conversely, the purchasing department must communicate changes in quantities and delivery needs of the operating unit to suppliers to allow them time to change their plans.

5. Receiving orders. Receiving must check shipments for quality and

quantity. It must notify purchasing, accounting, and the operating unit that requested the goods. If the goods are not satisfactory, they may have to be returned to the supplier or subjected to further inspection.

Centralized Versus Decentralized Purchases
In centralized purchasing, purchasing is handled by one special department. It may be able to obtain lower prices than decentralized units if the higher volume created by combining orders enables it to obtain quantity discounts offered on large orders. It may also be able to obtain better service and closer attention from suppliers. In addition, centralized purchasing often enables companies to assign certain categories of items to specialists. In decentralized purchasing, individual departments handle their own purchasing requirements. It has the advantage of awareness of differing local needs and being better able to respond to those needs. It usually can offer quicker response than centralized purchasing.

Ethics in Purchasing
Here are some principles and standers of ethics in purchasing: Principles:
(1) Loyalty with employer. (2) Justice to those you deal with. (3) Faith in your profession.

Standards of Purchasing Practice:
(1) Avoid appearance of unethical or compromising practices.

(2)Follow the lawful instructions of your employer. (3)Refrain from private activities that might conflict with your employer’s interest.

(4)Refrain from soliciting or accepting gifts, favors, or services from present or potential employers. (5)Handle confidential or proprietary employer or supplier information with due care. (6)Practice courtesy and impartiality in all aspects of your job. (7)Refrain from reciprocal arrangements that constrain competition. (8)Know and obey the letter and spirit of laws governing the purchasing.

Supplier Management
Reliable and trustworthy suppliers are a vital link in an effective supply chain. Timely delivery of goods or services and high quality are just two of the ways that suppliers can contribute to effective operations. A purchasing manager may function as an”external operation manager,” working with suppliers to coordinate supplier operations and buyer needs. Choosing Supplier In many respects, choosing a supplier involves taking into account many of the same factors associated with making a major purchase. A company considers price, quality, the supplier’s reputation, past experience with suppliers, and service after the sale. Because different factors are important for different situations, purchasing must decide, with the help of operations, the importance of each factor, and then rate potential vendors according to how well they can be expected to perform against this list. Supplier Audits Periodic audits of suppliers are a means of keeping current on suppliers’ production capabilities, quality and delivery problems and resolutions, and suppliers’ performance in other criteria. If an audit reveals a problem area, a buyer can attempt to find a solution before more serious problem develops.

Supplier certification Supplier certification is a detailed examination of the policies and capabilities of the supplier. The certification process verifies that a supplier meets or exceeds the requirements of buyer. This is generally important in supplier relationship, but it is particularly important when buyers are seeking to establish a long-term relationship with suppliers. Rather than developing their own certification program, most companies rely on standard industry certification such as ISO 9000. Supplier Relationships Purchasing has the ultimate responsibility for establishing and maintaining good supplier relationships. The type of relationship is often related to the length of contract between buyers and sellers.

Supplier partnerships More and more business organizations are seeking to establish partnerships with other organizations in their supply chains. This implies fewer suppliers, longer-term relationships, sharing of information, and cooperation in planning. Among the possible benefits are higher quality, increased delivery speed and reliability, lower inventories, lower costs, higher profits, and in general, improved operations.

Sources of Labor Supply
Following are some sources of labor supply for the company: 1) Persons Already Employed: (a) Cumulative promotion (b)Promotion purpose (c) Temporary employees to permanent 2) Unsolicited Applications: (a) Emergency needs (b)Temporary basis
3) Educational institutions:

(a) Fresh mind persons (b)Job trainees (c) Carrier jobs 4) Recommended by Labor Unions: (a) Lower category (b)Temporary appointment 5) Employment Agencies: (a) Middle management (b)Emergency requirements
6) Advertisement and Selection:

(a) For high post (b)Standards
(c) Fair compitition

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