Purchasing

Objectives of Purchasing
Principles of Purchasing
Functions of Purchasing
Department.
Methods of Purchasing
Steps in Purchase Procedure.
 PURCHASING
Purchasing refers to a business or organization attempting to acquire
goods or services to accomplish the goals of the enterprise.

All production firms have the need of supplies of material and

services from external sources.
Purchasing function may include the purchase of raw material, spare
parts.

The chief function of the Purchasing manager is to satisfy the

materials and supplies related to requirements of other depts.

This is done in accordance with the mission, purpose, goals &

objectives of the firm.
The key issues involved in purchasing are:-

Quantity
Quality
Time
Place
 OBJECTIVES OF PURCHASING
• Purchase of satisfactory material. Proper negotiations
with suppliers.
• Co-ordination with other departments.
• Timely deliveries.
• Continous and regular supply. Minimized wastages.
• Quality
• To control the qty. of material
• Information about new material and processes, which can
reduce the cost of production and improve the performance
of the product.
PRINCIPLES OF PURCHASING

RIGHT
QUALITY

RIGHT RIGHT
SOURCE QUANTITY

PRINCIPLES

RIGHT
RIGHT PRICE
PLACE

RIGHT
TIME
 FUNCTIONS OF PURCHASING
DEPARTMENT
1. Processing the requisition:-

Purchase requisition

No………. Date………..
S.No Qty Qty. and Price Suggest Balance in
Reqd Other ed stores
details of Supplier
the item
Required By……… Authorized By...…
2. Location and Choice of suppliers:-
Some guiding factors for the choice of supplier

Reliability of Supply:- Pastperformance specially in the time of

crisis as well as sound financial position of a supplier classifies
him to be reliable.
Assurance of timely delivery
After sales service

Attitude with regard to the goods rejected by the purchaser

Technical assistance
3. Placing orders:-
All purchases should be made through a purchase order in a
specified form and duly signed by some authorized person.

PURCHASE ORDER

To
Date……
Order No……
Description of
item PRICE
Other reqd’s
Date of
Signature…………….
Supply……
As a rule original copy is sent to the supplier, one
copy is retained by the purchase department and
one copy is sent to the concerned department
requiring the ordered items.
4. Follow-up or progressing the purchase
orders:-

•Receiving the ordered material at the right time is most

important for an org. Late deliveries can close the
enterprise. For this follow up the purchase order after
waiting for some reasonable time is essential.

•The priority of follow-up operations should be given

according to the importance or classification of items
e.g. ‘A’ class items are to be given top most priority.
5. Invoices received from suppliers are checked and verified
with order specification

6. Delay in availability of requisitioned material should be

conveyed to concerned departments in time.

7. To maintain records regarding suppliers , their performance in

past, products with them, probable delivery period for each
order etc.
8. To dispose off outdated and scrapped items.

9. Control stores operation of receiving the items from vendors

and issuing it to concerned department of the organisation.
10. To handle damages and demurrage claims.
 METHODS OF PURCHASING

1. Purchasing according to requirements.

2. Purchasing for some definite future period.

3. Market Purchasing.

4. Speculative Purchasing.

5. Contract Purchasing.

6. Scheduled Purchasing.
PURCHASING ACCORDING TO THE
REQUIREMENTS:
• This method is appropriate for those items which are not of
regular nature and have common use in the production
process
• These items are generally not stored in inventories.
• Purchasing department should keep a record of reliable
and trustworthy suppliers who were sincere to the
organisation in past.
PURCHASING FOR SOME DEFINITE
FUTURE PERIOD:

•This method of purchasing is generally used for

those items, which are regularly consumed,
but the consumption is comparatively low and
the price changes for these items are not much.
MARKET PURCHASING:

Purchase of goods usually in smaller quantities

or in an emergency without contract or
negotiations.
SPECULATIVE PURCHASING:
• When purchasing is done purely from the point of view of
taking advantage of a speculated rise in price of the
commodity.

• The intent is not to buy for the internal consumption but to

resell the commodity at a later date when the prices have
gone up & to make a profit by selling.

• The items may be those that are needed for internal

consumption but the qty. shall be much more than the
requirement so as to take the advantage of the coming price
CONTRACT PURCHASING:
• In this, the purchase department enters into
agreement with various suppliers to supply the
items at some future period periodically.
• In contract purchasing, a purchaser agrees to buy
goods to be paid for in a series of installments,
each comprising a proportion of the capital and
an interest element.
• After a final payment, legal ownership passes to
the user.
SCHEDULED PURCHASING:
The purchasing is scheduled according to the
requirements of the various departments or of the
organisation.
 STEPS IN PURCHASE PROCEDURE
1. Various departments to send their requirements on a
proper requisition form.
2. Purchasing dept. consolidates the total requirement
for each item.
3. Locate the goods and services of desired quality and
quantity at the reasonable price from market
4. Potential suppliers are identified from catalogues,
quotations and past records.
6. Purchase order in specified form sent to the approved
suppliers.
7. It is the commitment of the buyer to the supplier
establishing a contractual relationship between buyer and
seller.
8. Follow up process starts to get quickly delivery of the items.
9. Items received are compared with purchase order.

10.Defective items i.e. items not in accordance with the

specifications laid down in the purchase order are returned to
the supplier on credit note of exchange.