Purchase of Material

Purchasing is the starting point of the whole materials cycle. A wrong purchase — of the wrong quality, in the wrong quantity, at the wrong time, or at too high a price — carries its mistake right through storage, issue and production. This is why purchasing is treated as a specialised function, usually entrusted to a separate Purchase Department in a medium or large concern.

Importance of purchasing

• Material is the largest single element of cost in most factories, so even a small saving in the purchase price gives a large saving in total cost.
• Timely purchasing keeps production flowing without stoppages caused by stock-outs.
• Buying the right quality avoids rejection, rework and wastage later in production.
• Good purchasing builds reliable supplier relationships and secures favourable credit terms and discounts.

The Six R's of purchasing (the objective of good buying)

Good purchasing is often summed up as obtaining the material of the Right Quality, in the Right Quantity, at the Right Time, from the Right Source, at the Right Price, and delivered to the Right Place. Each 'R' is a genuine decision the buyer must get right:

Centralised vs Decentralised purchasing

Advantages: bulk buying secures better prices and discounts; specialised, skilled purchasing staff can be employed economically; buying policy is uniform and better controlled; and duplication of effort across departments is avoided.

Disadvantages: it can be slow and unresponsive to an individual department's urgent local needs, and it is less suitable where branches are geographically far apart.

Advantages: purchases can be made quickly to meet a department's urgent or local requirement, and each department buys exactly the specification it wants.

Disadvantages: the concern loses the price advantage of bulk buying; purchasing effort and paperwork are duplicated; and central control over buying policy is weakened.

Functions of the Purchase Department

1. Receiving purchase requisitions from stores/departments and deciding what to buy.
2. Locating and selecting reliable suppliers, and inviting and comparing quotations/tenders.
3. Placing purchase orders on the chosen supplier at the agreed terms.
4. Following up orders to ensure timely delivery.
5. Checking the material received (through the receiving/inspection section) against the order for quantity and quality.
6. Checking and passing the supplier's invoice for payment.
7. Maintaining records of suppliers, prices and purchases for future reference.

Procedure of purchasing (the steps in a typical purchase)

• Purchase Requisition — the store-keeper (or a department) raises a written requisition when stock reaches the Re-order Level, stating the item, quantity and date required. …