PURCHASING

Role : Purchase evolved as an important and essential

activity from traditional activities.

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

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

Purchasing is act of exchange of goods and services for money, while procurement
Is 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
Principles
1. 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

Fundamental objectives
1. To maintain continuity in supply to support production schedule
2. Minimum investment in stocking with safety and economy
3. Avoid duplication, obsolescence, wastes, costly delays
4. Maintain Proper quality standards
5. Lowest possible cost of procurement of materials
6. Maintain competitive position in market
Sources of supply and selection of supplier
1. Past experience with supplier
2. Interview with salesman
3. Technical and descriptive catalogue
4. Trade directories and magazine
5. Visit to trade fairs
6. Periodical advertisement/ tenders for quotations
7. Consulting trade agencies


Policies
1. Regarding supply sources local or others
2. Maintaining multi sourcing
3. Promote small scale or village industries





Procedures
Functions performed by purchasing people from inception to conclusion
of deal
1. Ascertain and recognize the need
2. Requirements description with specifications
3. Purchase requisitions
4. Negotiation with possible sources
5. Analysis of proposal with price, delivery time
6. Selection of source and place order
7. Expediting and follow up
8. Arranging receipt, inspection, replacement, etc
9. Checking of invoice and bill payment
10.Completion of records and files

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, and
PO 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

2. Product specifications
Describe items in purchase order
Function of item to know what is required
Verification 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
3. Price determination : See competitive condition, pay fair prices. Get at least three
competitive 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.

Function of Purchasing Department

Selection of supplier
Analysis of bids
Price negotiations
Issuance of PO
Follow up actions
Cost analysis and market study
Maintenance of price catalogues, information library, etc


1. While selecting the supplier, its financial ability, manufacturing capacity, total
Value of business, service facilities are assessed
2. Rating of supplier based on quality, delivery, business ethics, promptness,
competitive bids. Evaluation of supplier