PURCHASING CYCLE

What is Purchasing?
Purchasing can be defined as acquisition of required materials, services and equipments used in the organization Six Rights in Purchasing.., Right item, right quality, right quantity, right source, right time, right place, right price.

 The achievement of these rights is not an easy task. It may be necessary to give priority to a particular RIGHT to obtain the optimum benefit in the purchase of the items required.

These rights will drive us to the achievements of the organization s objectives.

Objectives of Purchasing

To gain the materials, supplies and equipment at the minimum possible cost To ensure the continues flow of materials To increase the asset turnover To develop the alternate sources of supply

Maintenance of Records

Recognize Need

Payment

Description of Need

Certifying Invoice & Voucher

Determination of Quantity

Purchasing Cycle
Receipt of goods & checking Raising Requisition

Follow-up

Selection of Source

Ensure order Placing Order

Ascertaining the Price

 Identifying the Need is the first step of cycle. In this step we have to find the answers for the following, What do we need? (right item) Why do we need? (purpose) For whom?

 Normally Specification is the tool of describing an item required. Description should includes, item name item code if available the drawings if needed brand information quality information dimensions etc..

Quality: Main aspects of quality

Methods to verify quality Market grades Brand, trade names Commercial standards Chemical or physical specifications Samples ISO

 Then the Quantity should be determined. The quantity of material to be purchased will depend on:
     The purpose How much material has required for the purpose Available inventory when placing the order, The quantity which has been already ordered and The storage space available

 A Purchase requisition Form has to be raised in order to start the process of an order. The purchase requisition clearly specifies the details such as specification of materials, quality, quantity, suggested supplier etc. There are three methods of requisitioning
Purchase Requisition Travelling Requisition Bill of Materials

 Selecting a right supplier will be the role of procurement. selected source should be a) reliable b) competitive Selection :
a) b) c) d) e) f) g) h) i) Purchasing records Trade press Directories Computerized data bases Credit rating agencies Trade fairs Commercial banks Chamber of commerce Certifications (eg ISO)

 Once the supplier has been selected, it is the responsible of procurement dept., the price should be ascertained by obtaining quotations or pro-forma. Once the supplier has been identified, a cost agreed etc then an official purchase order can be raised. The purchase Order is a legal document between the buyer and seller. All purchase order will have a purchase order number, agreed price, terms & conditions and the specifications of required material.

 In order to reduce the lead time and to make item available very soon, it is procurement dept s responsibility to ensure the order and follow-up Acceptance of goods is all the initial flow of goods moving in the warehouse. When an order has been delivered the items should be compared with the Invoice and cross check on specifications. In order to proceed for payment, it is the responsibility to raise a GRN, then the GRNs will be sent to the relevant department for authorization.

The final and the most important task in Purchasing Cycle is to maintain relevant records and documents. The records should be available for each and every transactions related to purchasing

In a computerized system following records can be viewed generally,

Maintaining the records may very helpful, For future audit reasons, To evaluate the supplier performance To make decisions on the price and supplier selection etc..,

THANK YOU