Purchasing Activities - Procurement

The sequence of steps followed by a manufacturer in a purchasing department are as follows:

Step 1: Preparation of Purchase requisition.

The primary purpose of purchasing is basically to satisfy the needs of others. The purchasing department receives the request for the purchase of an item required in the organisation via some type of purchase requisition system.

Whenever an item falls below its reorder point the computer system can print a requisition for it. It could also suggest a reorder quantity using various lot sizing rules. Some systems exist which automatically group requisitions for one primary supplier. The computer could keep track of all outstanding requisitions entered into the purchasing system and print out a report listing those that have not been acted upon within a certain period.

Step 2: Vendor Selection.

If the buyer is buying something that the company regularly buys then he must determine which vendor to buy from this time and if he is buying something, lie has never bought before then he must determine who offers it. The buyer may send out a Request For Quotation (RFQ) to many possible vendors, and then evaluate the responses. The selection of the vendor may involve long and detailed negotiations with one or more vendors

Most purchasing software systems maintain vendor information by part. They identify which vendors can supply the part, and provide detailed information on each vendor to help in the selection process. This detailed information could include the price, lead time, past delivery, quality performance etc. The facility of automated quotation processing has been provided to many purchasing systems. A report of all quotations received in response to an RFQ (Request For Quotation) and a report on quotations that are about to expire may be generated as and when required by the computer system

Step 3: Order Placement.

After selecting the vendor, the buyer is ready to place a formal commitment of purchase order to vendor. He can place a single purchase order or he may schedule a release against an existing blanket- type of order.

Printing out a purchase order on a computer can save time and reduce clerical effort.

Step 4: Report Status.

Information about the order must be made available to several segments of the organisation. Purchasing needs an up-to-date list of all commitment for a vendor. Receiving and accounting require information on outstanding purchase orders, reported in varying formats

One of the strengths of the computer systems is their ability to store vast amounts of information, and sort and report upon it in virtually any sequence required. Thus, management can have information on open purchase orders:

1. by vendor, to monitor how much is committed to a particular vendor.
2. by buyer, to see how active each buyer has been.
3. by due date, to record the orders which are late or which are in danger of being late.
4. by part, to identify all orders for a particular part.

Any combination of these sort/select criteria can be used, for both active and closed purchase orders. In addition, most on-line systems make this information available via screen display, in, addition to a printed report.

Step 5: Monitoring.

The buyer requires information on any changes in the status of the order. If the vendor is having problems meeting the scheduled delivery date, purchasing can notify production, so that they can make any required changes to the production schedule. If it is a critical component, perhaps purchasing can get it from an alternative supplier. This expediting function depends upon the importance of the part

By using the status information available, purchasing keeps on top of all orders, so that they can anticipate and react to problems quickly. Most purchasing softwares today provide reports only on those 10% of the orders requiring attention and not the 90% for which everything is fine

Step 6: Measuring Performance.

Vendor performance and buyer performance must be measured. Buyers must know how many orders arrived on time, the quantity of goods rejected because of poor quality, and whether the vendor is meeting the agreed upon price. The director of purchasing needs feedback on how his buyers are doing. How quickly do they process requisitions which always have items on the shortage list?

The computer can serve as a very valuable tool in providing reports after analysing performance along several criteria. Regarding the buyer performance, it can give report as:
1. Number of orders and requisitions processed;
2. Number of items on shortage list;
3. Average number of days, requisitions are overdue;
4. Price variances and trends;
5. Inventory levels for which the buyer is responsible.


Also, regarding vendor performance against several criteria, it can report as follows:
1. Percentage of the items (number and value) delivered on time;
2. Percentage of the items (number and value) failing inspection due to quality problems;
3. Price trends;
4. Total purchase from each vendor.