TRAINING IN PURCHASING AND SUPPLY CHAIN MANAGEMENT

PURCHASING AND PROCUREMENT PROCEDURE:

The following are the purchasing procedures:
1. Determining Purchase Budget.
What is the Purchases Budget?
A purchases budget contains the amount of inventory that a company must purchase during each
budget period. The amount stated in the budget is the amount needed to ensure that there is sufficient
inventory on hand to meet customer orders for products. At the simplest level, the purchases budget
can simply match the exact number.
The budget is created using a simple formula: the desired ending inventory, plus the cost of goods
sold, minus the value of the beginning inventory. This equation gives you the total purchases budget.
• Purchasing managers prepares a purchase budget for the forthcoming financial year.
• Purchase budget is prepared with the help of production planning department.
• It contains detailed information regarding quality to be purchased, quality of materials, time of
purchase and the sources of procurement.
• A schedule of material and components needed for various jobs, known as bill of materials is also
prescribed for working out details of purchase budget.
• A bill of material is also useful in exercising control over the utilization of materials.
2. Receipt of Purchase Requisition:
What is a purchase requisition?
A purchase requisition is a document that professionals draft to express a request for a specific
supply. Companies use these documents for internal purposes as part of a purchasing process.
Employees send purchase requisition forms to their surviving manager or to the professional who
handled the company budget. If this professional decided the company can afford this purchase and
it is necessary, they approve the request.
Purchase requisition forms are one of the first steps of a company's procurement process. These
documents precede purchase orders, which are documents sent to external supply companies to buy
a product.
• The purchase officer initiates action for the purchase of materials only when he receives a request
for the same.
• The store keeper and departmental heads send requisition slips to purchase department giving
details of materials required by their department etc.
• A purchase requisition is a form used as a formal request to the purchasing department to purchase
materials.
• This form is prepared by the store keeper for regular stock materials and by the departmental head
for specific materials not stocked as regular items.
• The store keeper knows when an action or fresh procurement is to be initiated.
• He will send the requisition when materials reach re-ordering level.
• He retains one copy of the requisition with him for future reference.
• It is on the basis of purchase requisition that orders are placed for materials.
3. Determining Sources of Supply.
The procurement unit needs to assess which sources (local, national and international) can deliver
the right quantity and quality of product the most quickly.
The first principle should be to source all commodities locally and in-country, as close to the field as
possible to reduce transport time and cost. However, this is often not feasible in emergency contexts
due to limited availability or poor quality. Sometimes a combination of sources will be required to
achieve the right quantity, quality and speed of delivery.
• Purchase manager remains in touch with various suppliers of materials.
• The quotations are invited for the purchase of specific items.
• After receiving quotations a comparative study is made regarding terms and conditions offered.
• The factors to be considered includes price, quantity, quality, time of delivery, terms of payment,
trade, discount and reputation of suppliers.
• After looking at various factors a final decision is taken about the supplier of goods.
4. Placing Orders:
What is a Purchase Order?
A purchase order is a commercial source document that is issued by a business’ purchasing
department when placing an order with its vendors or suppliers. The document indicates the details
on the items that are to be purchased, such as the types of goods, quantity, and price. In simple
terms, it is the contract drafted by the buyer when purchasing goods from the seller.
• After selecting a supplier a formal purchase order is sent on a printed form and is duly authorised
by the, purchase manager.
• The purchase order authorizes the vendor to despatch goods specified in it.
• This order should contain details about the quantity, quality, price, mode of delivery, terms of
payment etc.
• It establishes a contractual relation between the buyer about the vendor.
5. Follow –up of purchase order:
• A purchase order normally bears a date by which the goods must be delivered.
• It is in the interest of the organization that goods are received in time for keeping uninterrupted
flow of materials.
• A follow-up of purchase order is necessary to receive stocks in time.
• The suppliers may be reminded of the date of delivery of goods.
6. Receipt and Inspection of Materials:
• In big concerns the task of receiving materials is assigned to the purchase department whereas in
small concerns this work is done by the store keeper.
• After unpacking goods their quantity is compared to that given in delivery challans.
• Any discrepancy in items is reported to the purchase department.
• Any specifications and quality of goods is also checked at this stage.

7. Checking Invoices.
What is an Invoice?
An invoice, bill or tab is a commercial document issued by a seller to a buyer relating to a sale
transaction and indicating the products, quantities, and agreed-upon prices for products or services
the seller had provided the buyer.
• Lastly, purchase department checks the invoices supplied by the vendor with that of its own
records.
• The quantity, quality, price, terms etc. are compared with those given in purchase order.
• After making full checking the invoices are sent to accounts department for payment.
Copyright of Highimpact Institute Academy.
Types of Purchases:
Depending on what type of purchase you are going to make, then the process concerned is not the
same. The following examples show the different processes that take place concerning the different
purchase types.
Personal Purchases:
The consumer purchases for the consumption of themselves, then they fall into this very important
category class. They are ultimately driving the economy through the purchase of its products.
Therefore, the economy becomes dependent on them.
Mercantile Purchasing:
Facilitated by middlemen for the intention of re-sale to meet others requirements. Agents,
wholesalers and retailers come under this category providing their own channels of distribution to
the consumer. It is vital to an organization.
Industrial Purchasing:
The purchaser is buying to convert material into finished goods and product. It entails buying raw
materials, components, supplies and consumable stores, spares and tools, machines and equipment
and office appliance.
Institutionalized or government purchasing:
Government agencies or institutions are very important, critical, they purchase in bulk for public
utilities.

SELF ASSESSMENT:

1. What is the Purchases Budget?

2. What is a purchase requisition?

3. What is a Purchase Order?

Thank you.