PURCHASE

MANAGEMENT
 MEANING
 OBJECTIVES
 SCOPE
 PROCEDURE
 WHAT IS PURCHASE
MANAGEMENT :
• No organization is sufficient in terms of all its resources.
• They need material, tools, equipment from some external agencies.
• Purchase management is the first step in the manufacturing process.
• In other words, It refers to the process of efficient and economical
purchasing of material that will assist the manufacturing activities. So, it
includes decision-making about the procurement of the right kind of
material with the right kind of quantity at the right price and at right time.
 DEFINITION OF PURCHASE
MANAGEMENT
• Purchasing is a process by which a company contracts with a third party to obtain
goods and services required to fulfill its business objective in the most timely and
cost-effective manner.
 OBJECTIVES OF PURCHASE
MANAGEMENT
1. Purchase at Minimum Cost
2. Maintain Inventory Level
3. Establish good relations with suppliers
4. Identification of Alternative suppliers
5. Coordinate with different departments
6. To maintain Record for Future Use
 1. Purchase at Minimum Cost

• The first objective of purchase management is to buy at the minimum possible

cost by maintaining quality. The price of raw material affects the other factors, so
to remain in the competition and market the raw material should be acquired at a
minimum price
 2. Maintain Inventory Level

• The future is uncertain, and to deal with the future uncertainty, the
management must make proper arrangements to maintain a reasonable
level of inventory. It will help the manufacturer to deal with the frequent
changes in the demand.
 3. Establish good relations with suppliers

• Timely delivery of good quality raw material is very important as of late

delivery delays the other activities. The purchase department keeps
coordinating with the different suppliers to ensure the smooth functioning
of the manufacturing process.
 4. Identification of Alternative suppliers

• In the previous point, we discussed that there should be a good relation

with the supplier to ensure the smooth flow of material. But it can be
possible that supplier has lack of raw material, transport facility not
available at that time, etc. To cope with such situation management also
identify other alternative suppliers.
 5. Coordinate with different departments

• Purchase management should coordinate with other departments or

divisions to collect the timely requisition of the material required by them,
so that the work does not suffer. In addition to this, purchased material
should also be made available to the departments on time.
 6. To maintain Record for Future Use

• Purchase management maintains records of all its transaction and

operation. These records help to make the assessment of future
requirements and for dealing with any mismatch or miscalculations made
by the suppliers. It also helps in making a budget for the organization.
 SCOPE OF PURCHASE
MANAGEMENT
1. Supplier Selection and Evaluation: This involves finding potential suppliers
and assessing their ability to meet your needs. It includes checking their
reliability, reputation, and financial stability. The goal is to choose suppliers that
can provide quality products consistently.

2. Negotiation: Negotiation is the process of discussing terms and prices with

suppliers to get the best deal. It involves bargaining to reach an agreement that
benefits both parties. Effective negotiation can lead to cost savings and better
contract terms.
3. Cost Control: Cost control focuses on managing and reducing purchasing
expenses. It involves analyzing spending patterns and finding ways to save money
without sacrificing quality. Effective cost control contributes to the organization’s
overall financial health.

4. Purchase Order Management :This refers to creating and tracking purchase

orders, which are formal requests to buy goods or services. It ensures that orders are
processed correctly and delivered on time. Good management helps prevent errors
and keeps the purchasing process organized.
5. Inventory Management: Inventory management involves overseeing stock
levels to ensure you have enough products without overstocking. It includes
monitoring what you have on hand and forecasting future needs. This helps reduce
costs and avoid running out of essential items.

6. Quality Assurance : Quality assurance ensures that the products or services

purchased meet required standards. It includes checking the quality of goods and
monitoring supplier performance. This helps maintain consistency and prevents
issues with defective items.
PROCEDURE OF PURCHASING OR
PURCHASE CYCLE
1.) Purchase requisitions 6.) Purchase order

2.) Source of the supplier 7.) Follow up

8.) Purchase order Amendments
3.) Request of quotation
9.) Inspection of incoming
4.) Review of quotations materials
5.) Selection of Vendor or 10.) Payment of the invoice
supplier
1. Purchase requisitions
Purchasing cycle commences with the receipt of the purchase requisition in the
purchasing department. It provides authority to the purchasing department to
procure material. Purchase requisition involves the details like quantity, date or
place of delivery, quality specification, etc.

2. Source of the supplier

Now, the purchasing department looks for a potential source of supplier. They
maintain a list of suppliers that are prepared on the basis of past transactions,
advertisements in the newspaper, trade journals, purchase and salesman agents, etc.
The list is reviewed periodically to add the new supplier and to remove what seems
to be unsatisfactory.
3. Request of quotation
The purchase department issues letters to suppliers requesting them to send
quotations. This letter contains information about the material required, quantities,
quality specifications, delivery schedule, etc. To prevent any conflicts suppliers are
requested to provide details about additional charges like packing, freight, sales tax,
etc.

4. Review of quotations
After receiving the quotation from the supplier, it is reviewed and signed by the
responsible officer. A comparative statement of the quotation from the different
suppliers is prepared that indicates the price, discount price, payment, or other terms
and conditions. Based on this statement, suppliers are analyzed.
5. Selection of Vendor or supplier
Purchasing department or officer selects the vendor who will supply material with
favorable terms and conditions. While selecting the vendor, management needs to
check that whether they purchase material regularly or at long intervals, whether
they go for one vendor or more than one.

6. Purchase order
A purchase order is an offer to the supplier to deliver the material. When the
supplier accepts the offer, it becomes a legal contract to deliver the goods according
to the terms and conditions specified in the agreement. One copygets store by the
department, and the second is sent to the supplier.
7. Follow up
Purchasing work does not end by placing the order. Purchasing Management needs
to take follow up to ensure that deliveries are receiving as per the set schedules. In
case of late delivery, purchase management has the power to take strict action
against him.

8. Purchase order Amendments

The amendments in the order mean to add or remove any items before the delivery
take place. However, management needs to keep in mind that this amendment does
not disturb the previous order. If this is the case, then issue a fresh order for the
items will be the best option.
9. Inspection of incoming materials
On receiving the materials from the suppliers, the next task is to inspect them. The
purchasing department should verify that the material matches the specifications or
not. An inspection delay will slow down the payment process to the supplier, which
results in bad relations between suppliers and purchasers.

10. Payment of the invoice

It is the last step of the purchasing cycle. When the supplier's invoice is received,
the purchasing managers need to verify all the items with the original purchase
order. If there is any difference, then notifies the supplier to resolve it. Once the
invoice gets approved, it is sent to the accounts department for payment.
 Summary
• Business depends on service. The main objective of business is to make profit.
Depending on the right purchasing method we can increase the profit margin.
Along with this we can provide proper service to the customers.
• There are other benefits such as you get a benchmark for next time purchases.
• Management can work efficiently.
• By doing proper purchasing we can reduce wastage.
• Purchase management properly maintain the level of inventory, they know the
right time when a new order will be executed.
 REFERENCES

• Purchase management - L. C. JHAMB

• Purchasing Principles and Applications - Stuart Heinritz
• Purchase and materials management - P. Gopalkrishnan
• Purchasing and inventory management - K. S. Menon