Purchase management ... a very interesting topic in production subject... hope might be useful for the readers and students of MBA

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