BHARATI VIDYAPEETH’S COLLEGE OF ENGINEERING, KOLHAPUR

CASE STUDY: PURCHASING ACTIVITIES
Introduction
Purchase Management is a function of materials management in a company. Their basic function is procuring the inputs for production function. This function encompasses suppliers in the market external to the organization and several internal to the organization. Till recently, the purchasing process simply involved placing an order with the supplier who offered the lowest price. Nowadays, increase in competition and market demand and scarcity of resources have forced organizations to reexamine their purchasing activities. The purchasing department functions have expanded considerably and include activities such as verifying the credentials of suppliers, inspecting the quality of the material to be purchased, ensuring the timely delivery of the material, etc. While the value of purchased items varies from industry to industry, it adds up to more than fifty percent of sales in all industries. Purchase management is regarded as a significant activity in many organizations because of the high cost involved in carrying out purchasing activities, increasing quality benchmarks, and increasing global competition. Purchase departments buy raw materials, parts, machinery, and services used by production systems. The objective of purchase management is to procure the right equipment, materials, supplies and services in the right quantity, of the right quality, from the right suppliers, at the right time, at the lowest price. OBJECTIVES OR GOALS OF PURCHASING Primary objective or goal of purchasing function is making inputs available to the conversion process at minimum cost to the final output of the company. Thus focus is on system output rather than on micro level objectives. The inputs to be made available are raw materials, semi finished items, bought out items etc. There are certain parameters to be monitored for fulfilling the system objectives. We can call them goals of purchasing. These goals are popularly known as 5R’s of purchase namely, right price, right quantity, right quality, right place and right time. In simple terms, if the above 5Rs are
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Principles normally used to ensure right price are cost structure and learning curve.BHARATI VIDYAPEETH’S COLLEGE OF ENGINEERING. Right price is determined by allowing reasonable profit for the supplier and insisting and helping to reduce cost. when needed. • Right Place: is the one where the item is going to enter the value stream. • • • Pre purchasing Purchase order Post purchasing Steps involved in Purchasing A. The accepted standard may be a drawing. it is in short supply for the process. Pre-Purchase activities: 1. a sample. ASTM etc. KOLHAPUR achieved primary objective is fulfilled:• Right Price: Right price is determined by costing the production process of the supplier. Recognizing need 2. IS. Tender system should be used to identify lowest responsible bidder rather than lowest bidder. THE PROCESS OF PURCHASING The purchasing process mainly carried out in three segments. • Right Quantity: Right quantity of purchase is the one that ensures no excess and no shortage. • Right Time: is as decided by production schedule for meeting customer’s requirements. If the item is not available here. BS. a grade or a universal standard like DIN. • Right Quality: In an item purchased should ensure adhering to mutually accepted standard by supplier and customer at the time of finalizing the purchase order. This ensures overall minimum cost for inventory. Purchase requisition(PR) Case Study: Purchasing Activities Page 2 . High priority items are subjected to determine the right quantity for purchase.

C. The purchasing requisition contains the following: Name of requestor The planned use of the item. Qualifying and placing an Purchase Order(PO) 10. Page 3 Case Study: Purchasing Activities . Monitoring and managing delivery process. The specification of the item. it informs the purchasing department. Finalize the quotations B. Post Purchase Activities 11. Analyzing the quotations 8. 2. Make copies of PR as per department requirement 4. A form called as “purchase requisition” is filled by the production/planning department and forward to the purchasing department. Invoice checking 14. Follow up procedures 12. So first need can be recognized for placing the order. Getting the quotations from supplier 7. Detailed Analysis of Purchasing activity Recognizing the need: All departments need to buy something or the other. 5. Getting Order Acceptance(OA). Identifying a supplier. Purchase Order 9. Send copies of PR to supplier 6. Purchase requisition: 1.BHARATI VIDYAPEETH’S COLLEGE OF ENGINEERING. KOLHAPUR 3. Whenever a department needs an item (material). Receipt 13.

(b) Department use: …………………… (c)To stock: …………………………………… Sr. (Date). Part II is for storekeeper for onward transmission.BHARATI VIDYAPEETH’S COLLEGE OF ENGINEERING... Expected of purchase. (place) Address of probable supplier ………………………………………………………… Signature Production/Planning Manager ………………………………………………………………………………………………………… ………………………………………………… 2. Hence 3-6 copies are made as per department requirement. Requisition No…………………. For the use of Purchase/Inspection section Same copy is also Sent to the supplier. Date…………………… Shop: ……………………………… Required for 1. KOLHAPUR Number of units. Part I is filled by the production or planning department. Tentative price per unit. For quick purchasing and monitoring the work of purchase section should maintain the addresses of probable suppliers who can supply these materials. it is filled by storekeeper in remaining 2 copies and he reports on it whether the required material is available in the store or not. If the storekeeper also wants this Case Study: Purchasing Activities Page 4 . at ……………………. (a)Work order no: ………………………. Report Of store Keeper Signature StoreManager ………………………………………………………………………………………………………… ………………………………………………… 3.no Description Specific Quantity Approx Of material ation cost Remarks if any Delivery Required by ………………….

2. Closed Tenders Getting the quotations from supplier. There are two types of tenders: 1.T (Notice inviting tenders) to the concerning suppliers. Open Tenders 2. If necessary prepare and issue N. Finalize the quotation in terms of quality. they’ll make the necessary arrangement for purchases. mentioning different terms. COMPARATIVE STATEMENT Date of issue of N. If the material to be purchased is of small amount and required urgently it may be purchased locally. date and time of the opening and closing of tenders. Analyzing and Finalize the quotations Open the tender/Offer/Quotation on the prescribed time on the prescribed date. Purchase manager releases the purchase order after selecting the supplier and finalizing the price and other conditions of sale. Once the purchase order is raised and accepted it becomes a legal document.T.I.I. Identifying a supplier and Send copies of PR to supplier: As per requirement prepare the list of suppliers who deal with the business of the articles to be purchased and are reliable. conditions. cost and other parameters. Qualifying and placing an Purchase Order(PO) 1. Case Study: Purchasing Activities Page 5 . Sr. terms and conditions mentioned in the tender and study them. Prepare a comparative statement of the rates. ………………….. KOLHAPUR material for stocking in store he adds demand also. Name of article with Specification Quantity Reqd Date of receipt of Tenders Firm/Vendor 1 Quoted value Firm/Vendor 2 Quoted value Terms and conditions comparison 1. …………………. Part III is for purchase section. no.BHARATI VIDYAPEETH’S COLLEGE OF ENGINEERING. Purchase order is the most important element in ordering system.

Scope of work. KOLHAPUR Contents of the purchase order are:Purchase order reference number Description of materials and specifications Quantity required and delivery schedule Price and discounts Shipping instructions Location where the material is to be shipped Signature of the authorized officer Detailed terms and conditions:It includes terms and conditions regarding payment. limitations and liabilities. Transportation. Original and a copy is sent to the supplier for acknowledgment of the original order. replies of Technical questionnaires. Several numbers of copies made to be forwarded to various recipients. This acknowledgment is acceptance of terms and conditions of purchase order. One copy is sent to the receiving department for making necessary receiving arrangement One copy is sent to the indenting department for information. Case Study: Purchasing Activities Page 6 . warranties.BHARATI VIDYAPEETH’S COLLEGE OF ENGINEERING. Many companies color code the copies making the color destination specific. One copy is sent to finance department for organizing payment to the supplier.

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The system ensures that inspection of consignments received is arranged in time and payment to suppliers for accepted consignments is organized. A material receipt is material received report. Follow up procedures 2. A copy of purchase order is present with the receiving department to check the materials received. quantity received. This record is in chronological sequence of arrival of supplies. receipt details. Invoice checking 4. Hence this should be minimized and made more effective. A systematic record of all receipts. inspection reports [accepted quantity and rejected quantity]. It is prepared and is sent to purchase department to inform that these are goods received and also for them to check and compare it with the purchase order. Delivery of Material receipt and material examination Material supplied by the vendor is received by the receiving department which unpacks the materials received and checks the quantities and conditions of the materials. damages etc. • Receipt: Receipt system should ensure that defects in receipt process are eliminated proactively. losses. • Invoice checking: supplier sends his invoice to customer’s finance department for payment for the goods supplied. this system helps materials management to coordinate with finance department for payment to suppliers. KOLHAPUR Post Purchase Activities 1. carrier details and descriptions is maintained. Monitoring and managing delivery process. A material receipt form is as under Case Study: Purchasing Activities Page 8 . Follow up responsibility is assigned to buyers responsible for areas in which suppliers are situated. Receipt 3. • Follow up procedures: Follow up is an expensive activity for an organization. In many organizations a receipt section handles this activity centrally. A sound procedure for follow up is required to eliminate duplication and ineffectiveness.BHARATI VIDYAPEETH’S COLLEGE OF ENGINEERING. Invoice checking system ensures that the invoice is checked against the PO terms.

BHARATI VIDYAPEETH’S COLLEGE OF ENGINEERING. A clearance report or rejection note is as under Entire work flow from initial stage to final stage will consist of Five Toll Gates Case Study: Purchasing Activities Page 9 . a part or whole of the consignment may be returned to the vendor with a request either for complete cancellation of the order or for replacement. KOLHAPUR Material examination All items. are inspected and sample tested to ensure that the purchase order specifications have been met or not. after they have been received. Results of the inspections & tests are indicated in the testing report. upon the basis of which a clearance report or rejection note is prepared and sent by the inspection department to purchase department In case of rejection.

KOLHAPUR 1st Toll Gate . Completion of Project and Feedback from Customer Flowcharts will graphically represent the steps making up the entire process.Vendor Selection / Evaluation 3rd Toll Gate.Delivery.Work Assessment / Understanding 2nd Toll Gate .BHARATI VIDYAPEETH’S COLLEGE OF ENGINEERING.Certificate of Conformance (CoC) form QA 5th Toll Gate .Release of Order (Clarity on Technical and Commercial conditions /requirements) 4th Toll Gate . Case Study: Purchasing Activities Page 10 .

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