PURPOSE OF PURCHASE

1. MAINTAINING CONTINUITY OF SUPPLY

• Through multiple sourcing plus high stock,
but now with smaller number of carefully selected and nurtured suppliers with
low stock.
2. CONTRIBUTION TO COST REDUCTION
• Life cycle costing considering quality , reliability and Service element
• Partnership / closer relationship
3. MINIMISE LONG – TERM VULNERABILITY IN SUPPLY MARKET
• Understanding of environment ( Competition, structure of supply market,
technological change, barrier to entry)
• Greater insight into the characteristics of the purchase portfolio
4. INNOVATION IN PRODUCT / PROCESS
• Involving purchase at Research / Design Stage
• Associating Supplier in the team
5. PRESENTING THE COMPANY AS AN ATTRACTIVE TRADING
PARTNER
 TYPES OF PURCHASE
Purchasing is done for resale (trading) and for conversion /consumption
(manufacturing firms/ institutions ) .
TYPES OF PURCHASE
 CASH PURCHASE
Small / emergency / non – standard items
 PURCHASE BY TENDER OR BIDS
Tenders are offers to carry out work or supply of goods at stated price.
• Open tenders, generally resorted to by government organizations .
• Closed tenders , tenders are sent to limited suppliers, previously identified.
Lowest or otherwise best is selected . Purchased order is issued.
Depending on terms of purchase, purchase orders are variously known as:
 RATE CONTRACT
- For regularly needed items, rate is fixed for a period. Quantity as per need.
- Delivery order is raised by user / store.
- Each order is for one item.
 ANNUAL ORDER
Placing order for entire year with specified delivery schedule and quantity
( Example: 1200 t of sand per annum to be delivered in a lot of 100t each
month).
 BLANKET ORDER ( Similar to rate contract)
One order will include orders for many items (Example: stationery).
 STOCKLESS PURCHASE
Stock is maintained by supplier either inside user’s premises or next door .
STEPS IN PURCHASING SYSTEM
1. PURCHASE REQUISITION / INDENTING
* Identification of a need: What, How much & When
* Prepare product specification
* Prepare purchase requisition
2. SELECTION OF SUPPLIER
* Historical Records, Internet, purchase manual, etc.
* Raise Request for Quotation (RFQ)
3 ORDERING: PRICING, TERMS AND CONDITIONS AND
PLACEMENT OF PURCHASE ORDERS
4. FOLLOW –UP
Internal follow-up: This includes follow-up with departments like stores,
finance, inspection , and user departments.
External follow-up: This is concerned with external agencies including
suppliers, transporters, banks, etc.
Methods of follow-up include letter, telegram, telephone call, e-mail and
personal visit.
5. SUPPLIER MANAGEMENT: SUPPLIER RELATION,
DEVELOPMENT AND EVALUATION
6. MAINTENANCE OF RECORDS
 PURCHASE DESCRIPTION
• Heart of procurement. It describes a product in terms of design
characteristics such as dimensions, weight, surface finish, shape,
physical/ chemical properties and performance which influence
product quality.
 Quality is some total of inherited properties including functional,
aesthetics or sensory (sound, feel, look etc ), reliability, durability
and maintainability.
 In purchasing, quality is related with suitability and cost. Fulfillment of
need at the lowest cost is the best quality .

PURPOSE OF PURCHASE DESCREPTION

• Communicate to buyer what to buy.
• Communicate to supplier what is required.
• Serve as basis for Purchase order.
• Standard for inspection, tests and quality checks.
 CATEGORIES OF PURCHASE SPECIFICATION
 Detailed Specifications.
 Other Specifications.
APPROACHES TO DEVELOP BALANCED SPECIFICATION.
 EARLY PURCHASE AND SUPPLIER INVOLVEMENT.
 FORMAL COMMITTEE APPROACH
Team includes: design, production, purchasing, marketing, operation, quality and
standard.
 INFORMAL APPROACH
Buyer can question specification. His advise is sought by design.
 THE PURCHASING CO – ORDINATOR APPROCH
Materials engineers liaise with design deptt. He works full time with design, to identify
purchasing problems.
 TYPES OF DETAILED SPECIFICATIONS
• COMMERCIAL STANDARD
• DESIGN SPECIFICATION
• MATERIAL AND METHODS OF MANUFACTURING SPECIFICATION
COMMERCIAL STANDARD: It is complete description of the item and includes:
- Dimensions
- Physical and chemical properties
- Performance
- Aesthetics: appearance, finish, colour, weight, etc.
-Workmanship to be used in manufacturing
- Method of testing both material and workmanship.
• Commercial standards are corner stone for mass production and standard
of living .
• National trade associations, standard associations, engineering societies, federal
govts and national testing societies contribute to development of standard
specs/ standard method of testing .
• Commercial standards are applicable to : Raw materials , Fabricated items ,
parts / components / sub assemblies .
• Features of standard items are:
- Highly Competitive
- Readily available at reasonable prices.
- Have multi – users.
- Produced to stock
- Inspection is moderately expensive
Commercial standards to be used freely in design. They simplify
design , purchase procedure, inventory management and contribute to cost
reduction.
DESIGN SPECIFICATION
 A large number of firms prepare their own specifications. These are referred
to as design specifications.
 Issues with such specifications:
- Responsibility for parts, fitting and functioning rests with the buyer. -
The cost of inspection to assure compliance can be high.
ENGINEERING DRAWINGS (Part of Design specification)
- It is most accurate method to describe precise shapes, dimensions and spatial
relationships.
- Used extensively in following cases:
* Construction projects
* Foundry and machine shop work
* Special mechanical parts / components.
 ADVANTAGES
* Accurate and precise
* describing items with close tolerance
* Permit wide competition
* Provide clear standard for inspection.
 MATERIALS AND METHODS OF MANUFACTURE SPECS
 Suppliers are instructed precisely as to the specific materials to be used and
how they are to be processed.
 Buyers assume full responsibility for product performance.
 Practiced by armed services, large buyers of paints / steels.
 Specification preparation and inspection are expensive.
 Advantage: Widest competition and thus good price.
OTHER SPECIFICATION
PERFORMANCE SPECIFICATION
- It describes in words / quantitatively where possible, what the item is
required to do.
- Where used: Buying highly technical military and space products .
Example: A missile launched from a submarine with a designated speed,
range and accuracy . Polar Satellite Launch Vehicle (PSLV)
- ADVANTAGE S
* Ease in preparing specs.
* Assurance of obtaining the precise performance desired
FUNCTION AND FIT SPECIFICATION
It describes function to be performed and the larger system where item is to fit along
with several design objectives (cost, weight, reliability). Example: AC in a car .
BRAND OR TRADE NAME
Product is described by a brand name. Example: Tiscon Bar
Advantage / Disadvantage:
• Simple to describe.
• Save purchasing time and expense.
• Inspection expense is low.
• It eliminates competition, entailing higher price.
SAMPLES
• Lazy persons method of describing requirement.
• It should be used if other methods are not feasible.
• This method is used for Color, textures, printing and grading of commodities like
wheat, corn, cotton etc.
MARKET GRADES
• Grading is method of determining quality of commodities. A grade is determined
by comparing a specific commodity with standards previously agreed on.
• It is generally limited to natural products such as lumber, hides, wheat, cotton,
tobacco, food products .

METHOD USED IN SURVEY

METHOD % of Total
item purchased

Brand Name 25
Commercial Standard 26
Design and Function & Fit specification 31
Combination 8
All other methods 10
Total 100