Purchase Management

Definition

Procurement is the acquisition of goods and/or services at the best possible total cost of ownership, in the right quantity and quality, at the right time, in the right place and from the right source. Also Procurement is defined as process of buying raw materials, components and supplies for the manufacturing process.

Objectives of Purchasing

Obtaining goods and services of the required quantity and quality

Obtaining goods and services at the lowest cost

Ensuring the best possible service and prompt delivery by the supplier

Developing and maintaining good supplier relations and developing potential suppliers

Purchasing cycle

Purchasing Cycles is process from the purchase requisition to the supplier Payment.

Following are the steps of purchasing cycle:

Receiving and analyzing purchase requisition

Selecting suppliers by analyzing quotation

Issue the Purchase order after right price determined

Following up to assure delivery date is met and receives goods

Approving suppliers invoice for payment

 

Requisition

Any shortage of materials found by the user or employee in his department, user or department head may send requisition for purchasing shortage materials.

In manufacturing industries, usually planning department involves in releasing planned order to the purchasing department to process purchase order.

Information needed for Requisition

Material Specification

Quantity and unit of measure

Requested delivery date

Identity of originator

Quotation

Request for quotation send to the supplier.

After suppliers have completed and returned the quotation to the buyer, the quotations are analyzed for price, compliance to specification, terms and conditions of sale, delivery and payment terms.

After analyzed, best supplier selected and purchase order issued to the supplier.

Purchase order and receiving of goods

Purchase Order send to the supplier, if supplier accepted then it became a legal contract for delivery of goods according to the terms and condition.
Received goods are sent to the inspection department for checking damage or fault might occur during transit.

Factors in selecting suppliers

Technical ability

Selecting supplier by validating his technical ability whether he can able to make or supply the product.

Manufacturing capability

Supplier’s manufacturing facilities must be able to supply the quality and quantity of the products wanted.

Reliability

We have to check whether supplier is financially strong enough to stay in business.

Supplier location

To maintain inventory locally, its better supplier be located near the buyer.

Price

Supplier should be able to provide competitive prices. Other factors like replacing inventory, after-sale service and continuous technical support are the responsibilities of the supplier.

Types of Orders in purchase management

Regular purchase order

Requisition

Quotes

Additional Purchase Orders

Blanket Order

Blanket orders are used when organization repeatedly purchases an item or service.
Create a blanket order based on a specified amount or quantity that has been projected to beused over a period of time, typically one year

Transfer order

Transfer order is used to ship inventory between branch/plants within company and to maintain an accurate on-hand inventory amount
Creates a purchase order for the supplier, which is the branch/plant that ships the items.

Direct ship orders

A direct ship order is the sale of an item that you purchase from a supplier, who then sends the item directly to your customer. The quantity and item information of a direct ship order does not affect your inventory