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PURCHASING

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Role : Purchase evolved as an important and essentialactivity from traditional activities.

Classes of materials : One class is ultimate consumers,middleman, and manufacturer. Other class belongs togovernment agencies and institution

Material activities : specification, enquiry, quotation fromsupplier, negotiation of price and contractual condition,order, follow up, settlement of bills, forecast, storage,transport, etc.

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Purchasing is act of exchange of goods and services for money, while procurementIs wider term includes total responsibility of acquiring goods and services.

Optimum level of stock of materials (e.g. flow of water in tank )Balance of ordering cost and carrying cost

Principles1. Right quality : properly defined, no general description. Specifications as size,Chemical properties, dimensions etc. should be specified in PO.

2. Right quantity : economical size of lot

3. Right price : value = quality / price. With given Quality which is constant, lower The price greater the value.

4. Right time : production schedule or seasonability

5. Right place : clearly stated as ex works, free delivery, FOB, FOR etc

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Fundamental objectives1. To maintain continuity in supply to support production schedule2. Minimum investment in stocking with safety and economy3. Avoid duplication, obsolescence, wastes, costly delays4. Maintain Proper quality standards5. Lowest possible cost of procurement of materials6. Maintain competitive position in market

Sources of supply and selection of supplier1. Past experience with supplier2. Interview with salesman3. Technical and descriptive catalogue

4. Trade directories and magazine5. Visit to trade fairs6. Periodical advertisement/ tenders for quotations7. Consulting trade agencies

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Policies1. Regarding supply sources local or others2. Maintaining multi sourcing

3. Promote small scale or village industriesProceduresFunctions performed by purchasing people from inception to conclusionof deal

1. Ascertain and recognize the need2. Requirements description with specifications3. Purchase requisitions4. Negotiation with possible sources5. Analysis of proposal with price, delivery time6. Selection of source and place order7. Expediting and follow up8. Arranging receipt, inspection, replacement, etc9. Checking of invoice and bill payment

10.Completion of records and files

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Purchasing Inputs

1. Purchase requisitions :From store keeper (for stock items), planning dept. (for special items)Signed by store keeper, user department and send to buyer (purchase manager)with copy to planning dept.On receipt of this, andPO is issued.

Regular items in large quantities : Contract is made in consultation with top management.

Other cases : enquiries are sent to supplier or advertised, tenders /quotations are invited

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2. Product specificationsDescribe items in purchase orderFunction of item to know what is requiredVerification on receipt of material

Types : blue print, market grades, brand or trade name, commercial standards(BIS, ISI), material specification properties, Performance characteristics

Purchasing output :

They are related to policies, data, and procedure for future purchases

1. Supply sources : internal or external.Selecting supplier based on quality, quantity and delivery time.Develop good relationship with vendors

2. Market condition : different treatments for various items

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3. Price determination : See competitive condition, pay fair prices. Get at least threecompetitive bids

4. Discounts/negotiations : trade, cash, seasonal.

5. Purchase decision

6. Buying locally/ reciprocally : advantage/ disadvantage

7. Delivery terms : insurance, freight, handling, packing charges F.O.R, F.O.B, C.I.F

8. Timing of purchase : immediate, speculative, forward buying

9. Hedging : To negate the effect of fluctuations of prices.

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Function of Purchasing Department

Selection of supplierAnalysis of bidsPrice negotiationsIssuance of POFollow up actionsCost analysis and market studyMaintenance of price catalogues, information library, etc

1. While selecting the supplier , its financial ability, manufacturing capacity, totalValue of business, service facilities are assessed2. Rating of supplier based on quality, delivery, business ethics, promptness,

competitive bids. Evaluation of supplier

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