CHAPTER 3
The purchasing process and procedures
Explain the activities involved in a purchasing transaction
As we know the purchasing cycle is known as the purchasing process and has various
procedures. There are 13 general steps that we follow in this chapter.
1. Origin of need - mainly the need arises in the inventory store when it decreases to
a certain level. Today we have computer information systems in place to prevent
urgent orders being made. MRS = materials requirements planning system is used
for info on size, specifics of need and schedules the purchasing for MPS. MPS =
master production schedule also prints the order forms. JIT = just in time is also a
computer info system that indicates when an order need to be made urgently. PG 48
2. Specification – 3 Types
Purchasing requisition = used for office equip, stationary, protective clothing and
repeat routine purchases.
Travelling requisitions = used by stores for repeated purchasing of standard
inventory requirements.
Kanbans = these are information cards and are part of the firms internal information
systems. PG 48/49
3. Source identification – we use information technology systems. EDI = electronic
data interchange is used to assist in finding potential suppliers without too much
effort. I.e. using price lists and catalogues of potential suppliers. PG 50
4. Selection of suppliers – the usual procedure is to select suppliers who have been
recommended and have a good service record. The buyers will select the supplier
with the shortest lead time if the cost price is fixed. PG 50
5. Bidding and negotiating – this is an electronic process which can reduce the
time-consuming tendering procedure of using info technology. NB the organisation
has the right to negotiate after the bidding procedure is concluded. Therefore the
, bidding process does not identify the actual supplier the contract will be awarded to.
PG 50/52
6. Placing the order/ concluding the contract – issuing the order form is a legal
binding step. The supplier receives the original form. The form contains info such as
quantities, prices, delivery dates, point of delivery, quality and discounts. PG 52
7. Follow up and expediting/ contract administration – The suppliers often
send an acknowledgement of the order to confirm the delivery date. If this is done
by using info technology (computer system) the process goes a lot faster. The
purpose of this step to make sure the supplier does not fall behind on the delivery
date. Follow up comes into play when the order was not received on the delivery
date. This is done via telephone, email or letter. You can use the info system to print
out standard follow up letters and reports to save time. PG 54
8. Receipt, inspection and distribution – The receiving function should receive
delivery only in special cases with the supplier be allowed to deliver the product to
the user function. The receiving function should inspect the delivery and produce a
receiving note with details of the delivery on. Any faults, shortage or damaged goods
must be noted on the receiving note.
Inspection of incoming goods – This is done by the receiving function in the
organisation. PG 54/55
9. Handling faulty consignments and rejections – The purchasing function is
responsible for this step. There are 3 reasons for this,
1. Communication with the supplier base is the prime function of the purchasing
function.
2. The purchasing function is responsible for the long-term supplier relations.
3. The purchasing functions responsibility id foster and maintain TQM approach with
the suppliers. This task requires diplomacy and reasonable action from the
purchasing function. PG 55
10. Analysing the invoice – Either by purchasing or financial function. Better to be
done by purchasing function. The NB aspects to check are: invoice prices vs order
form/quotation, Check calculations and discounts, compare quantities received to
order form, confirm invoice details agree to T&C of order form. NB check discount
date for payment to be made to so the firm does not lose out on any discounts. PG
55
The purchasing process and procedures
Explain the activities involved in a purchasing transaction
As we know the purchasing cycle is known as the purchasing process and has various
procedures. There are 13 general steps that we follow in this chapter.
1. Origin of need - mainly the need arises in the inventory store when it decreases to
a certain level. Today we have computer information systems in place to prevent
urgent orders being made. MRS = materials requirements planning system is used
for info on size, specifics of need and schedules the purchasing for MPS. MPS =
master production schedule also prints the order forms. JIT = just in time is also a
computer info system that indicates when an order need to be made urgently. PG 48
2. Specification – 3 Types
Purchasing requisition = used for office equip, stationary, protective clothing and
repeat routine purchases.
Travelling requisitions = used by stores for repeated purchasing of standard
inventory requirements.
Kanbans = these are information cards and are part of the firms internal information
systems. PG 48/49
3. Source identification – we use information technology systems. EDI = electronic
data interchange is used to assist in finding potential suppliers without too much
effort. I.e. using price lists and catalogues of potential suppliers. PG 50
4. Selection of suppliers – the usual procedure is to select suppliers who have been
recommended and have a good service record. The buyers will select the supplier
with the shortest lead time if the cost price is fixed. PG 50
5. Bidding and negotiating – this is an electronic process which can reduce the
time-consuming tendering procedure of using info technology. NB the organisation
has the right to negotiate after the bidding procedure is concluded. Therefore the
, bidding process does not identify the actual supplier the contract will be awarded to.
PG 50/52
6. Placing the order/ concluding the contract – issuing the order form is a legal
binding step. The supplier receives the original form. The form contains info such as
quantities, prices, delivery dates, point of delivery, quality and discounts. PG 52
7. Follow up and expediting/ contract administration – The suppliers often
send an acknowledgement of the order to confirm the delivery date. If this is done
by using info technology (computer system) the process goes a lot faster. The
purpose of this step to make sure the supplier does not fall behind on the delivery
date. Follow up comes into play when the order was not received on the delivery
date. This is done via telephone, email or letter. You can use the info system to print
out standard follow up letters and reports to save time. PG 54
8. Receipt, inspection and distribution – The receiving function should receive
delivery only in special cases with the supplier be allowed to deliver the product to
the user function. The receiving function should inspect the delivery and produce a
receiving note with details of the delivery on. Any faults, shortage or damaged goods
must be noted on the receiving note.
Inspection of incoming goods – This is done by the receiving function in the
organisation. PG 54/55
9. Handling faulty consignments and rejections – The purchasing function is
responsible for this step. There are 3 reasons for this,
1. Communication with the supplier base is the prime function of the purchasing
function.
2. The purchasing function is responsible for the long-term supplier relations.
3. The purchasing functions responsibility id foster and maintain TQM approach with
the suppliers. This task requires diplomacy and reasonable action from the
purchasing function. PG 55
10. Analysing the invoice – Either by purchasing or financial function. Better to be
done by purchasing function. The NB aspects to check are: invoice prices vs order
form/quotation, Check calculations and discounts, compare quantities received to
order form, confirm invoice details agree to T&C of order form. NB check discount
date for payment to be made to so the firm does not lose out on any discounts. PG
55
