Method of Purchasing

METHODS OF PURCHASING 1. 2.

Bulk Purchasing Hand to Mouth Purchasing

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Speculative Purchasing Blanket Purchasing

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Reciprocate Purchasing

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BULK PURCHASING 

Under this type of purchasing large quantity of purchase for the future. Such a method is followed when it is felt that material will be regular through out the year. Discounts & concessions are enjoyed when the bulk purchase is made. The transportation cost is very much reduce in this type of purchasing.

Continuous…

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 Thus we can say that bulk purchasing is an economical purchasing. On the other hand it involve more investment of capital possibility of  over stocking & high cost storage of  less due to damages.

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HAND TO MOUTH PURCHASING  This type of purchasing is also known as purchasing by ZERO stock buying. It means that no purchase is made until a need arise and buying only the quantity which necessary to meet the current need.  This method applies principally to emergency requirements or to the goods used to infrequently that they should not be carried into stock.

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Continuous…..

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Whenever the material is bought under this method there will be zero stock for that type of materials. The main advantage of  this purchasing is that there is no blockage of capital in the material, no carrying cost, no wastages and no fear of obsoleteness. But the basic disadvantage of this type of purchasing is always fear of stoppage of  production due to shortage of material & sometimes during the period of shortage materials are purchased at high cost. 5

SPECULATING PURCHASING Some time manufactures prefer to buy the material in more quantity as compared to required in production. The purpose is to resell the surplus material at a high price p rice to earn the profit. Such type of purchasing is done when the prices are very low and there is expectations that in future the price of that vary material will definitely rise.

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It has only single advantage of  having the possibility of huge speculative profit but disadvantages include blockage of  large amount of capital, requirement of large storage space and risk of  obsolesces etc.

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BLANKET PURCHASING In this type of purchasing the items of  same group order in one category.

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RECIPROCATE PURCHASING In this type of purchasing sell to others and buy from them that is called reciprocate purchasing.

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PURCHASE PROCESS Specification & Requirement 

Requisition

Check Specification Price& Vendors

Purchase Plan

Source of Selection

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Finalization of Terms & Conditions

Purchase Order 

Supplier Acceptance

Delivery Of Materials

Receipt of Materials & Incoming Inspection

Maintaining The Records 11

SPECIFICATION & REQUIREMENTS Specifications are a detailed description or listing of the characteristics of materials, parts & components used in making a product. Specifications described the quality of the product desired in quantitative terms through specification. Proper specification result is increased sales, decreased costs, stronger competitive position.

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In some cases, an order is placed only there is some need for the product.  This method is appropriate for those items which are not of regular & common use in the production process. Purchasing department consolidates the requirements from various departments to know the local requirements for each item. 13

REQUISITION  The departments of the organization communicate to the purchase department their requirement for various items through requisition form. The format of requisition form contains the details of the quality and other necessary specification about the item to be purchased. The requisition is to be signed by the competent authority.

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CHECK SPECIFICATIONS PRICE & VENDORS  The suppliers are rated on the basis of their past performance with the company. Purchasing is a repetitive and a continuous process. The suppliers one selected should be continued or dropped is a matter of   judgment. The evaluation of supplier is known as vendor rating provides valuable information helps in improving the quality of decision. The 3 basic aspects which are considered are QUALITY, PRICE & SERVICE.

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Negotiation strive to develop our fix point on those ranges which is considered satisfactory by both the parties. Price fixing is some time qualified by the quantity of purchase sustained buying from negotiating supplier, transportation and other allied costs & insurance etc. 16

PURCHASE PLAN  Specification files and purchase records are consider while making the purchase plan. Specification files are those files in which proper data regarding the requirements which are used in making a product is mentioned.

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SELECTION OF SOURCE  After the purchase plan the purchasing department proceeds to select the source of supply. Register of  suppliers are mentioned by the purchasing departments. A right supplier is one delivers materials of  the correct specifications on the stipulated delivery dates. 18

Before placing an order following terms & conditions should be considered: Warranty  Cancellation Provision  Public Liability & Workmen Compensation Protection  Patent Protection  Federal Law & Reputation

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PURCHASE ORDER All purchases should be made through a purchase order in a specified form a duly signed by some authorized person. The purchase order must contain the details the suppliers, description of the items required corresponding prices & amount required. 20

SUPPLIERS ACCEPTANCE As late deliveries can close the enterprise for this follow up & expediting. The purchase order after waiting for reasonable time is essential. The priority of follow-up operations should be given according to the importance or classification of  items. 21

DELIVERY OF MATERIALS After suppliers acceptance the delivery of materials is done. The goods delivered are of desired specifications both in quality & quantity. If some goods delivered does not confirm with the specifications or are damaged during transshipment then steps are taken for adjustments on claims. 22

RECEIPT OF MATERIALS & INCOMING INSPECTION  The receiving department receives the materials supplied by the vendors. The quantity is verified & tallied with the purchase order. The purchase department is informed immediately about the receipt of the materials. If the materials require any quality control or inspection, they are sent for such testing. The inspection department tries to verify that the incoming materials comply with the standard, quality as specified in the purchase order.

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PAYMENT OF SUPPLIER When the goods are received in satisfactory condition, the invoice is checked before it is approved for the payment. Generally the invoice is checked to see s ee that the goods were dully authorized to purchase, they were properly ordered, they are priced as per the agreed terms, the quantity & quality conform to the order, the calculations are arithmetically correct etc. 24

MAINTAING THE RECORDS

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