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 _____________
Description of item PRICE Date of Supply

Date Order No

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.