1. PURCHASE PROCESS

2. ACKNOWLEDGEMENT
The task of completing the project report on “ process of purchase” will be incomplete without expressing thanks to the persons who have cooperated and collaborated me in completion of the project report.
First of all I would like to thanks my teachers who have given me guidelines to prepare this report secondly my ‘subject teacher “Mr. G.S Pasricha” for giving me an opportunity to learn the prevailing situations and excellent practices regarding this project.
He always helped with his able guidelines & support whenever I needed.

3. Meaning of purchase Meaning:-
The term “Purchase” means different in the business world then in a lay-man language. In layman language purchases refers to the buying of various consumable consumer goods by a person through money or sale of consumer goods by sellers to buyers in consideration of money.
In business world, purchase refers to the process of buying raw-material & other supplies required to produce the product and includes various activities like requisition, approval, ordering, recording and receipts supplies.

4. definition According to Elliott-Shircore & Steele
Purchasing is a process by which a company contacts with the third party to obtain goods and services required to fulfil its business objectives in the most timely and cost effective manner.

5. Types of purchasing system
(A) Centralized purchasing system :-
When an organization has one purchase department to procure material from outside vendor it is called centralized purchasing. In this case only one department is given the authority to buy the goods. This authority is directly responsible to the top management. They buy goods on behalf of all the production facility irrespective of their location and store them at a centralized located warehouse. The goods are transported from this warehouse from time to time as per the requirements of the different production facilities.

6. Types of purchasing system
(B) Decentralized Purchasing System :-
Decentralized purchasing is a process under which authority to buy goods is given to all the production facilities separately independent from each other. All the plants or production facilities have their own purchase departments and they buy goods as and when required by the plant at their own level. They don’t need any approval from outside for purchases.

7. Process of purchasing 1. Purchase Requisition
6. Issue of Purchase Order
7. Monitoring the Purchase Order
8. Receipt & Inspection
2. Selection of purchase method
5. Negotiation
9. Maintainence of Record
3. Receipt of Quotation
4. Comparative Statement
10. Payment to Supplier

8. 1. Purchase requisition
The purchase department does not initiate any purchase activity at its own. It is made through with the receipt of requisition. Purchase requisition is an official request by the user department for purchase of prescribed quantity, quality and specifications. It is prepared by the store keeper when inventory reaches at re-order level. It is also called indent for material.
Once the requirement is received , it is compared with available stock. If the demand is justified , the availability of budget is checked. Signature of the finance manager certifies the availability of budgets for the same and next step is taken.

9. Material requisition format

10. 2. Selection of purchase method
A number of purchase methods are available that purchase department can follow. Choice of method depends on many factors such as type of material, urgency of need, nature of supplier and overall economic conditions. Several methods include hand to mouth, tender method, speculative, seasonal, sub- contract and market purchasing etc. On the basis of selected method of purchase, suppliers will be shortlisted.

11. 3. Receipt of quotation
Before receipt of quotations the list of suppliers is shortlisted from all the sources. A reasonable no. of suppliers is shortlisted as per the requirement and letter inviting quotation is sent to them. All the information regarding specification of the goods, quantity and expected time of delivery are mentioned in the quotation.
Suppliers are asked to submit their bid in two envelopes one is technical bid and other is financial bid. A reasonable time is given to the supplier to submit their bids which is around 15 to 21 days. Bids received after due dates are rejected.

12. Specimen of quotation

13. 4. Making comparative statement
Once the bids are received, the purchase committee open the technical bid first, in order to evaluate the specifications offered by suppliers. The suppliers that meet the specifications are shortlisted and their financial bids are opened. The supplier that quotes the lowest bid is generally selected . However , there are other considerations as well that are taken into account for example financial standing, brand image, ability to meet demand. The vendor which is most suitable on all these parameters is selected.

14. 5. negotiation
In case of new supplier, the negotiation are for favorable terms and conditions and price. It is an art which is conducted by experienced knowledgeable and full time purchase mangers. The purpose of whole purchase process is defeated if an organization fails to execute the contract on terms that are favorable to it.

15. 6. Issue of purchase order
The next step in the purchase procedure is issue of supply/work or purchase order to the supplier who has been selected to supply the material. Hence, a purchase order is a work order given by the buyer to the supplier to supply a specific quantity of goods with specified dimension at a pre- agreed price. It is in a term of a legal document that has implication for both the parties. The order should be clear and written in simple language as agreed by both the parties. It must include all the terms of the dealing and must be signed by the proper authorized signatory.

16. Purchase order format

17. 7. Monitoring the purchase order
The duty of the purchase department is not finished by merely placing the purchase order. It has to ensure that the order is closely monitored and supplier is pursued to make timely delivery.
Big organizations have a dedicated section of employees who keep track on consignments of material from various suppliers at different point of time by asking suppliers to send acknowledgment for the purchase order, sending s and by making telephones calls asking for status of delivery. In this way, a continuous monitoring of order is conducted to ensure timely supply.

18. 8. Receipt and inspection
Generally, storekeeper receives the goods and matches it with quantity and specification of purchase order. Sometimes a separate section or unit is entrusted with the duty of receiving the goods. The supplier sends a delivery receipt along with the consignment.
The storekeeper or the receiving department acknowledges the receipt of goods on delivery receipt and it is send to purchase department. He also mentions the quantity of defective goods.
Sometimes goods are technical nature and are required to be tested. In that case a testing report is sent to purchase department.

19. 9. Maintenance of record
The goods which are received as per the order are sent to store and entry is made in stock register. All the details of the goods are entered into this register.
The person incharge, generally the storekeeper or caretaker, makes a good received note and make five copies of it. The copies are sent to the purchase department, storekeeper and one is kept as an office copy for future reference. The entry of goods in records is a signal of permanent non reversible receipt.

20. 10. Payment to supplier
This is the last step in the purchase process. The goods received are checked with the bill sent by the supplier. All the documents such as purchase order, delivery note and goods received note are compared with each other for mathematical accuracy.
Once the purchase department is satisfied with all the mathematical calculations and documentations, a clearance slip is sent by the purchase department to accounting department. It paves the way for making final payment to the supplier.

21. Methods of purchase (1)Blanket Order :-
It is an order to single supplier for continuous supply of material for a specified time period. It is given for those goods which are frequently used in an organization and have smaller unit value. New purchase procedure is not followed till the completion of agreed time period between organization & supplier.
(2) Contract Purchasing :-
under this method, a contract is entered into between buyer and supplier, in which delivery of goods at a specified price will be made in different installments over a long period of time. Generally, a contract is given for items which are of repetitive use.

22. Methods of purchase (3) Tender Purchasing :-
A letter inviting tender is sent to the shortlisted suppliers. Sometimes tender notice is advertized in leading newspapers. The quotations are invited. On qualifying the technical bid, a comparative statement is prepared on the basis of financial bid and contract is awarded to the most suitable supplier.
(4) Just in Time Purchasing :-
In this type of buying the buyer need not keep any stock of goods or goods of any such type that he does not have the expertise to store them like chemicals. The store keeping is done by the supplier. The cost is high as cost of holding the inventory is incurred by the supplier.

23. Methods of purchase
(5) Speculative buying :- sometimes in the market, material or other equipments required by the firm for its production process is available at a very low price. The firm purchases huge quantity of that material with a purpose of reselling it at a higher price on some latter date. The sole purpose of this action is to take benefit of prevailing low prices and selling it at a high price for making speculative profit. (6) Forward buying :- In this method, suppliers and the purchase department enters into a contract in which latter agrees to buy a specific quantity of material and supplies in future at a pre-agreed price. In this way , both the parties are certain of the execution of contract at specific future date. It is also called buying for future. Such contract can be traded in the commodity market, if circumstances changes.

24. Methods of purchase
(7) Seasonal Buying :- In certain industries such as food processing or where raw material is available in a specific season, such type of buying is resorted to. The goods purchased constitute a huge quantity as they are required to be used throughout the year. Hence, it is purchased keeping in view the yearly requirement and stored appropriately by the organization. (8) Electronic Procurement :- It is the process of purchasing online through internet. It is also known by the name of the supplier exchange platform where all the stakeholders such as vendor & buyers and processes such as e-tendering, e- auctioning, e-invoicing, e-payment , etc are interconnected.

25. THANK YOU