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 RIGHT
SOURCE QUANTITY

PRINCIPLES

RIGHT RIGHT
PLACE PRICE

RIGHT
TIME
 FUNCTIONS OF PURCHASING
DEPARTMENT
1. Processing the
requisition:-

Purchase requisition
No………. Date………..
S.No Qty Qty. and Price Suggest Balanc
Reqd Other ed e in
details of Supplier stores
the item
Required By……… 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
_____________ Date……
Order No……

Description of item
PRICE
Date of Supply…… Other reqd’s
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. Purchasing according to requirements.
2. Purchasing for some definite future period.
3. Market Purchasing.
4. Speculative Purchasing.
5. Contract Purchasing.
6. 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. Various departments are requested to send their requirements
on a proper requisition form.
2. Purchasing dept. consolidated the requirements from various
departments to know the total requirement for each item.
3. Market exploration is made to locate the goods and services of
desired quality and quantity at the reasonable price.
4. Potential suppliers are identified from catalogues, quotations
and past records.
5. 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.