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Purchasing is a function of procuring goods & services from sources external to the organization. According to Alford & Beaty: Purchasing is the procuring of materials, supplies, machine tools & services required for the equipment, maintenance & operation of a manufacturing plant

A] Exclusive Responsibilities: Selecting Right suppliers. Obtaining Materials at best prices. Follow up with suppliers for prompt delivery. Developing & Maintaining good relations with suppliers. Enquiring into complaints both from suppliers & user department.

Selecting the right managers & staff for the purchasing function. Giving training to the personnel to improve their effectiveness & efficiency. Market research for purchasing.

B] Shared Responsibilities:

Obtaining technical information & advice on materials. Establishing & developing specifications for materials. Scheduling orders for materials on suppliers & fixing delivery dates for supplies. Specifying modes of delivery & transportation. Inspecting materials received.

Accounting of materials purchased, including payment of bills. Inventory Control. Receiving, store keeping & warehousing. Sale of scrap & surplus. Transportation of materials including clearing of goods. Determining whether to Make or Buy (i.e. make the component in ones own factory or buy them form outside)

Right price Right quality Right time Right source Right quantity Right attitude

2.Responsibilities often shared other than purchasing functions. (a) Obtaining technical information and advice (b) Receiving sales presentations and arranging for sales oppurtunities with interested personnel. (c) Establishing specifications (d) Scheduling orders and deliveries. (e) Inspecting (f) Specifying delivery method and routing.

(g)Expediting (h) Accounting (i)Purchasing and markett research (j)Inventory and warehousing policy and/or control (k)Forward buying and hedging policies and procedures (l)Construction contracting (m)Sevice contracts and agreements (n)Sale of scrap salvage and surplus (o)Purchasing for employees (p)Contracting for machines and equipment (q)Development of specifications (r)General consideration of quantities or timiming on planning deliveries.

(s)Transportaion and traffic (t)Determination of whwther to make or buy (u)Customs (v)Other functions

3 Responsibilities often deliverd from purchasing but of perticular interest to purchasing

(a) (b) (c)

receiving and ware housing Payment of invoices Other functions

Recognition of need Description of need A suitable source is selected for the supply. Often a source has to be developed. 4. Price and availability are determined 5. Purchase order is prepared and sent out to the supplier 6. Acceptance of the purchase order is obtained from suppliers 7. Follow up is done by the purchasing department to ensure timely delivery of the material 8. Checking the invoice and approving it for making payment to the supplier
1. 2. 3.

Negotiation can be defined as: "To communicate with the objective of reaching an agreement by means, where appropriate, of compromise."

The advantages of negotiation include: It is a relatively expedient method of obtaining a value-for money solution It is a useful method of maintaining value for money in a single source situation i.e. where there is no real competition

 It is useful when the requirement is difficult to specify It is relatively inexpensive to undertake It is flexible and not prescriptive It should be confidential

Purchasing and supply management professional should ensure that the negotiation is properly planned. The extent of the planning should be a function of value and risk. The planning process should include: A diagnosis of the situation An accurate appraisal of the buying organization's expectations An assessment of both parties' bargaining power.

The setting of objectives for the negotiation e.g. the ideal, realistic and fall back positions need to be identified and agreed The development of a strategy for the negotiation i.e. approach, style, communication, concessions, baseline even venue e.g. a neutral venue may prove more appropriate than the offices of one of the parties to the negotiation The factors need to be identified i.e. those things which the buying organization can trade for things they would like to obtain from the supplier and those things which can be conceded etc. It is advisable to try to anticipate the suppliers' perception of such factors.

During the negotiation, the strategy must be implemented and in addition: The needs of both parties should be explored Movement needs to be maintained Objectives may need to be reviewed Tactical ploys may need to be used Concessions may need to be given from both sides Settlement needs to be recognized and agreed Closure needs to happen The agreement needs to be documented

A successful negotiator has to possess the qualities of: Patience Persistence Persuasiveness Clear thinking Logical analysis Optimism Knack of getting along with people Ability to plan Be thick skinned

1.Pre- purchase system

2.Ordering system
3.Post purchase system

Initiating the purchase through Requisition requirement programmes Selection of suppliers Obtaining quotations Evaluation

Requisitions: The department concerned, in need of a material usually presents a completed requisition form. It can be made by anyone in the concerned department. However, it has to be countersigned by a senior official. Travelling requisitions: This is widely used for requisitioning of items that are required frequently in bulk quantities over a period of time. Enquiries: Many organizations often invite suppliers to quote for supply materials.

Purchase order includes: Purchase order reference number Description of the materials and detailed specifications Quantity required and delivery schedule Location where the materials are to be supplied Signature of materials manager who can authorize the order Detailed terms and conditions

1.Follow Up

2. Receipt

3. Invoice checking

Follow Up: Depending upon the movements, items can be classified into fast moving or slow moving. For fast moving items follow up can be initiated whenever stock level depletes to one month consumption. Receipt: It is a schematic record of consignments received, carrier details and descriptions are to be maintained in chronological sequence to help in quick identification of materials, so that inspection can be arranged prior to acceptance.

Invoice checking: The supplier normally

sends an invoice for the materials supplied to the buyer for payment. It is important that this invoice is matched against the receipt details, quantity accepted and rejected so that payments can be made within the discount period and provisions be made which will helps in funds planning.

1)

2)
3)

Forward buying Tender buying Use of standard deviation for tendering Blanket orders Zero stock Rate contract Reciprocity Systems contract

Depending upon the availability of item, the financial policies, the economic order quantity(EOQ), the quantitative discounts and staggered delivery, the future commitment is decided. This type of forward buying is different from speculative buying where the motive is to make capital out of price changes, by selling the purchased item.

It is common for government departments and public sector undertakings to purchase through tenders. Private sector undertakings adopt tender buying only for high value items. The steps involved are: To establish bidders list Solicit bids Evaluating bids by comparing quotations Placing order with the lower bidder

Blanket orders:- These provide a required quantity of specified items over a period of time, usually for one year, at an agreed price. Deliveries are made depending upon the buyers need. The system relieves the buyer from routine work, giving him more time for focusing attention on high value item.

 Zero stock:- Some firms try to operate on the

basis of zero stock and the supplier holds the stock for these firms. Usually the firms of the buyer and seller are close to each other so that the raw material of one is the finished product of another.

Rate Contract:- This system is prevalent in

public sector organizations and government departments. After negotiation, the seller and the buyer agree to the rates of items.

 Reciprocity:- Reciprocal buying means

purchasing from one customer in preference to others.

Systems contract:- In this, the original

indent, duly approved by competent authorities is shipped back with the items and avoids the usual documents. The contract is invariably simple, covering only delivery periods, price and invoicing procedure.

Vendor Rating is a system used by buying organizations or industry analysts to record, analyze, rank and report the performance of a supplier in terms of a range of predefined criteria, which may include such things as:

Quality of the product or service Delivery performance and reliability Cost, price Capabilities Service Financial continuity of the firm

Objectives of vendor rating are :

To motivate suppliers to improve performance.

To apportion orders to deserving vendors for overall cost reduction.

To select vendors for further development. To reduce the cost of inspection of incoming lots by modifying sampling plan.

 Clear and objective overview of performance of suppliers

Enables better vendor management Incidents and escalations can be monitored earlier Suppliers are stimulated to improve their performance In the case of periodical vendor rating: analyze trends in vendor performance If vendor rating is carried out before the placement of an order, it is also known as Supplier Evaluation. When undertaken after order fulfillment, it is also referred to as Supplier Rating.

a)

SIGNIFICANT DIFFERENCES Extent of negotiations Lead time requirement Size of the Expenditure Availability of Sources

b.

CONSIDERATION IN EVALUATION OF BIDS

i) Operating characteristics and engineering factors

ii) Economic Analysis of Investment 1.Pay Back Period Approach 2.Return on Investment Approach 3.Internal Rate of Return 4. Discounted Cash Flow Method

iii) Purchase of used Equipment

iv) Purchase versus Lease

v) Role of the Purchasing Manager

 1) 2)

STAGES OF IMPORTS Locating foreign source of supply Procurement of item Documentation

3)

Bill of Lading Invoice and certificates The commercial invoice Packing lists The certificate of origin Nature of insurance policy Markings of packages Payments