Purchase cycle

Presented by

Chandra PrakashDewangan

Purchase Cycle

Purchasing

“the process of buying”

Requires input from:– Marketing

– Engineering

– Manufacturing

– Manufacturing Planning and Control• what materials to order

• when to order them

Purchasing of material ,machinery andservices is done by purchasing department.

For buying the material company has to payup a price, the value that a seller sets on hisgoods in the market is called as the price ofthat good.

Price is one of the greatest variables in thepurchasing of material.

Requirements for purchase systems

• procurement involves sourcing items:

– At the right price.

– Delivered at the right time.

– Of the right quality.

– Of the right quantity.

– From the right source.

Steps in purchase cycle

1. Receive and analyse purchase requisitions

2. Select suppliers, issue quotations

3. Determine the right price

4. Issue purchase orders

5. Follow-up to assure correct delivery

6. Receive and accept the goods

7. Approve invoice for payment

Receiving and Analyzing purchase Requisitions

• The first step in the purchasing cycle is preparing the purchase request. The purchase request is

• a document used to inform the purchasing agent that an office or a department needs to buy something. It is the basis for preparing a purchase order.

A purchase request usually includes the following information:

• Department name.• Date.• Account code to be charged.• Requisition number.• Desired delivery date.• Description, model number, or specifications of

required purchases.• Quantity required.• Unit price.• Authorized signatures.

Selecting Suppliers

Often from a list of approved suppliers For small items:

• internet• catalogues• trade journals

For large items, issue a request for quotation• telephonic quotations• written quotations• scheduled buying

Requesting Quotations

• Written inquiries sent to enough suppliers– to ensure competitive and reliable quotes are

received

• Quotes are analyzed– price

– compliance to specification

– technical suitability

– often with the involvement of the originator

Determining the Right Price

• Usually the lowest

• May involve negotiations

• Responsibility of the Purchasing Department

Issuing a Purchase Order

• Legal document

• Forms a contract with the supplier upon acceptance

• Copies to:• Supplier• Originator• Accounting• Receiving• Purchasing file

A purchase order authorizes a vendor to ship and invoice the materials and services as specified. Purchase orders shall be clear, concise and complete. This will prevent any unnecessary misunderstanding during correspondence with vendors.

Follow-up and Delivery

• Ensure on-time delivery

• Negotiate any changes

• Take corrective action:

– expedite as required

– find alternative sources of supply

– work with suppliers to resolve problems

– reschedule production?

Receiving and Accepting Goods

• Receiving inspects goods for correct quantity and any damage

• Accepts goods and generates a receiving report

– send to quality for further inspection

– hold goods damaged in transit

• Copies to Accounting, Purchasing

Approving Invoice for PaymentAn invoice is a document that itemizes charges for the purchase of supplies, materials, equipment or services which have been furnished. It is the means by which the vendor informs the County of its obligations and should contain the same basis information as the purchase order.

WHAT AN INVOICE SHOULD CONTAIN

1. Purchase order number

2. Date of order (if possible)

3. Date of delivery

4. Itemized list of materials or services rendered

6. Quantities, prices, (both unit and total), terms and any other charges contained in the purchase order

7. Delivery charges should be listed separately from the materials and supplies if they are not included in the unit price

5. Destination of delivery

Points to remember while purchasing•Proper specification

•Invite quotations from reputed firms

•Comparison of offers based on basic price, freight & insurance, taxes and levies

•Quantity & payment discounts

•Payment terms

•Delivery period, guarantee

•Vendor reputation

(reliability, technical capabilities, Convenience, Availability, after-sales service,

sales assistance)

•Short listing for better negotiation terms

•Seek order acknowledgement

Objectives of Purchasing

Obtain goods and services: of the required quantity and quality at the lowest possible cost at the best possible service and delivery while maintaining and developing suppliers

Purchasing Functions

• Determining purchasing specifications

– right quality

– right quantity

– right time (delivery)

– right place (delivery)

• Selecting supplier

– right source

Purchasing Functions (continued)

• Negotiating terms and conditions

– right price

• Issuing and administering purchase orders

Case study

• MM Industries Pvt. Ltd. is one of the largest manufacturers of Welded Wire Mesh in Central India. Established in 1995, at Raipur. MM Industries has served over 100 national and international clients. Producing varieties of welded wire mesh and related products.

• M.M. Industries has rate contract with Chhattisgarh state Govt. for welded wire mesh, chain link fencing & barbed wire mesh.

• The manufacturing plant spreads over 80,000 sq. ft. on the airport bypass, situating us on the NH-43. The plant is equipped with five fully automatic fusion welding lines, three hexagonal mesh lines and eight wire drawing units. Chain Link and Concertina Coils units also share the manufacturing space.

products

• Punched tape concertina coil

• Hexagonal wire mesh

• Vibrating screen

• Chainlink fence

• Gabion( crate/ box)

Purchasing procedure

• They follow the steps in purchasing are

1. Indent is send by the department.

2. Enquiry form to be send to the vendors.

3. Quotation received the vendors to be evaluated.

4. Comparative statement is prepared supplier is finalised.

5. Placing the purchase order.

6. Goods receipt is prepared by stores.

7. Invoice authorization & dispatch to finance.

Purchasing card