What is the Purchase Procedure of a Material in Large Organisations?
In each and every large organisation, a particular procedure is followed for the purchase of material. The procedure is given below:
1.Receiving Purchase Requisitions.
2.Exploring the Source of supply.
3.Inviting quotations and selecting suppliers.
4.preparation of Comparative Statement
5.Placing Purchase order.
6.Follow up of purchase order
7.Receiving and inspection of material.
8.Checking and processing the bill for payment
1.Receiving Purchase Requisitions:
The purchase department doesn’t make purchases on its own. It generally makes purchases after receiving purchase requisition from stores department or user department.
Purchase requisition is a document which contains a formal request made by the stores department or user department to the purchase department to purchase the required material.
In other words, purchase requisition is a document or statement continuing a request to the purchasing department to purchase the material. The requisition contains the following details:-
- Requisition code Number and date.
- quantity and quality of materials required.
- details of the materials required.
- Specification of material.
- Name of the suppliers etc.
Purchase requisition is prepared by the store keeper in triplicate, the original copy is kept by the purchasing department and 2nd copy is kept by the storekeeper, the 3rd copy is sent to the closing department for reference.
The purchase requisition may be given by following department:
a.Storekeeper for regular materials.
b.Purchase control department for special material required for a job.
c.Repair and maintenance department for repairs and maintenance material.
d.Publicity managers for advertisement and publicity of materials.
e.Other department for materials required by them.
2.Exploring the source of supply:
After receiving the purchase requisition, the purchase department tries to explore the best economic source of supply and the best suppliers. Generally the purchase department maintains the list of goods supplied for each category of materials. In that case, it will ask the concerned suppliers to send quotations for materials to be purchased from them. In some other cases, the purchase department may bring out an advertisement in newspapers or trade journals for sending quotations by the interested suppliers. The purchase department generally maintains a list of suppliers name and address.
3.Inviting quotations and selecting suppliers:
After receiving quotations from different suppliers, the purchase department will open the quotation on a stipulated date in the presence of the suppliers or their representatives and invite quotations from suppliers by issuing tenders. There are three methods of obtaining tenders.
- Open tender (by open advertisement)
- Limited tender(by direct )
- Single tender (by inviting one firm only)
4. Preparation of Comparative Statement:
After receiving tenders and quotations the purchasing department makes a comparative statement inorder to choose the most economic source of supplier.
All the quotations will be incorporated in a statement called comparative statement of equations. This is done in order to compare the price and other terms and conditions of supply quoted by different suppliers.
Factors taken at the time of quotations:
While selecting the best quotations, the following factors are taken into account:-
i.Price quoted for the material.
ii.Quality of the material.
iii.Manufacturing capacity of the supplier.
iv.Financial condition of the supplier.
v.Reputation of the supplier.
vi.Track record of the supplier if he was dealing with the firm in the past.
vii.Terms of delivery and payment etc.
So, the quotations which are considered as the most suitable one from the organisation point of view are selected and the concerned supplier is intimated.
5. Placing Purchase Order:
After selecting the best supplier, the next step is to prepare a purchase order. Purchase order is a document containing the request by the purchase department to the concerned supplier to supply the requirement material. The mutually agreed terms and conditions of supply are also mentioned in it. On the authorisation of purchase order, the supplier supplies the materials mentioned in it.
Purchasing order is a document which is issued by the purchase department to the supplier in order to purchase the raw material.
It is the evidence of contract between the purchase and supplier when the supplier is bound to supply raw materials according to the terms and conditions of the purchase order.
Generally, 5 copies of the purchase order are prepared. They are used as follows:-
i. Original copy is sent to the supplier.
ii. One copy is sent to the accounts department.
iii. One copy is sent to the receiving and inspection department.
iv. One copy is sent to the department making the purchase.
v. One copy is retained by the purchase department for future reference.
6. Follow up of Purchase Order:
After sending the purchase order, the purchase department doesn’t sit idle. It will send reminders to the supplier at regular intervals to know whether the supplier is supplying the material in time or material otherwise alternative arrangements will be made for material. This is called a follow up purchase order.
7. Receiving and Inspection of Material:
On the stipulated date, the material is received by the receiving and Inspection department. On receiving the material, the running department will check the quantity and specification of material received by comparing it with the quantity and specification mentioned in the purchase order.
The quality control inspector may be called to check the quality of the material. If everything is found ok, the material is received and the good receiving clerk will prepare the goods received note. The goods receiving note is a document which contains the details of materials received.
In other words, receiving and inspecting material depends upon the nature and size of the enterprise. In a large organisation there is a separate department for the same whereas in a small organisation. It is formed by a storekeeper.
Generally, 6 copies of goods received are prepared by the receiving clerk. All the copies, together with the materials received will be sent to the stores department. The storekeeper will again check the material by comparing it with the goods received note and purchase order.
If everything is found correct, the storekeeper will receive the material and will sign all the 6 copies, He will retain one copy in the stores department and send the remaining copies to following copies:-
i. To the accounts department.
ii. To purchase a department.
iii. To the requisitioning department.
iv. To the production control department.
8. Checking and Processing the bill for payment:
After the goods are delivered, the supplier will send the bill to the accounts department. Now the accounts department will check the bill by referring to the copies of purchase order, goods received note, inspection report etc. If everything is found correct the accounts department will pass the bill and payment will be made to the supplier.