Purchasing

Objective The basic objective of the purchasing function is to ensure continuity of supply of raw materials, sub-contracted items and spare parts and to reduce the ultimate cost of the finished goods.

Objectives of purchase dept. To avail all materials, suppliers and equipments at the minimum possible cost To ensure that continuous flow of production To increase the asset turnover To develop the alternative source of supply To establish and maintain the good relations with the suppliers.

Parameters of purchasing 10 R’s 1.Right Price 2.Right Quality 3.Right Time 4.Right Source 5.Right Quantity 6.Right Attitude 7.Right Contracts 8.Right Material 9.Right Transportation 10.Right Place of delivery

Vendor Selection / Selection of suppliers (1) Source of supplier – Specialised trade directories. – Assistance of professional bodies or consultants. – The buyer’s guide or purchase handbook. – The manufacturer’s or distributor’s catalogue. – Advertisements in dailies. – Advertisement in specialised trade journals. – Trade fair exhibitions.

Vendor Selection / Selection of suppliers 2.DEVELOPMENT OF APPROVED LIST OF SUPPLIERS 3.EVALUATION AND SELECTION OF THE SUPPLIER a)Cost factors: b)Delivery: c)Design and specification factors: d)Legal factors: e)Vendor rating:

Evaluating the performance of the past suppliers Categorical plan – Rating Sheet – Survey by the assigned buying staff about the supplier – Categories are Preferred Neutral Unsatisfactory – Done basis of memory of the staff

Evaluating the performance of the past suppliers (cont…) The weighted point method

Evaluating the performance of the past suppliers (cont…) Quality Rating – Percentage of quantity accepted among the total quantity is called quality rating. – Price rating is done on the basis of net price charged by the supplier. – Timely delivery rating will be done comparing with the average delivery schedule of the supplier.

Evaluating the performance of the past suppliers (cont…) The cost-ratio plan: – Under this method, the vendor rating is done on the basis of various costs incurred for procuring the materials from various suppliers.

Special Purchasing Systems Forward buying: Depending upon the availability of the item, the financial policies, the economic order quantity, the quantitative discounts, and the staggered delivery, the future commitment is decided.

Special Purchasing Systems (cont…) Tender buying: Care has to be taken that the lowest bidder is responsible party and is capable of meeting the delivery schedule and quality requirements.

Special Purchasing Systems (cont…) Blanket order system: It is an agreement to provide a required quantity of specified items, over a period of time, usually for one year, at an agreed price. Deliveries are made depending upon the buyer’s needs.

Special Purchasing Systems (cont…) Zero stock: supplier holds the stock for these firms.