PURCHASING

PURCHASING

 To obtain goods in exchange for money or its equivalent

 Acquiring goods to satisfy organizational needs

PROCESS
 Receiving purchase requisition
 Obtaining quotations & evaluating
 Purchase Order
 Receiving material & payment
 PURCHASING CYCLE

The purchasing cycle consists of the following steps:

1. Receiving and analyzing purchase requisitions.
2. Selecting suppliers. Finding potential suppliers, issuing requests for quotations receiving and analyzing
quotations, and selecting the right supplier.
3. Determining the right price.
4. Issuing purchase orders.
5. Following up to ensure delivery dates are met.
6. Receiving and accepting goods.
7. Approving supplier’s invoice for payment.
 PURCHASING CYCLE

1. Receiving and analyzing purchase requisitions:

Purchase requisitions start with the department or person who will be the ultimate user.

The purchase requisition contains the following information:

• Identity of originator, signed approval, and account to which cost is assigned.
• Material specification.
• Quantity and unit of measure.
• Required delivery date and place.
• Any other supplemental information needed.
 PURCHASING CYCLE

2. Selecting suppliers:
Identifying and selecting suppliers are important responsibilities of the purchasing department. For routine items or
those that have not been purchased before, a list of approved suppliers is kept.
If the item has not been purchased before or there is no acceptable supplier on file, a search must be made.
 PURCHASING CYCLE

3. Requesting quotations:
For major items, it is usually desirable to issue a request for quotation. This is a written inquiry that is sent to
enough suppliers to be sure competitive and reliable quotations are received.
After the suppliers have completed and returned the quotations to the buyer, the quotations are analyzed for price,
compliance to specification, terms and conditions of sale, delivery, and payment terms.
 PURCHASING CYCLE

4. Determining the right price:

This is the responsibility of the purchasing department and is closely tied to the selection of suppliers.
The purchasing department is also responsible for price negotiation and will try to obtain the best price from the
supplier.
 PURCHASING CYCLE

5. Issuing a purchase order:

A purchase order is a legal offer to purchase. Once accepted by the supplier, it becomes a legal contract for delivery
of the goods according to the terms and conditions specified in the purchase agreement.
The purchase order is prepared from the purchase requisition or the quotations and from any other additional
information needed. A copy is sent to the supplier; copies are retained by purchasing and are also sent to other
departments such as accounting, the originating department, and receiving.
 PURCHASING CYCLE

6. Following up and delivery:

The supplier is responsible for delivering the items ordered on time. The purchasing department is responsible for
ensuring that suppliers do deliver on time.
If there is doubt that delivery dates can be met, purchasing must find out in time to take corrective action. The
purchasing department is also responsible for working with the supplier on any changes in delivery requirements.
 PURCHASING CYCLE

7. Receiving and accepting goods:

When the goods are received, the receiving department inspects the goods to be sure the correct ones have been
sent, are in the right quantity, and have not been damaged in transit. Using its copy of the purchase order and the
bill of lading supplied by the carrier, the receiving department then accepts the goods and writes up a receiving
report noting any variance.
If further inspection is required, such as by quality control, the goods are sent to quality control or held in receiving
for inspection. If the goods are received damaged, the receiving department will advise the purchasing department
and hold the goods for further action. Provided the goods are in order and require no further inspection, they will be
sent to the originating department or to inventory.
 PURCHASING CYCLE

8. Approving supplier’s invoice for payment:

When the supplier’s invoice is received, there are three pieces of information that should agree: the purchase order,
the receiving report, and the invoice.
The items and the quantities should be the same on all; the prices, and extensions to prices, should be the same on
the purchase order and the invoice.
All discounts and terms of the original purchase order must be checked against the invoice.
It is the job of the purchasing department to verify these and to resolve any differences. Once approved, the invoice
is sent to accounts payable for payment.
 PROCUREMENT

 Procurement is the process of finding, agreeing terms and acquiring goods, services or
works from an external source, often via a tendering or competitive bidding process.
 Process of meeting internal needs of an organization efficiently, through
purchasing/hiring/leasing/outsourcing
Process/Role of Procurement

 Monitoring Market, approving vendor/supplier list

 Identifying right needs
 Converting needs into clear specification
 Obtaining & evaluating quotations
 Selecting supplier/vendor
 Negotiation
 Contract development
 Contract management
 Payment
 Relationship
OBJECTIVES OF PROCUREMENT

 Obtaining goods and services of the required quantity and quality. (Right quantity & quality)
 Obtaining goods and services at the lowest cost. ( Right price)
 Ensuring the best possible service and prompt delivery by the supplier. (Right Place and Time)
 Developing and maintaining good supplier relations and developing potential suppliers. (SRM)
TYPES OF PURCHASING SYSTEM

 Tender System
 Stockless Purchase System
 Blanket Order
 E-Purchasing / E-Procurement
 Subcontracting
 Petty Cash System
 Capital Equipment Purchase
Procurement Documents

 Request for Information (RFI)

 From where customer need information from suppliers
 Request for Quotation (RFQ)
 Price per unit quote
 From where customer may simply be looking for a price quote
 Request for Proposal(RFP)
 Ask for price and how/who will do the work
 Company can place a bid after RFI & RFQ