Chapter 5: : Chapter 5: PURCHASING MANAGEMENT Definition: : Definition: Purchasing is a function of procuring goods & services from sources external to the organization.
According to Alford & Beaty:
“Purchasing is the procuring of materials, supplies, machine tools & services required for the equipment, maintenance & operation of a manufacturing plant” RESPONSIBILITIES OF PURCHASE DEPT. : RESPONSIBILITIES OF PURCHASE DEPT. A] Exclusive Responsibilities:
Selecting Right suppliers.
Obtaining Materials at best prices.
Placing PO with suppliers.
Follow up with suppliers for prompt delivery.
Developing & Maintaining good relations with suppliers.
Enquiring into complaints both from suppliers & user department. Cont… : Cont… Selecting the right managers & staff for the purchasing function.
Giving training to the personnel to improve their effectiveness & efficiency.
Market research for purchasing. Cont… : Cont… B] Shared Responsibilities:
Obtaining technical information & advice on materials.
Establishing & developing specifications for materials.
Scheduling orders for materials on suppliers & fixing delivery dates for supplies.
Specifying modes of delivery & transportation.
Inspecting materials received. Cont… : Cont… Accounting of materials purchased, including payment of bills.
Receiving, store keeping & warehousing.
Sale of scrap & surplus.
Transportation of materials including clearing of goods.
Determining whether to Make or Buy (i.e. make the component in one’s own factory or buy them form outside) PURCHASE CYCLE : PURCHASE CYCLE Slide 8: NEED RECOGNIZED SPECFNS & REQUIREMENTS SPELT OUT REQUISITION CHK SPECFNS/ PRICES/ SUPPLIERS SPECFNS. FILE PURCHASE RECORDS PURCHASE PLAN SELECT SUPPLIER SUPPLIERS RECORDS PRICE & TERMS FINALIZED PURCHASE ORDER SUPPLIERS ACCEPTANCE MATERIAL RECD & INSPECTED INVOICE CHECKED WITH PO & MRN DELIVERY PAYMENT MADE FOLLOW UP INQUIRY TENDER IMPORT The Purchase Cycle Elements of Purchase Cycle : Elements of Purchase Cycle ESTABLISHING THE NEED FOR PROCUREMENT
1. Recognizing the need for procurement
2. Determining the requirements
3. Spelling out the specifications
4. Communicating requirements to purchase
a. Purchase indent/Bill of material (production items)
b. Purchase indent (other items) Cont… : 2. SCRUTINY OF PURCHASE INDENT
1. Completeness of description
2. Appropriateness of request
3. Routing of indent through stores
4. Logging of indents into indent register Cont… Cont… : Cont… 3. MARKET RESEARCH
1. Telephonic quotations
2. Written quotations
3. Scheduled buying
4. Source selection & Source development Cont… : Cont… 4. ORDER PREPARATION
1. Scrutiny of quotations
3. Placing orders on suppliers
4. Obtaining supplier’s acceptance of purchase order Cont… : Cont… 5. FOLLOW UP
1. Pre-delivery follow up
2. Shortage chasing
b. Personal visits
e. posting of personnel at suppliers works Cont… : Cont… 6. RECEIVING & INSPECTION
1. Receiving despatch details & logging them into the consignment register
2. Collection of material from transporter’s godown
3. Inspection for physical damages to the packages & number of packages
4. Entering consignment details into GRR register
5. Uncrating of goods
6. Quantity certification
7. Raising of GRR
8. Intimating receipt of materials to the indentor
9. Inspection of goods Cont… : Cont… 7. STORAGE & RECORD KEEPING
1. Movement of materials to concerned store/rejection store
2. Quantity certification
3. Application of protective coating/marking
4. Storage of materials into appropriate racks
5. Posting of receipt into stock card Cont… : Cont… 8. INVOICING & PAYMENT
1. Receiving GRRs in Accounts department
2. Receiving suppliers bills
3. Linking of GRR and suppliers bills
4. Posting of purchase register
5. Passing of bills
6. Effecting payments