8 Steps in Purchasing Process | Purchase Management

8 Steps in Purchasing Process | Purchase Management

PROCEDURES OF PURCHASING :

The policy statements are guidelines and they should be difficult to understand. Lengthy and too many policies have to be avoided. The purchasing policy provides the guidelines and direction in the following categories. It defines:

(a) Rules of purchasing
(b) Conduct of purchasing personnel
(c) Social and minority business objectives
(d) Operational issues

Read more :

  1. Objectives and Functions of Industrial Purchasing Department
  2. Purchasing Management | Definition , Objectives , Policies

The procedure describes the sequence of steps leading to the completion of an identified specific task. The purchasing procedure comprises the following steps as indicated in Fig.

purchasing procedure
purchasing procedure

1. Recognition of the need:

The initiation of procedure starts with the recognition of the need by the needy section. The demand is lodged with the purchase department in the prescribed Purchase Requisition Form forwarded by the authorised person either directly or through the Stores Department. The purchase requisition clearly specifies the details, such as, specification of materials, quality and quantity, suggested supplier, etc. Generally, the low value sundries and items of common use are purchased for stock while costlier and special items are purchased according the production programmes. Generally, the corporate level executives are authorized signatories to such demands. Such purchases are approved by the Board of Directors. The reference of the approval is made on requisition and a copy of the requisition is sent to the secretary for the purpose of overall planning and budgeting.

2. The Selection of the supplier:

The process of selection of supplier involves two basic aspects: searching for all possible sources and short listing out of the identified sources. The complete information about the supplier is available from various sources, such as, trade directories, advertisement in trade journals, direct mailing by the suppliers, interview with suppliers, salesmen, suggestions from business associates, visit to trade fair, participation in industries convention, etc. Identification of more and more sources helps in selecting better and economical supplier. It should be noted that the low bidder is not always the best bidder. When everything except price is equal, the low bidder will be selected. The important considerations in the selection are the price, ability to supply the required quantity, maintenance of quality standards, financial standing etc. It should be noted that it is not necessary to go for this process for all types of purchases. For the repetitive orders and for the purchases of low-value, small lot items, generally the previous suppliers with good records are preferred.

3. Placing the order:

Once the supplier is selected the next step is to place the purchase order. Purchase order is a letter sent to the supplier asking to supply the said material. At least six copies of purchase order are prepared by the purchase section and each copy is separately signed by the purchase officer. Out these copies, one copy each is sent to store-keeper, supplier, accounts section, inspection department and to the department placing the requisition and one copy is retained by the purchase department for record

4. Follow-up of the order:

Follow-up procedure should be employed wherever the costs and risks resulting from the delayed deliveries of materials are greater than the cost of follow-up procedure, the follow-up procedure tries to see that the purchase order is confirmed by the supplier and the delivery is promised. It is also necessary to review the outstanding orders at regular intervals and to communicate with the supplier in case of need. Generally, a routine urge is made to the supplier by sending a printed post card or a circular letter asking him to confirm that the delivery is on the way or will be made as per agreement. In absence of any reply or unsatisfactory reply, the supplier may be contact through personal letter, phone, telegram and/or even personal visit.

5. Receiving and inspection of the materials:

The receiving department receives the materials supplied by the vendor. The quantity are verified and tallied with the purchase order. The receipt of the materials is recorded on the specially designed receiving slips or forms which also specify the name of the vendor and the purchase order number. It also records any discrepancy, damaged condition of the consignment or inferiority of the materials. The purchase department is informed immediately about the receipt of the materials. Usually a copy of the receiving slip is sent to the purchase department.

6. Payment of the invoice:

When the goods are received in satisfactory condition, the invoice is checked before it is approved for the payment. The invoice is checked to see that the goods were duly authorised to purchase, they were properly ordered, they are priced as per the agreed terms, the quantity and quality confirm to the order, the calculations are arithmetically correct etc.

7. Maintenance of the records:

Maintenance of the records is an important part and parcel of the efficient purchase function. In the industrial firms, most of the purchases are repeat orders and hence the past records serve as a good guide for the future action. They are very useful for deciding the timings of the purchases and in selecting the best source of the supply.

8. Maintenance of vendor relations:

The quantum and frequency of the transactions with the same key suppliers provide a platform for the purchase department to establish and maintain good relations with them. Good relations develop mutual trust and confidence in the course of the time which is beneficial to both the parties. The efficiency of the purchase department can be measured by the amount of the goodwill it has with its suppliers.


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Sachin Thorat

Sachin is a B-TECH graduate in Mechanical Engineering from a reputed Engineering college. Currently, he is working in the sheet metal industry as a designer. Additionally, he has interested in Product Design, Animation, and Project design. He also likes to write articles related to the mechanical engineering field and tries to motivate other mechanical engineering students by his innovative project ideas, design, models and videos.

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