TYPES OF
PURCHASING
SYSTEM
Avish Shah (87)
Karen Rodricks (82)
Subramanian (102)
Niket Shah (89)
Pranali Nawale (63)
Varsh...
WHAT IS A PURCHASING
SYSYTEM?
A method used by businesses to buy products and/or services.
A purchasing system manages the...
FUNCTIONS OF
PURCHASE
DEPARTMENT
Purchase materials at lowest possible cost while maintaining
quality.
Maintain good relat...
TYPES OF PURCHASING
SYSTEM
Tender System
Stockless Purchase System
Blanket Order
E-Purchasing / E-Procurement
Subcontracti...
SUBCONTRACTING What is Subcontracting?
Examples
WHAT IS
SUBCONTRACTING?
Subcontracting refers to the process of entering a contractual
agreement with an outside person or...
SUBCONTRACTING
IS ALSO KNOWN
AS OUTSOURCING
Outsource means to
send part of a
company’s work to
outside providers to
simpl...
ADVANTAGES &
DISADVANTAGES
Advantages:
Cost Saving
Increased Efficiency
Continuity & Risk Management
Disadvantages:
Loss o...
HIDDEN COSTS OF
SUBCONTRACTING
EXAMPLES
Subcontracting is probably most prevalent in the construction
industry, where builders often subcontract plumbing...
TENDER SYSTEM
What is Tender?
Types of Tender
Advantages
Disadvantages
WHAT IS TENDER?
In this system the entity invites suppliers to give their
quotations.
The supplier with the lowest quotati...
TYPES OF TENDER
Open Tender
This is where an opportunity (including all tender documents) is
advertised inviting providers...
NOTICE Advertised in a leading
daily
TYPES OF TENDER
Restricted Tender
This involves the opportunity being advertised in the relevant
places and media.
Organis...
TYPES OF TENDER
Negotiated Tender
It can only be used in a limited number of carefully defined
cases (e.g. large capital p...
PROCESS
Invitation
Pre/Post
Qualification
Questionnaire
Bid Bond
Site Visit Tender Box
Receipt of Tenders
Withdrawal of Of...
ADVANTAGES &
DISADVANTAGES
Advantages:
Competitive
Lower Cost
Transparent Process
Disadvantages:
Low Price usually Detrime...
BLANKET ORDER
What is Blanket Order?
Advantages &
Disadvantages
WHAT IS BLANKET
ORDER?
Company purchase many small items on day to day basis. It
becomes difficult to have inventory for a...
BLANKET
PURCHASE ORDER
Proforma of a Blanket
Purchase Order
ADVANTAGES
Flexible
Avoid negotiation
Avoid placement of new order again and again
Advantage to supplier to plan the work ...
DISADVANTAGES
Petty frauds
It requires flexible internal control
Poor vendor performances
Difficult to determine and forec...
CAPITAL
EQUIPMENT
PURCHASE
What is Capital
Equipment Purchase?
Advantages
Disadvantages
WHAT IS CAPITAL
PURCAHSE
EQUIPMENT?
It is a purchasing system which requires high capital.
It is used to purchase large va...
ADVANTAGES &
DISADVANTAGES
Advantages:
Flexible
One Time Investment
Increased Co-ordination & Communication
Disadvantages:...
PETTY CASH
SYSTEM
What is Petty Cash
System?
Advantages
Disadvantages
WHAT IS PETTY CASH
SYSTEM?
A small fund of cash is kept in hand for purchases or
reimbursements which are too small to be ...
ADVANTAGES &
DISADVANTAGES
Advantages:
Easy
Time saving
Disadvantages:
Embezzlement of Funds
Cuts down on accountability
A...
EXAMPLES
Purchase of Stationery like pen, pencil, paper, book, etc.
Purchase of Postal Stamps.
IMPORTS
What are Imports?
Advantages
Disadvantages
Process
WHAT ARE IMPORTS?
It is a method to purchase the goods from the area or the
country outside the India Territory.
Imports a...
PROCEDURE
Obtaining
Import
License
Obtaining
Foreign
Exchange
Placing an
order
Receipt of
Shipment
Advice
Appointing C
& F...
ADVANTAGES &
DISADVANTAGES
Advantages:
Stabilize seasonal market fluctuations
Maintain cost competitiveness in your domest...
E-PURCHASING
What is E-Purchasing?
Advantages
Disadvantages
E-PURCHASING / E-
PROCUREMENT
E-procurement is the business-to-business or business-to-
consumer or business-to-government...
ADVANTAGES
Reducing Cost
Visibility of spend
Productivity
Control
Quicker processing times
Better communication
DISADVANTAGES
High Learning curve
Human or system errors in orders
No hardcopies
Training costs
System failure
ORDER ON
TELEPHONE
What is Order on
Telephone?
Advantages
Disadvantages
WHAT IS ORDER ON
TELEPHONE?
It is a method used to place orders of small value.
In this method the purchase department doe...
ORDER ON
TELEPHONE
A purchase manager in
a restaurant placing the
orders for the grocery
over the telephone
RATE CONTRACT
METHOD
What is Rate Contract
Method?
Process
WHAT IS RATE
CONTRACT METHOD?
A Rate Contract or a Rate Agreement (RC in short) is a
procurement cost reduction strategy a...
PROCESS
Spend
Analysis
Market
Analysis
Supplier
Interactions
Receipt of
Quotes
Selection of
Suppliers
Finalization
of Rate...
STOCKLESS
PURCHASING
What is Stockless
Purchasing?
Examples
Advantages &
Disadvantages
WHAT IS STOCKLESS
PURCHASING?
Stockless purchase system can be defined as Arrangement in
which a supplier holds the items ...
EXAMPLES
Tyre warehouse near automobile manufacturing units.
Petrol pumps in transport undertaking.
Aviation fuel pumps at...
ADVANTAGES &
DISADVANTAGES
Advantages:
Reduced warehouse space
Eliminate the cost of storing, maintaining and distributing...
COMPANIES AND
PURCHASE
SYSTEMS
INDIAN RAILYWAY
CATERING AND
TOURISIM CORPRATION
Indian Railway Catering and Tourism Corporation uses Open
Tender and Sele...
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Types of purchasing system

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TYPES OF PURCHASING SYSTEM
WHAT IS A PURCHASING SYSTEM?
FUNCTIONS OF PURCHASE DEPARTMENT
SUBCONTRACTING
TENDER
BLANKET ORDER
CAPITAL EQUIPMENT PURCHASE
PETTY CASH SYSTEM
IMPORTS
E-PURCHASING
ORDER ON TELEPHONE
RATE CONTRACT METHOD
STOCKLESS PURCHASING

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Types of purchasing system

  1. 1. TYPES OF PURCHASING SYSTEM Avish Shah (87) Karen Rodricks (82) Subramanian (102) Niket Shah (89) Pranali Nawale (63) Varsha Parmar (67) Viddhi Parekh (66)
  2. 2. WHAT IS A PURCHASING SYSYTEM? A method used by businesses to buy products and/or services. A purchasing system manages the entire acquisition process, from requisition, to purchase order, to product receipt, to payment. Purchasing systems are a key component of effective inventory management in that they monitor existing stock and help companies determine what to buy, how much to buy and when to buy it.
  3. 3. FUNCTIONS OF PURCHASE DEPARTMENT Purchase materials at lowest possible cost while maintaining quality. Maintain good relationship with the suppliers. Take advantage of economies of scale. Maintain records efficiently. Develop highly competent personnel. Co-ordinate with all the departments of the organization.
  4. 4. TYPES OF PURCHASING SYSTEM Tender System Stockless Purchase System Blanket Order E-Purchasing / E-Procurement Subcontracting Rate Contract Method Petty Cash System Capital Equipment Purchase
  5. 5. SUBCONTRACTING What is Subcontracting? Examples
  6. 6. WHAT IS SUBCONTRACTING? Subcontracting refers to the process of entering a contractual agreement with an outside person or company to perform a certain amount of work. The outside person or company in this arrangement is known as a subcontractor. Many small businesses hire subcontractors to assist with a wide variety of functions. Example: A small business may use an outside firm to prepare its payroll.
  7. 7. SUBCONTRACTING IS ALSO KNOWN AS OUTSOURCING Outsource means to send part of a company’s work to outside providers to simplify or reduce cost.
  8. 8. ADVANTAGES & DISADVANTAGES Advantages: Cost Saving Increased Efficiency Continuity & Risk Management Disadvantages: Loss of Managerial Control Quality Problems Hidden Costs
  9. 9. HIDDEN COSTS OF SUBCONTRACTING
  10. 10. EXAMPLES Subcontracting is probably most prevalent in the construction industry, where builders often subcontract plumbing, electrical work, drywall, painting, and other tasks. In some cases, a general contractor may only be used as the construction manager or supervisor. In that case, subcontracting accounts for all of the physical work done on the premises. The general contractor's only responsibility is to approve the contracts, keep the project within budget, and inspect the work.
  11. 11. TENDER SYSTEM What is Tender? Types of Tender Advantages Disadvantages
  12. 12. WHAT IS TENDER? In this system the entity invites suppliers to give their quotations. The supplier with the lowest quotation wins the contract. It is a kind of contract mostly followed by large organisations and governments when purchases are of large value.
  13. 13. TYPES OF TENDER Open Tender This is where an opportunity (including all tender documents) is advertised inviting providers to bid directly for a contract. All interest parties then submit a tender. Scoring takes place and the successful organisation is awarded the contract. Sometimes there is a selection stage first, which is then followed by the award stage.
  14. 14. NOTICE Advertised in a leading daily
  15. 15. TYPES OF TENDER Restricted Tender This involves the opportunity being advertised in the relevant places and media. Organisations will then submit an expression of interest and fill in a pre qualification questionnaire. Successful organisations will go onto select list and be given an invitation to tender with the tender documents. Tender documents are completed and submitted. From the submitted tender documents scoring takes place and the successful organisation is awarded the contract.
  16. 16. TYPES OF TENDER Negotiated Tender It can only be used in a limited number of carefully defined cases (e.g. large capital projects where a range of solutions to deliver are possible). An opportunity is advertised (the specification is not established at the start of the process) and organisations can submit an expression of interest and fill in a pre qualification questionnaire. Successful bidders are invited to negotiate with the procuring body, which is called the dialogue phase. Once dialogue has generated solutions to the agreed requirements, final tenders are submitted based on each bidders individual solution. Scoring then takes place and the successful organisation is awarded the contract.
  17. 17. PROCESS Invitation Pre/Post Qualification Questionnaire Bid Bond Site Visit Tender Box Receipt of Tenders Withdrawal of Offer Tender Offerings Evaluation Recommendations Letter of Award Conditions of Award
  18. 18. ADVANTAGES & DISADVANTAGES Advantages: Competitive Lower Cost Transparent Process Disadvantages: Low Price usually Detriment of Quality Time consuming
  19. 19. BLANKET ORDER What is Blanket Order? Advantages & Disadvantages
  20. 20. WHAT IS BLANKET ORDER? Company purchase many small items on day to day basis. It becomes difficult to have inventory for all. It is most popular method for purchasing items which are used regularly. There are two methods: Agreement is made to supply a Fixed Quantity of the product at a Fixed Price for a Specific Period. Agreement is made to supply for a Specific Period but the Quantity is unknown.
  21. 21. BLANKET PURCHASE ORDER Proforma of a Blanket Purchase Order
  22. 22. ADVANTAGES Flexible Avoid negotiation Avoid placement of new order again and again Advantage to supplier to plan the work at his place Reduces clerical activities Protections against higher pricing in future
  23. 23. DISADVANTAGES Petty frauds It requires flexible internal control Poor vendor performances Difficult to determine and forecast the quantity
  24. 24. CAPITAL EQUIPMENT PURCHASE What is Capital Equipment Purchase? Advantages Disadvantages
  25. 25. WHAT IS CAPITAL PURCAHSE EQUIPMENT? It is a purchasing system which requires high capital. It is used to purchase large value assets such as Machinery and Equipment's.
  26. 26. ADVANTAGES & DISADVANTAGES Advantages: Flexible One Time Investment Increased Co-ordination & Communication Disadvantages: Requires lots of capital Decision making is difficult
  27. 27. PETTY CASH SYSTEM What is Petty Cash System? Advantages Disadvantages
  28. 28. WHAT IS PETTY CASH SYSTEM? A small fund of cash is kept in hand for purchases or reimbursements which are too small to be worth submitting to the more rigorous purchase and reimbursement procedures of a company or institution. Petty cash funds must be safeguarded and documented to ensure that thefts do not occur. The most common way of accounting for petty cash expenditures is to use the imprest system.
  29. 29. ADVANTAGES & DISADVANTAGES Advantages: Easy Time saving Disadvantages: Embezzlement of Funds Cuts down on accountability Accounting Errors Lot of Paper Work
  30. 30. EXAMPLES Purchase of Stationery like pen, pencil, paper, book, etc. Purchase of Postal Stamps.
  31. 31. IMPORTS What are Imports? Advantages Disadvantages Process
  32. 32. WHAT ARE IMPORTS? It is a method to purchase the goods from the area or the country outside the India Territory. Imports are not easy and are governed by the Central Government.
  33. 33. PROCEDURE Obtaining Import License Obtaining Foreign Exchange Placing an order Receipt of Shipment Advice Appointing C & F Agents Dispatching letter of credit Receipt of Documents Bill of Entry Delivery of Goods
  34. 34. ADVANTAGES & DISADVANTAGES Advantages: Stabilize seasonal market fluctuations Maintain cost competitiveness in your domestic market Enhance potential for expansion of your business Higher quality More variety Cheaper goods Disadvantages: High Tax Increased Transportation Cost Foreign exchange risk
  35. 35. E-PURCHASING What is E-Purchasing? Advantages Disadvantages
  36. 36. E-PURCHASING / E- PROCUREMENT E-procurement is the business-to-business or business-to- consumer or business-to-government purchase and sale of supplies, work, and services through the Internet. E-procurement helps to achieve benefits such as increased efficiency and cost reduction.
  37. 37. ADVANTAGES Reducing Cost Visibility of spend Productivity Control Quicker processing times Better communication
  38. 38. DISADVANTAGES High Learning curve Human or system errors in orders No hardcopies Training costs System failure
  39. 39. ORDER ON TELEPHONE What is Order on Telephone? Advantages Disadvantages
  40. 40. WHAT IS ORDER ON TELEPHONE? It is a method used to place orders of small value. In this method the purchase department does not prepare a formal purchase order. The order is placed by telephone. The price is discussed an finalized on the telephone. This works well with the captive type of vendors
  41. 41. ORDER ON TELEPHONE A purchase manager in a restaurant placing the orders for the grocery over the telephone
  42. 42. RATE CONTRACT METHOD What is Rate Contract Method? Process
  43. 43. WHAT IS RATE CONTRACT METHOD? A Rate Contract or a Rate Agreement (RC in short) is a procurement cost reduction strategy aimed at standardizing procurement prices for commonly procured, homogenous and price varying inputs. The basic idea behind a rate contract is to aid a company in establishing parameters for the purchase of goods and services necessary for the continued operation of the business.
  44. 44. PROCESS Spend Analysis Market Analysis Supplier Interactions Receipt of Quotes Selection of Suppliers Finalization of Rate Contract
  45. 45. STOCKLESS PURCHASING What is Stockless Purchasing? Examples Advantages & Disadvantages
  46. 46. WHAT IS STOCKLESS PURCHASING? Stockless purchase system can be defined as Arrangement in which a supplier holds the items ordered by the customer in its own warehouse, and releases them as and when required by the customer. It is also known as just-in-time purchasing. In this system the vendor has a clear idea of the requirements of the buyer and holds the stock in convenient location. The seller has the financial responsibility of holding the stock.
  47. 47. EXAMPLES Tyre warehouse near automobile manufacturing units. Petrol pumps in transport undertaking. Aviation fuel pumps at airport.
  48. 48. ADVANTAGES & DISADVANTAGES Advantages: Reduced warehouse space Eliminate the cost of storing, maintaining and distributing supplies Increased inventory turnover Less manpower Disadvantages: High cost Need of complex technology
  49. 49. COMPANIES AND PURCHASE SYSTEMS
  50. 50. INDIAN RAILYWAY CATERING AND TOURISIM CORPRATION Indian Railway Catering and Tourism Corporation uses Open Tender and Selective Tender for purchase of Capital Equipment. It uses subcontracting for maintenance, catering and cleaning. It uses blanket order to purchase day to day items like stationery, etc.

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