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Depending upon the size and nature of
operation, the quantum of purchase of product and services
vary. In some organizations the total purchase bill is to the tune of
60% of its annual expenditure!!
Obviously , for any organization engaged in a continuous
set of activities, where inputs are processed , on a
regular basis for producing outputs , formalized
systems and procedures are required to run its purchasing
function, to ease in
operation and accountability. Formal
procedures are required to be laid down for initiating
purchase, selecting suppliers, placing purchase orders,
follow-up, receiving materials and so on.
The whole system of purchasing , in terms of phases or
grouping of related activities, can be classified as follows :
(1)
Pre-purchase (Ordering) system;
(2) Ordering system;
(3) Post-purchase (Ordering) system
The salient features in each of the systems mentioned are as
follows :
(1) Pre-purchase system : Activities such as initiating the
purchase through raising requisitions, requirement programs,
selection of suppliers, obtaining quotations and evaluating
them, are broadly the pre-purchase activities.
(A) Requisitions : The department concerned (within the orgnisation), in need of a material, usually presents a
completed requisition form.
Different types of requisitions used are:
I) Standard requisition :- Also called as Indent for material
(or service), Materials requisition plan etc. a requisition is
made by an authorized person in the concerned department.
However, it has to be countersigned by a senior officer who
checks the entries made in. Normally, a requisition , in a pre
printed format, contains particulars such as the detailed
description of materials or services to be purchased, desired
quantity, schedule for receipt of such material / service ,
the estimated price, possible sources and the account head, requisitioner’s identity.
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In any organisation only a limited
number of personnel are empowered to countersign the
requisition as it amounts to authorisation of the expenditure.
Purchase department usually
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maintains a list of such officers so as to check the
validity of the purchase requisitions. Normally,
there is a delegation of power of authority for authorising a requisition. This is expressed in terms of the
financial limits up to which an officer can authorise a
requisition for a capital or revenue item.
These details must also be available with the purchase
department.
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(II) Travelling requisition : As the name suggests, this
requisition form travels from the requisitioning department to
the Purchaser directly who then only authorizes the supplier
through a Purchase order to deliver the required material.
This document is generally used for requisitioning items that
are required frequently in bulk quantities over a long period
of time. Usually, for repeat items such as in inventory a card
containing the details of previous supply containing material
specifications, suppliers details, last purchased price ,
reorder point, usage details are written permanently and
provisions for entering date, quantity required, names of requisitioner and authoriser are available. On getting it ,
the purchaser only has to take these details for placement of
order. The traveling requisition which is a permanent document
of the originating department is returned to it. It reduces
the paper work and eases the operation.
III) Bills of materials : Bill of material is a
comprehensive list of materials needed to produce a product or
service. It is basically the details of materials needed,
their specification, quantity , required delivery schedule
etc. It is often used as a sequel to firming of a production
plan , a stage where the exact material / service needs are
known.
(B) Request for Quotation (RFQ): Also called as Tender
Enquiries , an organization through its Purchase department,
invites suppliers to quote rates for supply of materials /
service. This is the step taken after receiving the
requisition for an item. For this purpose often a standard
format is used (customized also in case of large contracts).
Against this document the prospective vendors quote their
price and other terms and conditions of sale.
C) Quotation : It is also called tender. A quotation is a
proposal from a prospective vendor who has quoted in response
to the RFQ sent to him by the purchaser. It contains price
offered by the vendor as also the terms and conditions of sale
as per the policy of the vendor .
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