PURCHASING AND MATERIAL

MANAGEMENT-UNIT-1
• The purchasing and supply process - Introduction
to purchasing and SCM - Strategic supply
management roles and responsibilities - Improving
the procure to pay process - Approval, contract and
purchase order preparation - Types of purchases -
Purchasing policy and procedures -Policy overview
- Purchasing policies Policy defining- Role and
conduct of purchasing, Buyer supplier
Relationship, operational issues- Purchasing
procedures.
 Purchasing

• Purchasing describes the process of buying. It

is the learning of the requirement, identifying
and selecting a supplier, negotiation price.
Purchasing is an element of the wider function
of procurement and it includes many activities
such as ordering, expediting, receipt and
payment.
 Purchasing management
• Purchasing management is concerned with the
planning and controlling of the acquisition of
suppliers' goods and resources, to fulfil the
administrative and strategic objectives of the
organization
 Based on seven characteristics of purchased product

• Volume,
• Specificity,
• Technological complexity,
• Essentiality,
• Fragility,
• Variability.
Importance of Purchase Management
• For Cost Effective Production
• Purchasing is responsible for learning of the internal requirements,
locating and selecting suppliers, obtaining the materials, parts,
supplies and services needed to produce a productor provide a
service. A purchase manager is responsible for negotiation of price
with suppliers too.
• For Strategic Purpose
• Purchasing is a strategic issue. The manufacturers have to
procure capital items like plant and machinery for manufacturing
facilities. It requires heavy investment. So, purchasing isan
important function. But in some organisations, especially small
scale, purchasing is considered as a clerical activity.
• From a Top Management Perspective:
There are five rights that every management expects
from their purchasing executives:
•  Right Quantity
•  Right Quantity
•  Right quality
•  Right Time
•  Right Supplier
•  Right Cost
• From Functional Perspective:
•  Uninterrupted flow of materials and services
•  Buying at competitive prices
•  Avoiding under-inventory and over-
inventory
•  To have good relationship with other
departments
• What car/automobile companies buy: Tires, Brakes
leathers, Clutches, Wires, Steel
• plates, Glasses, Paint, Fabric, Aluminum sheets, Electronic
components, Carpets etc.
• What soft-drink producers buy: Bottles, Sweetner,
Carbonation, Flavouring substances,
• Caps, Cardboards, Plastic Containers, etc.
• What software companies buy: Computers, Hardware,
Chairs, Tables, Wires, Data
• Cables, etc.
• What hotels/restaurants buy: Vegetables, Utensils, Air
conditioners, Gas Stoves,
• Carpets, etc.
 Types of purchase

• Bulk Purchase
• In case of bulk purchases there are high volume
items, large amount, and more frequent
• utilization with more specific use. Bulk
purchases are handled in large organisations and
• multinational organisations with the
standardized purchasing process, where as some
other
• organizations use separate purchasing process.
 Small Purchase

• In case of small purchase there are low volume

items, small amount, less frequency of
utilization, high variety and low technical
complexity. Mainly small purchases include
machine parts, auto parts, machine repairs, in
frequent sullies of offices and miscellaneous
goods. Small purchases are urgent in nature.
• Individual Purchase
• Individual or personal purchase includes those types of
items or products which are
• purchased for personal or family consumption.
• Factors influencing individual purchase behavior:
• In general mainly there are four types of influence factors:
•  Cultural Factors
•  Social Factors
•  Personal Factors
•  Psychological Factors
• Organizational Purchase
• A purchase will be considered to be
organizational if it is made in the name of a
company or organization, regardless of size, from
a medium sized company up to a multinational or
state company. Organization consists of business,
industries, retailers, wholesaler, government and
non- government organizations
Characteristics of a Purchasing Manger
• Interpersonal skills
• Analytical Decision Making
• Loyal to the Organisation
• Computer Literacy
• Technical skills
• Ability to Make Decision
• Innovative
• Bargaining Power
 Purchasing Cycle

• The purchasing cycle begins with a request from

within the organization to purchase material,
equipment, supplies, or other items from outside
the organization, and the cycle ends when the
purchasing department is notified that a shipment
has been received in satisfactory condition, and
managerial accounting is actively involved in
each step
 The main steps in the cycle are as under:

 Recognition of need
 Description of need
 Selection of suppliers
 Determination of prices
 Preparation of purchase order
 Placing the order with a selected supplier
 Monitoring and follow up the order
 Receiving the ordered materials
 Checking and approving for payment to supplier
• The supply chain system allows organizations to
collaborate with their suppliers to produce and
distribute goods and services. Supply chain
management is the process of designing and
implementing the most efficient and cost-effective
supply chain process. Various strategies are used in
order to centrally manage internal and vendor
inventories, production, distribution, and sales. It
would be beneficial to conduct a detailed review of the
components of supply chain management in order to
better understand what it is and why it is so important.
 Supply Chain Analyst

• An organization’s ability to deliver goods and

services to its clients is predicted and improved
by a supply chain analyst’s analysis of data and
delivery techniques. The successful operation of
an organization’s supply chain depends on it,
making the supply chain analyst a crucial
position. Data is used by analysts to support their
suggestions for improving production, supply,
and transportation processes inside the
organization.
• Here are some roles and responsibilities of a Supply Chain
Analyst:
• Analyses route schedules or load plans, historical activity,
and customer trends in order to make suggestions for
enhancing routing efficiency and solution efficacy.
• Assist in developing and putting into practice a supply
chain solution
• Recognize chances for the customer to save money.
• Take care of the recurring analysis and duties generating
ongoing cost-saving measures.
• In order to eliminate waste, examine present procedures
and suggest or implement improvements.
• Proactively control key performance indicators, undertake
root cause analysis, and employ TM operating systems.
• Interact with clients to resolve issues and plan
implementations
• Create weekly customer metrics for distribution and create
customer performance reports.
• Meet deadlines for customers and create metrics dashboards
that emphasize data unique to customers
• Adjusts the network and synchronizes the execution with the
TM system
• Papers and maps typical operating procedures
• Uses tactical procedures every day in accordance with the
defined business standards
• Respond to consumer inquiries with independence and
discretion, then offer solutions.
• Collaborating with internal subject matter experts to address
issues and assist with implementations
• Follow engineering-established procedures and assist in
implementing any procedure adjustments and changes to the
way that transportation is designed.
P2P Process
 What is a purchase order?
• A purchase order is a document that shows what the buyer wants from
the supplier. It is very important in the inventory ordering process.
• A purchase order is a legally binding contract between a business and a
supplier. This document helps to hold both parties accountable if any
disagreements arise. If there is any confusion, the purchase order can
help to clear things up.
• This document will contain important information about the items
ordered, such as their size and specifications. You will also need to state
how much the item costs, when it will be delivered, and how you would
like to be paid.
• If businesses do not use purchase orders when ordering inventory, it will
be hard to track expenses or look back at past data to make future
decisions.
• There are four types of purchase orders manufacturers can use. This
article will discuss each type in detail and when to use them.
 The four main types of purchase orders

• 1. Standard purchase orders (SPO)

• Standard purchase orders are the most common type of
purchase order. They are also the easiest to understand
because they are the simplest.
• When SPOs are used-
• The request for goods or services is a one-time request.
• The order details are known (such as the delivery date,
quantity, description of the items being ordered, and
price).
• Both parties agree to make a payment and receive
goods/services.
• 2. Planned purchase orders (PPO)
• The PPOs are very similar to the SPOs, except
they are for when the delivery date is
unknown.
• When PPOs are used-
• The goods/services are expected in the future.
• The supplier and buyer have agreed to a plan
for future orders.
• The company expects to reach the reorder
point at a particular time, so they have a loose
delivery schedule based on that.
• 3. Blanket purchase orders (BPO)
• A blanket purchase order is similar to the standard purchase
order but has less information. This purchase order type is
used when the timing and quantity of goods are unclear.
• When BPOs are used-
• The company knows what service/good is needed, but they
do not know how many items they will need or when they
will need them.
• A company predicts how much service or product it will
need over a certain period.
• The supplier and buyer have agreed on the spending limit
and other terms and conditions.
• Getting a better price on the guaranteed agreement will
require you to buy again and again.
• 4. Contract purchase orders (CPO)
• A contract purchase order is an agreement
between a purchaser and a vendor. It sets out
the terms of their relationship, including the
products to be purchased, payment, and
delivery terms. This document can be used to
order products from the vendor. The purchaser
may refer to the contract purchase order when
raising a standard purchase order (SPO).
Generally, CPOs are made under a set time
frame with an expiry date, usually one year.
 Purchase order preparation
• Name, Address and FEIN of Vendor:
• Description of Product/Service
• Delivery Information:
• Price:
• Warranty of Equipment:
• Payment Terms:
• Free on Board (F.O.B.):
• Authorized Signature:
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purchasing-procedures