Purchase functions and

procedures

Purchase functions and procedures

Acco to Alford and Beaty,

Purchasing is the procurement of
materials , supplies, machine tools
and services required for the
equipment,
maintenance
and
operation of a manufacturing plant.

The objectives of purchasing

Acquire materials at competitive price
Ensure supply of materials according to
production requirements
Guarantee production of better quality products
at competitive price
To suggest better alternative materials for
production
To encourage standardization
To advice various depts on feasible prices ,
timely deliveries and improved performance
To maintain goodwill of the company by fair
dealing

The functions of purchase Department

Sources for supply of capital goods and
equipments
It studies market and keep track of new
developments
It supports engineering and user depts
It scrutinizes purchase intends
It conducts discussions and releases of
purchase order
It helps in pre delivery transcription and
shortage chasing of purchased items

 It coordinates with inward inspection

It sanctions suppliers statements for payments
It processes suppliers requests for increase in
price of production materials
It arranges discussions and meetings between
suppliers representatives and company officials
It disposes excess, outdated and leftover materials
It handles management of raw materials and new
products in the market
It researches and studies the possibility of
substituting native materials for imported ones
Acts as a link between company's financial dept
and suppliers
It attends to journal activities like applying for
import license, quota etc.

The methods of purchase

1.Hand To Mouth Purchasing

Items are purchased only when there
is demand for those items
Items are purchased so that the
immediate requirements can be met
Items are generally purchased in small
quantities, but can be purchased in
large quantities when required
Competitive bids cannot be obtained
due to lack of time

Suitability of this method

Sample items and products which are under
development
Items that are used rarely and not required to
be stocked
Items that have a limited shelf life and are not
stocked for a fear of perishability
Items that are bulky and need a lot of space for
storage

2.Scheduled Purchasing
The process of buying the items that are in the
form of distributed deliveries according to the
delivery schedule provided by the buyer to the
supplier is termed as scheduled purchasing
Characteristics
Purchase order that covers annual requirements
of the company Is placed with the supplier.

The estimation of the procurement needs is

provided to the supplier .
Fresh delivery schedules are provided to the
supplier before the completion of the previous
schedule
Monthly deliveries are generally specified
excluding perishable materials , bulky items and
other items that are required in large quantities

3.Market purchasing
The purchasing of sufficient quantity of items
in advance when the price of these items are
low is termed as market purchasing
Characteristics
Purchases are made to cover production
requirements for a considerable period
Quantity of items purchased is generally large
The atmosphere is usually favorable for
negotiation
Purchases are made when the price is low.

4. Speculative purchasing
The process of buying large quantities of an item
when its price is low so that tentative profits can
be earned by selling them later at a higher price ,
is called speculative purchasing.
Characteristics

Purchase of an item is not related to the

company's production program.
Purchasing decisions in this method are not based
on quantity
The main aim of the this method is to earn
speculative profits
Large quantities are purchased depending upon
the financial situation of the company.

Seasonal purchasing
The process of buying an item as per its annual
requirements during its season is termed as
seasonal buying.
Items are purchased in a particular season only
Items are purchased in a small size but are
required in large quantity
Purchased at cheapest rates
Purchased directly from the producers of the goods

Responsibility of the Purchase Department is

to achieve the maximum advantage by locating
the producers of the items and discussing the price
and other terms mentioned in the contract.

Group purchasing
The process of buying items of insignificant value in a
single purchase order is termed as group purchasing.
Items that are required in small quantities are divided
into some basic groups according to the source of
purchase
Items of every classified group will have fixed
inventory levels
For every group there is a purchase order that covers
various items that are present within the group
Stocks on hand are reviewed at regular intervals
If the stocks of some items have degraded as to the
recorder level, then replenishment action is taken for
those items.

Sub contractor purchasing

The process of employing another firm to perform
some of the manufacturing operations or to
provide certain parts and sub assemblies that
are required to be incorporated into the buyers
end
product is termed as subcontract
purchasing.
When company receives a bigger order
When the company ponders on certain items of
the assembly and buys other items from other
buyers.
When company does not have any required
manufacturing facilities, it gets certain operations
done by other firms.

Responsibilities of purchasing dept.

To establish and choose subcontractors that can supply
parts of good quality
Subcontractors should be within the close propinquity
of the firm
For every component , the purchasing department
should select more than the subcontractor
The buyers should keep a detailed quality assurance
system with the subcontractor that is in conformity
with the complete manufacturing process and
inspection criteria.]
The dept should ensure that its own quality control
staff
have
fully
understood
the
production
specifications and inspection standards related to the
component that is subcontracted.

 Subcontractors should be selected after through

discussions with them regarding the capacity
requirement of the buyer and the capacity
available with the subcontractors
The purchasing dept should make the
subcontracting decisions on the basis of cost
benefit analysis