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P&OM Steps and Methods of Purchasing

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23 views19 pages

P&OM Steps and Methods of Purchasing

Uploaded by

snigdhagandhi2304
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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Steps in Purchasing

Procedure and Methods


of Purchasing
STEPS IN
THE PURCHASING
PROCESS
Identify the Need
● The purchasing process begins
when the business recognizes
that they have a need for a
product, tool or service that will
enhance their operations.

● Team members can help identify


needs as they complete their daily
work by notifying their supervisors
of any challenges they encounter.

● Once the organization identifies a


need, they can begin the
purchasing process.
Specify the
Requirement
In this step the business clearly
defines what product, tool, or
service is required to solve a
problem or improve operations.
After recognizing a need, the
company gathers input from
team members to understand
exactly what is needed. This step
helps ensure that the right
solution is chosen, making it
easier to find the best product or
service later on.
Find and Choose a Supplier
● This step involves identifying businesses
that can provide the required product or
service. This can be done through online
research, industry directories, or
recommendations from professional
networks. If shipping costs are
important, it's beneficial to prioritize
local suppliers.

● During this phase, it's essential to


compare multiple suppliers based on
factors like price, reliability, and delivery
time. To gather more detailed
information, buyers often reach out to
suppliers for quotes or proposals.
Negotiate Costs
• It involves discussing and reaching an
agreement on the price of the
product or service with the selected
supplier. This stage is crucial for
ensuring that the business gets the
best possible deal.

• Buyers should prepare by


understanding the market rates and
being aware of the supplier’s pricing
structure. During negotiations, it’s
important to communicate clearly
about budget constraints, explore
discounts for bulk purchases, payment
plans or warranties.
Get Order
Approval
• This step involves seeking authorization
before finalizing the purchase. Once the
preferred supplier and terms are established,
the buyer prepares a purchase order
detailing the product or service, quantity,
price, and other relevant terms. This
document is then submitted to decision-
makers for approval.
• Gaining this approval is crucial as it ensures
that the purchase aligns with the company’s
budget and policies. Once authorized, the
buyer can proceed with placing the order,
ensuring all internal protocols are followed.
Place the Order
● This occurs after obtaining the
necessary approvals. In this
stage, the buyer formally
submits the purchase order to
the selected supplier,
confirming the details of the
transaction, such as the product
or service, quantity, agreed-
upon price, and delivery terms.

● After the order is placed, the


buyer should monitor the order
status and maintain
communication with the
supplier to ensure timely
delivery.
Receive and Approve the Order
● This step involves verifying that
the delivered product or service
matches the specifications
outlined in the purchase order.
Upon arrival, the buyer checks
for accuracy in quantity and
quality. If everything is correct,
they approve the receipt.

● If discrepancies arise, the buyer


addresses them with the supplier
promptly. This step ensures that
the organization receives what it
ordered and meets expectations.
Review Supplier
● It involves evaluating how well Performance
the supplier met the terms of
the purchase order after
delivery. This includes assessing
product quality, delivery
timeliness, and overall service.

● Feedback from team members


and metrics like on-time delivery
rates help identify reliable
suppliers and inform future
purchasing decisions. Regular
evaluations also support better
negotiations for future contracts.
Here’s a real-world example using
Ford Motor Company

Ford Motor Company (commonly known as Ford) is an American multinational


automobile manufacturer headquartered in Dearborn, Michigan, United
States. It was founded by Henry Ford and incorporated on June 16, 1903.
Methods of
Purchasing
Purchasing
according to Market Purchasing
requirements
1 2 3
Purchasing for
a specific
period

4 5 6
Speculative Purchasing Contract Group Purchasing
Purchasing
1. Purchasing
according
to requirements
• This method is also
called hand to mouth
buying.
• In this method, the
material is purchased
by the department
when the need arises.
• It fulfils th emergency
production needs and
occupies less storage
area.
2. Purchasing
for a
Specific period
• The standard material like oil,
stationery, tools that are required to
run day to day operation fo the
plants, offices is purchase in
quantities for a specific period of
time.
• It helps to run daily operations
smoothly without any delay.
3. Market purchasing
• This method helps the organisation to
take full advantage of the changing
marketing conditions.
• The material requirements for
production are calculated and the market
condition is analysed.
• The material is purchased in advance of
future needs when the prices are low.
4. Speculative
purchasing
• In this, the intent is to buy excess material more than
the requirement to take the advantage of coming price
rise.
• Management resale the material ar a later date when
the prices go up and make a profit by selling.
5. Contract Purchasing
• In this method, supplier and
purchase a enter into a contract. In
which suppliers have to supply the
material at the agreed price for a
certain period of time (2-3 years).
• Many big organisation that deals in
large quantities like iron, steel or
coal preferred to go for contract
purchasing.
6. Group purchasing
• The department purchases the material in groups or lot instead of
placing seperate orders for different items.
• The clerical work gets minimise and because the quantity of material
is large, the supplier can offer the material at cheap rates also.

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