The document outlines the principles, objectives, importance, procedures, methods, and policies related to purchasing goods and services. Key objectives include minimizing costs, ensuring a steady supply, and fostering supplier relationships, while methods such as market purchasing and contract purchasing each have advantages and disadvantages. The purchasing process involves requisition, supplier selection, purchase orders, and payment, emphasizing efficient administration and quality management.

1. OBJECTIVES
PRINCIPLES
IMPORTANCE
PROCEDURE, METHODS AND POLICIES

2. INTRODUCTION
• Purchase is the procurement of
goods or services from some
external sources.
• “Purchasing is the procurement
of the materials, supplies,
machines, tools and operation of
a manufacturing plant.”

3. The key issues involved in purchasing
are:-
 Quantity
 Quality
 Time
 Place

4. OBJECTIVES
• To avail the materials, supplies and
equipment at the minimum possible costs.
• To ensure the continuous flow of
production.
• To increase the assest turnover.
• To develop the alternate sources of
supply.
• To establish and maintain the good
relations with the suppliers.
• To achieve maximum integration with
other departments.
• To train and develop the personnel.

5. RIGHT SOURCE
PRINCIPLES
RIGHT QUALITY
RIGHT QUANTITY
RIGHT TIME
RIGHT PRICE

6. IMPORTANCE
• Efficient Administration.
• Quality of a final product.
• Delivery on time.
• Increase in Profitability.
• Optimum utilisation of capital.

7. PROCEDURE
• Receipt of purchase requisition.
• Potential sources of supply.
• Issue of letters inviting quotations.
• Receipt and analysis of Quotations.
• Selection of Vendor.
• Purchase order.
• Follow-up and delivery.
• Analysis of Receiving reports.
• Scrunity and approval of invoices.

8. METHODS
1. PURCHASING BY REQUIREMENTS.
ADVANTAGES:
1. INVENTORY CARRYING COST LESS.
2. LESS STORAGE SPACE.
3. WORKING CAPITAL IS LESS.
DIS-ADVANTAGES:
1. HIGHER DISTRIBUTION COST.
2. INABILITY TO MEET SUDDEN DEMAND.
3. IT CANNOT ENJOY THE ADVANTAGE OF
BARGAINING.

9. 2. PURCHASING FOR SPECIFIC PERIOD
ADVANTAGES:
1. PRODUCTION CAN BE STARTED AS SOON AS
THE ORDER IS RECEIVED.
2. LESS WORKING SPACE AND STORAGE SPACE.
3. COST ANALYSIS IS EASIER.
DIS-ADVANTAGES:
1. IT LEADS TO DEPENDENCE ON A SINGLE
SOURCE.

10. 3. MARKET PURCHASING
ADVANTAGES:
1.PROCUREMENT OF MATERIAL AT LOW PRICE
AS WELL AS LOW COST OF PRODUCTION.
2. LARGE QUANTITIES PURCHASED AT ONE,
OVERHEAD EXPENSES ARE QUITE LESS.
DISADVANTAGES:
1. HIGH INVENTORY CARRYING CHARGES.
2. LARGE STORAGE SPACE EQUIPMENTS.
3. LOCKSUP FUNDS OF COMPANY.
4. ERROR IN JUDGEMENT OF MARKET CAUSE
HEAVY LOSS.

11. 4. SPECULATIVE PURCHASING
ADVANTAGES:
1. POSSIBILITY OF LARGE PROFITS.
2. LESS OVERHEAD EXPENSES.
DIS-ADVANTAGES:
1. DANGER OF LARGE LOSSES.
2. LARGE INVESTMENT IN INVENTORIES
AND HEAVY CARRYING COST.
3. CHANCES OF DETERIORATION AND
SPOILAGE OF MATERIALS.

12. 5.CONTRACT PURCHASING
ADVANTAGES:
1. AVOIDS NECESSITY OF LARGE STOCK.
2. PURCHASE NOT AFFECTED BY MARKET
FLUCTUATIONS.
3. TIME REQUIRED FOR CALLING
QUOTATIONS IS SAVED.
4. GUARANTEE OF SUPPLY OF MATERIALS.
DIS-ADVANTAGES:
1. SUPPLY MAY NOT BE REGULAR, WHICH
MAY CAUSE DELAY IN PRODUCTION.

13. 6. GROUP PURCHASING
ADVANTAGES:
1. CLERICAL WORK IS MINIMIZED.
2. DELIVERY, OVERHAED AND PACKAGING
CHARGES ARE REDUCED.
3. SINCE VALUE OF EACH ORDER IS MORE THE
SUPPLIER MAY OFFER THE MATERIAL AT CHEAPER RATE.
DIS-ADVANTAGES:
1.LONG TERM COMMITMENT.
2. SOMEONE MAY TAKE THE TIME AND
ENERGY TO SPEARHEAD.

14. POLICIES
• Ancillary development.
• Make or buy.
• Speculative buying.
• Vendor rating.
• Ethics in purchasing.
• Reciprocity.
• Purchasing for employees.
• Gifts.
• Value analysis.

15. NEED
RECOGNIZED
SPECFNS &
REQUIREMENTS
SPELT OUT
REQUISITION
CHK SPECFNS/
PRICES/
SUPPLIERS
SPECFNS.
FILE
PURCHASE
RECORDS
PURCHASE PLAN
SELECT SUPPLIER
SUPPLIERS
RECORDS
PRICE & TERMS
FINALIZED
PURCHASE ORDER
SUPPLIERS
ACCEPTANCE
MATERIAL RECD &
INSPECTED
INQUIRY
TENDER
IMPORT
INVOICE CHECKED
WITH PO & MRN
DELIVERY
PAYMENT MADE
FOLLOW UP
The Purchase
Cycle