Top 7 Procedures for Purchasing Materials

Following purchasing procedure is generally followed:

1. Determining Purchase Budget:

Purchase Manager prepares a purchase budget for the forthcoming financial year. Purchase budget is prepared with the help of production planning department. It contains detailed information regarding quantity to be purchased, quality of materials, time of purchase and the sources of procurement. A schedule of materials and components needed for various jobs, known as bill of materials, is also prescribed for working out details of purchase budget. A bill of materials is also useful in exercising control over the utilization of materials.

2. Receipt of Purchase Requisition:

The purchase officer initiates action for the purchase of materials only when he receives a request for the same. The store-keeper and departmental heads send requisition slips to purchase department giving details of materials required by their departments etc. A purchase requisition is a form used as a formal request to the purchasing department to purchase materials.

This form is prepared by the store keeper for regular stock materials and by the departmental head for specific materials not stocked as regular items. The store­keeper knows when an action or fresh procurements is to be initiated. He will send the requisition when materials reach re-ordering level. He retains one copy of the requisition with him for future reference .It is on the basis of purchase requisition that orders are placed for materials.

3. Determining Sources of Supply:

Purchase Manager remains in touch with various suppliers of materials. The quotations are invited for the purchase of specific items. After receiving quotations a comparative study is made regarding terms and conditions offered. The factors to be considered include price, quantity, quality, time of delivery, terms of payment, trade discount and reputation of suppliers. After looking at various factors a final decision is taken about the supplier of goods.

4. Placing Order:

After selecting a supplier a formal purchase order is sent for the supply of goods. A purchase order is sent on a printed form and is duly authorized by the purchase manager. This order should contain details about the quantity, quality, price, mode of delivery, terms of payment etc. The purchase order authorizes the vendor to despatch goods specified in it. It establishes a contractual relation between the buyer and the vendor.

5. Follow-Up of Purchase Order:

A purchase order normally bears a date by which the goods must be delivered It is in the interest of the organization that goods are received in time for keeping uninterrupted flow of materials. The suppliers may be reminded of the date of delivery of goods. A follow-up of purchase order is necessary to receive stocks in time.

6. Receipt and Inspection of Materials:

In big concerns the task of receiving materials is assigned to the purchase department whereas in small concerns this work is done by the store keeper. After unpacking goods their quantity is compared to that given in delivery challans. Any discrepancy in items is reported to the purchase department. The specifications and quality of goods is also checked at this stage.

7. Checking Invoices:

Lastly, purchase department checks the invoices supplied by the vendor with that of its own records. The quantity, quality, price, terms etc. are compared with those given in purchase order. After making full checking the invoices are sent to accounts department for payment.

Submitted by : Professor Amy, Category : Purchase Management