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Importance of Purchasing
• The enhance of this task is to buy material at right time,right rate,right quality and right quantity. • Generally the ratio of capital goods to working capital is 60 : 40

• Higher cost of goods & services. 1. It is noticed that Raw material,components services contribute almost 50 ~ 60% of company's expenditure.Hence effective purchasing can result in substantial saving in material cost. 2. One percent in saving in material cost can give benefit 8 ~ 10% rise in sales. 3. Reduction in cost of B.O.M. is getting vital importance due to fierce competition.

• Inventory control 1. 80% of the working capital is spent on inventory.Hence there is a need to control inventory. 2. To control the inventory many scientific methods ABC analysis ,Codification, EOQ method of buying are used. 3. Value analysis , Vendor rating, standardizing the procurement is required

4. Purchase officer should have the skills of negotiations. 5. He should have the ability to handle Government authorities. 6. A good buyer – Supplier relationship is to be maintained. 7. This is to enhance the corporate image.

• Purchasing is the procuring of materials, tools, supplies & services required for the manufacture of a product, maintenance of machines & uninterrupted running of the manufacturing plant.

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It is no more only buying. The purchase officer has to consider many other aspects like, Market research. Vendor rating. Standardization. Value analysis. Price negotiation. Inventory control. Surplus disposal. Import substitutes.

Objectives of Purchasing
• Procure the material at a competitive price. • Maintain supply of material such that there is uninterrupted production. • Ensure conformance to Quality norms. • Search for substitute to imported parts. • Obtain approval from Design Department.

• Reduction in Variation to simplify buying & achieving productivity. • Q.C.D.[ Quality : Cost : Delivery ]. • Create Goodwill. • Maximum R.O.I. Return on Investment.

Functions of Purchase Department
• Locating, selecting & developing qualified sources of supply. • Decide suitable method of buying. • Release Purchase order. • Delivery follow up. • Co-ordination with Inward Q.A. dept. for appropriate feedback.

• Attend supplier’s representatives. • Conduct meeting with senior officials & vendors with fixed time interval. • Disposal of surplus & obsolete material. • Acting as a link between supplier and company’s finance department. • Quality agreement with vendor. • Maintain good image of company.

Purchasing Cycle
Establish the need for procurement
• Need for procurement. • Determining the requirements. • Specifications

Scrutiny of Purchase Indent
• Complete description. • Appropriateness of request. [ Complete requisition ]

Market Research
• Obtain Quotation. • Schedule buying.

Order Preparation • • • • Scrutiny of Quotation. Negotiations. Purchase Order to Supplier. Acceptance from supplier.

Follow Up • Continuous follow up by calling on phones, visiting vendor’s factory, fax,telex etcetera.

Receiving & Inspection • Unloading the material. • Inspection by Q.A. • If any deviation is observed contact vendor. • Rectify the problem. • If not possible then return the material to vendor.


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Quantity Certification Storing as per specification. Use of FIFO. Keep records of receipts & Issues.

Invoicing and Paying
• Accepted G.R.N. to finance. • Passing the bill. • Payment to Vendor.

Legal Aspects of Buying

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Custom Duty. Excise Formalities. Sales Tax. Octroi Formalities.

Custom Duty
It is a duty imposed on imported goods. It is based on, Cost + Insurance + Transportation + Freight charges. These factors are considered while determining the custom duty. It is charged by Government.

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Bill Of Entry. Date of filing the bill of entry. Invoice. Packing list. Catalogue of manufacturer. Import license. Insurance company’s letter. A certificate of origin. If doubt, samples are taken for inspection. Weight certificate : Nature of part & quantity

• • • •

Licensing authority – Ministry of Industry. Custom office works – Ministry of finance. Determine the aggregate value Pay the duty.
If it is not cleared within the given time then demurrage charges are required to be paid.

Excise Duty
This is to be paid as per the rules & regulations of Government of India. Almost all items come under one of the many tariffs. While taking out the goods from Bonded Store it is required to be paid to the Government.

Sales Tax
Sales within the State are covered by state sales tax. If it is interstate transaction then it is covered by central excise tax.

When Goods are entering in Municipal Corporation’s limit some percentage [ At presence it is 4% ] is to be paid to Municipal Corporation.

Insurance Claims
The store manager has sometimes responsibility to make claims on the insurance company, • Damage during the transit. • Accident claim. • Fire claim.

Letter Of Credit
It is an arrangement whereby the obligation to pay an exporter is undertaken by a bank since bank’s credit is known to the outside party or exporter. The importer requests the bank to open a letter of credit in favour of exporter. The bank guarantees the payment on behalf of the importer.

• Income tax certificate has to be produced before getting an Import license.This certificate is valid for two financial years. • Indian customs tariffs gets revised frequently, hence purchaser has to give correct information about the goods under which category it lies. • Import license must be registered with the custom authorities who mention the ports from where the the goods can be collected.

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