The term of “Purchasing” is commonly used in industries worldwide. Purchasing is the process of searching the source of goods or services and ordering production activities. Usually, the department that handles the procurement process in an organization is Purchasing Department.
Purchasing is one of the essential functions of Material Management and is commonly the third process of Supply Chain Management. In addition to being involved in purchasing materials for production use. Purchasing is also in charge of searching and purchasing production machines, equipment, along with other facilities that support the smoothness of the manufacturing process.
The primary target of Purchasing is to maintain the availability and stability of material supply and also reduce the costs of production so that the cost of making finished goods can be minimized as minimum as possible.
The Procedures in a Purchasing Process
The procedures below are the steps of the Purchasing process.
To Find Out the Needs of Production and Receive Requests from other Parties in Need
The first phase in the Purchasing process is to identify and understand the needs of those who need the goods and services. The requiring party will submit a booking or purchase request with a written document such as a Purchase Requisition Form that has been approved by the section head or the department manager. Therefore, The Purchase Request Form must be clear in term of the details of items that are in need, such as the material specifications, quantity, the date and recommended supplier.
Usually, the process of supplier selection consists of two fundamental aspects such as searching all potential suppliers and listing all providers that have been identified. The information of a supplier is taken from various sources such as trading directories, advertisements, self-recommendation emails from suppliers themselves, attending exhibitions, participation in industry conventions or advice from associations and business forums. If you have more sources to get the information of the supplier companies, you will be easily in deciding which supplier is most appropriate to supply the needs of your company.
Mainly, the most important thing to consider in choosing a supplier is the price, but it’s not the only consideration in getting the right supplier for a company. Other important things to consider are the ability of the supplier company to provide a certain amount materials your business in need, the product quality, the financial ability of the supplier company, and so forth. If all of the points mentioned are the same among the vendor companies, then, the price becomes the consideration.
Make a Booking
After considering and choosing the right vendor, the next step is to make a negotiation with the supplier and place an order or usually called as “Purchase Order” or “PO.” Purchase Order is a document that is sent to a supplier company to supply the required goods or services. The Purchase Order (PO) document consists of 6 copies, each of which is sent to the supplier, the requester, the warehouse officer, the accounting department, the inspection section, and another one is for the Purchasing section itself as an archive.
Follow-Up and Monitoring the Order progress
After the supplier company confirms the Purchase Order, then, the purchasing procedure is to follow up and to monitor the progress of the order. This process is necessary in order the supplier concerns on the providing and delivering the required goods or services on time and at the right amount. The purchasing officer will usually inquire to the supplier regarding the development of the needed goods and services via email, phone, or a direct visit to the supplier’s office or factory.
Receiving and Inspection the Incoming Goods
The reception section will receive the goods from the supplier and check the conformity of the amount of the goods with the Purchase Order document. The Purchasing department will be notified of the arrival of the goods and also the result of the examination.
After the ordered goods have been received in a satisfactory condition and by request, the invoice bill will be checked before the approval. Then, any payment is made following the agreement specified.
Keeping the Purchase Document
Most of the investments in industrial companies are repeat purchases or Repeat Orders. Therefore, the relevant purchasing records of the previous purchases are the guidelines for subsequent purchases. From these documents, the Purchasing or Management Officers can more clearly know which suppliers are suitable and appropriate for the future orders or purchases.
Maintaining the Relationship with Supplier
The relationship between the company and the supplier shall be kept. This kind of business relationship must be woven in the form of mutual trust and good faith to help each other. A good business relationship will be beneficial to both purchaser and supplier.