Purchase functions and procedures

Purchase functions and procedures

Acco to Alford and Beaty, “ Purchasing is the procurement of materials , supplies, machine tools and services required for the equipment, maintenance and operation of a manufacturing plant.”

The objectives of purchasing• Acquire materials at competitive price• Ensure supply of materials according to

production requirements• Guarantee production of better quality products

at competitive price• To suggest better alternative materials for

production• To encourage standardization• To advice various depts on feasible prices ,

timely deliveries and improved performance• To maintain goodwill of the company by fair

dealing

The functions of purchase Department• Sources for supply of capital goods and

equipments• It studies market and keep track of new

developments• It supports engineering and user depts• It scrutinizes purchase intends• It conducts discussions and releases of

purchase order• It helps in pre delivery transcription and

shortage chasing of purchased items

• It coordinates with inward inspection • It sanctions suppliers statements for payments• It processes suppliers requests for increase in

price of production materials• It arranges discussions and meetings between

suppliers representatives and company officials• It disposes excess, outdated and leftover materials• It handles management of raw materials and new

products in the market• It researches and studies the possibility of

substituting native materials for imported ones• Acts as a link between company's financial dept

and suppliers• It attends to journal activities like applying for

import license, quota etc.

The methods of purchase1.Hand To Mouth Purchasing

• Items are purchased only when there is demand for those items

• Items are purchased so that the immediate requirements can be met

• Items are generally purchased in small quantities, but can be purchased in large quantities when required

• Competitive bids cannot be obtained due to lack of time

Suitability of this method • Sample items and products which are under

development• Items that are used rarely and not required to

be stocked• Items that have a limited shelf life and are not

stocked for a fear of perishability• Items that are bulky and need a lot of space for

storage

2.Scheduled PurchasingThe process of buying the items that are in the form of distributed deliveries according to the delivery schedule provided by the buyer to the supplier is termed as scheduled purchasing

Characteristics• Purchase order that covers annual requirements

of the company Is placed with the supplier.• The estimation of the procurement needs is

provided to the supplier .• Fresh delivery schedules are provided to the

supplier before the completion of the previous schedule

• Monthly deliveries are generally specified excluding perishable materials , bulky items and other items that are required in large quantities or where supplier has set up production facilities especially for the company.

3.Market purchasingThe purchasing of sufficient quantity of

items in advance when the price of these items are low is termed as market purchasing

Characteristics• Purchases are made to cover production

requirements for a considerable period• Quantity of items purchased is generally large• The atmosphere is usually favorable for

negotiation• Purchases are made when the price is low.

4. Speculative purchasingThe process of buying large quantities of an item when its price is low so that tentative profits can be earned by selling them later at a higher price , is called speculative purchasing.

Characteristics• Purchase of an item is not related to the

company's production program.• Purchasing decisions in this method are not based

on quantity• The main aim of the this method is to earn

speculative profits• Large quantities are purchased depending upon

the financial situation of the company.

Seasonal purchasing• The process of buying an item as per its annual

requirements during its season is termed as seasonal buying.

• Items are purchased in a particular season only• Items are purchased in a small size but are

required in large quantity• Purchased at cheapest rates• Purchased directly from the producers of the goods• Responsibility of the Purchase Department is

to achieve the maximum advantage by locating the producers of the items and discussing the price and other terms mentioned in the contract.

Group purchasing• The process of buying items of insignificant value in a

single purchase order is termed as group purchasing.• Items that are required in small quantities are divided

into some basic groups according to the source of purchase

• Items of every classified group will have fixed inventory levels

• For every group there is a purchase order that covers various items that are present within the group

• Stocks on hand are reviewed at regular intervals• If the stocks of some items have degraded as to the

recorder level, then replenishment action is taken for those items.

Sub contractor purchasing• The process of employing another firm to perform

some of the manufacturing operations or to provide certain parts and sub assemblies that are required to be incorporated into the buyers end product is termed as subcontract purchasing.

• When company receives a bigger order• When the company ponders on certain items of

the assembly and buys other items from other buyers.

• When company does not have any required manufacturing facilities, it gets certain operations done by other firms.

Responsibilities of purchasing dept.

• To establish and choose subcontractors that can supply parts of good quality

• Subcontractors should be within the close propinquity of the firm

• For every component , the purchasing department should select more than the subcontractor

• The buyers should keep a detailed quality assurance system with the subcontractor that is in conformity with the complete manufacturing process and inspection criteria.]

• The dept should ensure that its own quality control staff have fully understood the production specifications and inspection standards related to the component that is subcontracted.

• Subcontractors should be selected after through discussions with them regarding the capacity requirement of the buyer and the capacity available with the subcontractors

• The purchasing dept should make the subcontracting decisions on the basis of cost benefit analysis