Materials management purchasing

presentation on purchasing
purchasing cycle

1. Pritesh P Gharat MMS Sem- 3 Specialization – Operations Materials Management

2. Topic – Purchasing

3. Purchasing Purchasing refers to a business or organization attempting to acquire goods or services to accomplish its goals. Purchasing implies the act of exchange of goods and services for money. Purchasing function may include the purchase of raw material, spare parts, machines, etc. The chief function of the Purchasing manager is to satisfy the materials and supplies related to requirements of other depts.

4. Principles & Policies Buying the right Quality Buying the right Quantity Buying at the right Price Buying from the right source Buying at the right time and place A written policy ensures- Decisions and actions are consistent Approval limits Preference if any Multisource Reciprocal buying Cash buying

5. Objectives of Purchasing To maintain continuity of supply to support production schedules. Materials must be procured at lowest possible cost, consistent with quality and service requirements Reducing of overall materials costs through the use of scientific tools and techniques Ensure low working capital by ensuring effective control over inventories & Minimized wastages To ensure right quality in right quantity at the right time, from right source, at the right price. Establishing a harmonious buyer-seller relationship To maintain good records of purchase and ensure ethical practices and standards To improve competitive strength by ensuring best quality materials at lowest possible cost Information about new material and processes, which can reduce the cost of production and improve the performance of the product.

6. Procurement cycle

7. Elements of Procurement Cycle Establishing and communicating the need for procurement (Purchase Indent ) Scrutiny of the purchase indent Market study and selection of source of supply RFQ Quotation Approval Order preparation Follow up Receiving and inspection Storage and record keeping Invoicing system

8. Elements of Procurement Cycle 1) Need for procurement (Purchase Indent)- Purchase department gets the information on the buying need by the user In many organizations Sales and operations plan is communicated to purchase and based on Bill of material it works out the material requirement plan. Purchase indent can be manual or through ERP like SAP or through email in case of small organizations Purchase Indent contains at least following information: Material specification. Quantity and unit of measure. Required delivery date and place. Any other supplementary information required.

9. Elements of Procurement Cycle 2) Scrutiny of the purchase indent It is approved by authorized person in order to avoid irresponsible purchase The description of the required material is correctly and clearly given All specifications, brand names , Trade names , drawings are provided 3) Selection of supplier Selection of supplier who can supply right quality at right price and able to meet the quantity and delivery requirements Buyer issue request for quotation (RFQ) to selected suppliers

10. Elements of Procurement Cycle 4) RFQ – Request for Quotation This is a written inquiry that is sent to many suppliers to ensure that competitive and reliable quotations are received. It is not a sales order. After the suppliers have completed the quotations and returned it to the buyer, the quotations are analyzed for price, compliance to specification, terms and conditions of sale, delivery, and payment terms. 5) Quotation Approval Usually both the issuing and purchasing departments are involved in the decision. the choice is prob­ably made on price, delivery, and terms of sale. The quotations must be evaluated for technical factors and price .

11. Elements of Procurement Cycle 6 ) Purchase Order (P.O.) Buyer receives the quotation from supplier as a response to its RFQ Buyer prepares the comparison sheet and gets the approval to issue Purchase order A purchase order is a legal offer to purchase. Once accepted by the supplier, it becomes legal contract for delivery of the goods. supplier authorizing them to supply. PO should contain all the details like quantities , price , delivery time, mode of dispatch, delivery terms, payment terms quality, inspection criteria and other terms and conditions, etc.

12. Elements of Procurement Cycle 7 ) Fallow-Up with Supplier Follow-up with supplier is carried out to ensure the deliveries are on right time Pre-delivery follow-up is better to ensure the delivery on time and avoid further shortages. Follow-up can aware the buyer about the suppliers issues 8) GRN- Goods Receiving Note Goods are received then GRN is Prepared & Entered in ERP In most companies stores receives the material Checking quantity, weight is the responsibility of the stores Inspection is done by quality control department

13. Elements of Procurement Cycle 9) Storage & Record Based on its acceptance & rejection , stores person arrange the material at designated place Update the stores records likewise 10) Invoicing & Payment After the GRN , the documents are forwarded to the finance for further processing Finance does the invoice verification i.e. triple check – PO, GRN and supplier invoice Makes the payment of the invoice at due date