In this Blog post, we will talk about the Concept of Purchasing Procedure and Key Steps involved in the Purchasing Process.
Concept of Purchasing Process
To manufacture a Finished Product, firm needs the raw material to process. A Delay in the order can interrupt the production process and incur huge losses for the firm.
That’s why, To maintain the regular supply of material, a proper purchasing procedure follows in the organization which includes the no. of steps.
Most of the Organization use the Centralized Purchasing System in which the Purchasing Department takes the material requirement from all the Departments.
After that, the Purchasing Department purchase the materials of all the departments on their behalf from the suppliers.
If any Department has the preferred supplier, the Purchasing Department purchase their material from them.
The Centralized Purchasing System is very beneficial for the Business because it is cheaper as compared to Decentralized Purchasing System. But Before that, firstly you should know what is Decentralized Purchasing System?
In Decentralized Purchasing System, Every Department purchase their material from their supplier. This leads to more expensive because of buying in less quantities and also incur separate Transportation Costs for every department material supply.
So, Now Discuss all the Steps in the Purchasing Procedure.
Steps in the Purchasing Process
Basically there are 6 steps in the Purchasing Procedure that are as follows-
- Purchase Requisition- The First Step in the Purchasing Procedure is the Purchase Requisition. In this Step, the Departments fill their material requirements in the Purchase Requisition Form and give it to the Purchase Department. In the Material Requisition Form, the Requesting Department fills the Material Description, Quantity required, Code No., Remarks and more. This can be better explained through the sample of Purchase Requisition Form.
- Locating the Source- After getting the Purchase Requests from all the Departments, the Purchasing Department looks for the Suppliers. In the Case of Big Project, the Purchasing Department gives the Tenders of the Materials Requirement on Magazines, Newspapers, Online Websites etc. to find out the Best Supplier at the effective prices.
- Request for Quotation- This is a Major Step in Purchasing procedure. After shortlisting some Suppliers, Purchasing Department request those suppliers to give their Quotation for prices. In Quotation, the suppliers mention their Material terms in respect of Quantity, Prices, Delivery, other terms and some remarks.
The Second and Third Step of Purchasing Process can be better explained from the Image Below👇🏻👇🏻
- Purchase Order- After choosing the Best Supplier according to their Delivery Terms and Price, the Purchase Department gives them the Purchase Order. Chief Purchasing Officer gives the Purchase Order by filling the material requirements- Quantity, Delivery instructions, Payment terms, Packing and Dispatch Instructions, Discount Allowed etc.
- Receiving and Inspection of Materials- This is the most Important Step and Procedure in Purchasing. The Order which you have given to Supplier, now it’s reached to your Organization. The Purchasing Department has to carefully receive and inspect the materials in terms of Box packaging, quality, quantity, etc. For this, the Original Copies of the Goods Received Note is given to the Store Department, One Copy to the Purchase Department, One Copy to the Cost Accounting Department and the One Copy for the future requirement.
- Payment of Bills- After receiving the goods according to their terms and conditions, then the Purchasing Department do the payments of the Bills. If the Supplier do any delay in the delivery or organization find any defect in the goods. In that Case The Organization can cancel the order or change the payment terms.
The Steps in Purchasing Process plays an important role in Purchasing Department in all the organizations. These Steps are the most followed steps in every organization. Yes, these are not set in stone steps. There can be any addition or modification in the steps.
So, this was about the Steps and Procedure in Purchasing. If You find our Content Useful, then don’t forget to share it on the Social Media Profiles.
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