Purchasing management

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PURCHASING PURCHASING MANAGEMENT MANAGEMENT

Transcript of Purchasing management

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PURCHASING PURCHASING MANAGEMENTMANAGEMENT

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OVERVIEWOVERVIEW

PurchasingPurchasing Objectives of PurchasingObjectives of Purchasing Principles of PurchasingPrinciples of Purchasing Functions of Purchasing Functions of Purchasing

Department.Department. Methods of PurchasingMethods of Purchasing Steps in Purchase Procedure.Steps in Purchase Procedure.

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PURCHASINGPURCHASING

PurchasingPurchasing refers to a business or refers to a business or organization attempting to acquire goods or organization attempting to acquire goods or services to accomplish the goals of the services to accomplish the goals of the enterprise.enterprise.

All production firms have the need of All production firms have the need of supplies of materials and services from supplies of materials and services from external sources. Purchasing function may external sources. Purchasing function may include the purchase of raw material, spare include the purchase of raw material, spare parts.parts.

The chief function of the Purchasing manager The chief function of the Purchasing manager is to satisfy the materials and supplies related is to satisfy the materials and supplies related to requirements of other depts. This is done in to requirements of other depts. This is done in accordance with the mission, purpose, goals accordance with the mission, purpose, goals & objectives of the firm.& objectives of the firm.

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The key issues involved in purchasing The key issues involved in purchasing are:-are:-

QuantityQuantity QualityQuality TimeTime PlacePlace

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OBJECTIVES OF OBJECTIVES OF PURCHASINGPURCHASING

Purchase of satisfactory material.Purchase of satisfactory material. Proper negotiations with suppliers.Proper negotiations with suppliers. Co-ordination with other departments.Co-ordination with other departments. Timely deliveries.Timely deliveries. Continuous and regular supply.Continuous and regular supply. Minimized wastages.Minimized wastages. QualityQuality To control the qty. of materialTo control the qty. of material Information about new material and processes, Information about new material and processes,

which can reduce the cost of production and which can reduce the cost of production and improve the performance of the product.improve the performance of the product.

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PRINCIPLES OF PRINCIPLES OF PURCHASINGPURCHASING

RIGHT SOURCE

RIGHT PLACE

RIGHT TIME

RIGHT PRICE

RIGHT QUANTITY

RIGHTQUALITY

PRINCIPLES

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FUNCTIONS OF FUNCTIONS OF PURCHASING PURCHASING DEPARTMENTDEPARTMENT

1. 1. Processing the Processing the requisition:-requisition:-

Purchase requisitionPurchase requisition

No………. Date………..No………. Date………..

S.No S.No Qty Qty ReqdReqd

Qty. and Qty. and Other Other details of details of the itemthe item

PricePrice SuggestSuggested ed SupplierSupplier

BalancBalance in e in storesstores

Required By……… Authorized By...…Required By……… Authorized By...…

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2. 2. Location and Choice of Location and Choice of supplierssuppliers:- :-

Some guiding factors for the Some guiding factors for the choice of supplierchoice of supplier Reliability of SupplyReliability of Supply:- Past :- Past

performance specially in the time of performance specially in the time of crisis as well as sound financial crisis as well as sound financial position of a supplier classifies him to position of a supplier classifies him to be reliable.be reliable.

Assurance of timely deliveryAssurance of timely delivery After sales serviceAfter sales service Attitude with regard to the goods Attitude with regard to the goods

rejected by the purchaser rejected by the purchaser Technical assistanceTechnical assistance

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3. 3. Placing orders:-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 itemPRICEDate of Supply…… Other reqd’s

Signature…………….

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As a rule original copy is sent to the As a rule original copy is sent to the supplier, one copy is retained by the supplier, one copy is retained by the purchase department and one copy purchase department and one copy is sent to the concerned department is sent to the concerned department requiring the ordered items.requiring the ordered items.

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4. 4. Follow-up or progressing the Follow-up or progressing the purchase orders:-purchase orders:-

Receiving the ordered material at the Receiving the ordered material at the right time is most important for an org. right time is most important for an org. Late deliveries can close the enterprise. Late deliveries can close the enterprise. For this follow up the purchase order For this follow up the purchase order after waiting for some reasonable time after waiting for some reasonable time is essential. The priority of follow-up is essential. The priority of follow-up operations should be given according to operations should be given according to the importance or classification of items the importance or classification of items e.g. ‘A’ class items are to be given top e.g. ‘A’ class items are to be given top most priority.most priority.

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5. Invoices received from suppliers are checked 5. Invoices received from suppliers are checked and verified with order specificationand verified with order specification

6. Delay in availability of requisitioned material 6. Delay in availability of requisitioned material should be conveyed to concerned should be conveyed to concerned departments in time.departments in time.

7. To maintain records regarding suppliers , 7. To maintain records regarding suppliers , their performance in past, products with them, their performance in past, products with them, probable delivery period for each order etc.probable delivery period for each order etc.

8. To dispose off outdated and scrapped items.8. To dispose off outdated and scrapped items.9. Control stores operation of receiving the 9. Control stores operation of receiving the

items from vendors and issuing it to concerned items from vendors and issuing it to concerned department of the organisation.department of the organisation.

10. To handle damages and demurrage claims.10. To handle damages and demurrage claims.

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1.1. Purchasing according to Purchasing according to requirements.requirements.

2.2. Purchasing for some definite future Purchasing for some definite future period.period.

3.3. Market Purchasing.Market Purchasing.

4.4. Speculative Purchasing.Speculative Purchasing.

5.5. Contract Purchasing.Contract Purchasing.

6.6. Scheduled Purchasing.Scheduled Purchasing.

METHODS OF METHODS OF PURCHASINGPURCHASING

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PURCHASING ACCORDING TO THE PURCHASING ACCORDING TO THE REQUIREMENTS:REQUIREMENTS:

This method is appropriate for those items This method is appropriate for those items which are not of regular and common use in which are not of regular and common use in the production process. These items are the production process. These items are generally not stored in inventories. And generally not stored in inventories. And Purchasing department should keep a record Purchasing department should keep a record of reliable and trustworthy suppliers who of reliable and trustworthy suppliers who were sincere to the organisation in pastwere sincere to the organisation in past..

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PURCHASING FOR SOME DEFINITE PURCHASING FOR SOME DEFINITE FUTURE PERIOD:FUTURE PERIOD:

This method of purchasing is generally This method of purchasing is generally used for those items, which are regularly used for those items, which are regularly consumed, but the consumption is consumed, but the consumption is comparatively low and the price changes comparatively low and the price changes for these items are not much.for these items are not much.

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MARKET PURCHASINGMARKET PURCHASING::

Purchase of goods usually in smaller Purchase of goods usually in smaller quantities or in an emergency without quantities or in an emergency without contract or negotiationscontract or negotiations..

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SPECULATIVE PURCHASINGSPECULATIVE PURCHASING::

When purchasing is done purely from the When purchasing is done purely from the point of view of taking advantage of a point of view of taking advantage of a speculated rise in price of the commodity. speculated rise in price of the commodity.

The intent is not to buy for the internal The intent is not to buy for the internal consumption but to resell the commodity at consumption but to resell the commodity at a later date when the prices have gone up & a later date when the prices have gone up & to make a profit by selling.to make a profit by selling.

The items may be those that are needed for The items may be those that are needed for internal consumption but the qty. shall be internal consumption but the qty. shall be much more than the requirement so as to much more than the requirement so as to take the advantage of the coming price rise.take the advantage of the coming price rise.

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CONTRACT PURCHASING: CONTRACT PURCHASING:

In this, the purchase department enters into In this, the purchase department enters into agreement with various suppliers to supply the agreement with various suppliers to supply the items at some future period periodically.items at some future period periodically.

In contract purchasing, a purchaser agrees to buy In contract purchasing, a purchaser agrees to buy goods to be paid for in a series of installments, each goods to be paid for in a series of installments, each comprising a proportion of the capital and an comprising a proportion of the capital and an interest element.interest element.

After a final payment, legal ownership passes to the After a final payment, legal ownership passes to the user.user.

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SCHEDULED PURCHASINGSCHEDULED PURCHASING::

The purchasing is scheduled according to The purchasing is scheduled according to the requirements of the various the requirements of the various departments or of the organisation.departments or of the organisation.

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STEPS IN PURCHASE STEPS IN PURCHASE PROCEDUREPROCEDURE

1.1. Various departments are requested to send their Various departments are requested to send their requirements on a proper requisition form.requirements on a proper requisition form.

2.2. Purchasing dept. consolidated the requirements from Purchasing dept. consolidated the requirements from various departments to know the total requirement various departments to know the total requirement for each item.for each item.

3.3. Market exploration is made to locate the goods and Market exploration is made to locate the goods and services of desired quality and quantity at the services of desired quality and quantity at the reasonable price.reasonable price.

4.4. Potential suppliers are identified from catalogues, Potential suppliers are identified from catalogues, quotations and past records.quotations and past records.

5.5. Purchase order in specified form is prepared and Purchase order in specified form is prepared and sent to the approved suppliers. Purchase order is the sent to the approved suppliers. Purchase order is the commitment of the buyer to the supplier establishing commitment of the buyer to the supplier establishing a contractual relationship between buyer and seller.a contractual relationship between buyer and seller.

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6. After some time of placing the order, 6. After some time of placing the order, follow up process starts to get quickly follow up process starts to get quickly delivery of the items. delivery of the items.

7. Items received are compared with 7. Items received are compared with purchase order.purchase order.

8. Defective items i.e. items which are 8. Defective items i.e. items which are not in accordance with the not in accordance with the specifications laid down in the specifications laid down in the purchase order are returned to the purchase order are returned to the supplier on credit note of exchange.supplier on credit note of exchange.