Steps of Purchasing Procedure

The procedure describes the sequence of steps leading to the completion of an identified specific task. Thus purchasing procedure describes the sequence of steps by which a purchase function is carried through from its inception to its completion. The purchasing procedure starts with the realization that something is required, the need is then spelt out either in the form of requisition or in a bill of materials, then attempts are made to identify their sources, the appropriate supplier is selected on the basis of some scientific analysis, the purchase order is placed with the selected supplier, it is checked to ensure that the delivery is made as per the agreed terms, the invoice of the vendor is checked and paid out and finally all relevant records are filed and maintained. Generally the professionally managed organizations prepare their own “Purchase Manual” which details out the purchase procedure. It is not desirable to prescribe any standard purchasing procedure due to the existence of wide range of variations that exist among industries, companies, products, personnel etc. Generally organizations should devise their own procedure on the basis of their specific needs. However, the following basic steps are considered while prescribing the full proof purchasing procedure.

Steps of purchasing procedure: The purchasing generally comprises the following steps:

1) Recognition of the need
2) Selection of the supplier
3) Placing the purchase order
4) Follow up of the order
5) Receiving and inspection of the materials
6) Payment of the invoice
7) Maintenance of the records
8) Maintenance of the vendor relations.

Purchasing is a continuous and recurring phenomenon. The prescription of procedure simplifies and expedites the operation. Similarly various types of forms are designed to simplify the purchasing procedure. The popular forms which are used in the purchasing procedure are: Purchase Requisition, Purchase Order, Purchase Contract Form, Follow up Form, Receiving slip, Inspection Report, Test Certificate, Rejection Form etc. These are all now computerized and the concerned Purchase and Stores personnel can review the same online.

Following paragraphs briefly describe the various steps involved in the purchasing procedure:

Recognition of the need: The initiation of procedure starts with the recognition of the need by the needy section. It may be either manufacturing department, stores department or the office section. The demand is lodged with the purchasing department in the prescribed Purchase Requisition Form forwarded by the authorized person either directly or through the Stores Department or through online. It is also called purchase indent. The three most common types of purchase requisitions are:

1) Standard purchase requisition
2) Traveling purchase requisition
3) Bills of materials
4) Through computer in-house network.

The purchase requisition clearly specifies the details such as specification of materials, quality, quantity, suggested supplier etc.

The company should specify by way of policy that who can make out the purchasing requisition and who can authorize the expenditure by counter signing it. If the requisitions are directly sent to the purchase department by the needy section, then a list of the authorized signatories should be made available to the purchase department. The extent of the authority of each signatory should also be specified e.g. the supervisor may e authorized to sign the requisition requisitioning the tools up to Rs 200 and above this limit, it must be countersigned by the higher authorities such as Works Manager. The stores department makes the requisition for those items which have reached to the re-order level. Currently when the request is generated through in-house network the Purchase department must automatically initiate action for procurement. Suitable Software is available for the entire Materials Management functions. This is used for all actions required to undertake the steps given below:

Traveling Purchase Requisition:

It is used by stores for requiring requirements of materials and standard parts. It is in the format of a card for a simple item, and is used for many requisitions, when the stock level drops to or below the re-order point.

Bill of materials:

In a jobbing industry wherein production is undertaken according to the specifications of the customers, the bill of materials serves as a requisitioning document. A bill of materials is a comprehensive list of all items which are required in completing one specific order. It is prepared at the time of engineering drawing of the product. Generally the low value sundries and items of common use are purchased for stock while costlier and special items are purchased according to the production programs. The purchases of machines and equipment and such capital expenditure items are treated in different manner. Generally the corporate level executives are the authorized signatories to such demands. Such purchases are approved by the Board of Directors. The reference of the approval is made on requisition and a copy of the requisition is sent to secretary for the purpose of overall planning and budgeting.