When we produce any product, investment in raw material is of 50% to 60% of the total cost of product. So, it is very necessary to buy the raw material at low cost. If we reduce the 10% cost of buying of raw material, it means, we have increased our 10% profit. Purchase department will make full planning of his purchase. Everything should be planned. What to buy, when to buy and how to buy? By using following material purchase procedure, you can reduce your cost of buying any material.
1. Classification of Material
In the first step of purchasing procedure, purchase department will classify all the its material according to the nature of material. For example, we can classify our material with following way.
a) Raw material
b) Machine and Equipment
c) Tool
d) Other Material
2. Recognition of Need
Purchase department studies the purchase requisition which it gets from different department. Purchase requisition is the document which shows the demand of material of any department. It makes the list of important material requirement. Suppose, C material is very limited, purchase department will buy C material first instead of buying other material.
3. Specification of Required Material
Every department will make the specification of required material. This will be helpful for purchase department to identify that material. Because some material are of technical configuration, so, its detail should be given to purchase department. For things should be included in it.
i) Date
ii) Identification
iii) Originating Department
iv) Account to be Charged
v) Complete Description relating to quality and quantity of material desired
vi) Other Special Information
vii ) Date on which material is required for use
viii) Signature of issuing authority of requisition
We also say purchase requisition as purchase requirement list or purchase indent.
4. Inviting Tenders and Quotations
For saving money and placing the order to best vendor, purchase department will invite the quotations and tenders. This work can be done through offline and online advertising. Tender may be open, limited, oral.
a) Opening of Tenders
Tender is opening at a specific date, time and at specific place.
b) Preparation of Summary of Quotations
After receiving the tenders from different seller, a comparative statement is made in which prices and conditions are compared. Best vendor will be selected for supply.
5. Selection of Source
There is the big source of suppliers. But purchase department has to be limited this on the basis of following point.
a) On the basis of financial resource: Purchase department will see his pocket before selecting the source.
b) Service after buying : Purchase department will choose that supplier which provide the service after buying.
c) On the basis of sample : Purchase department will get the sample for selecting the source of supplier.
6. Placing of Order
When the tender and source of supplier is selected, purchase department places his purchase order. Purchase order is the written agreement in which purchaser and sellers will bind its terms and condition. Purchaser will be responsible the price of material. Seller is responsible for supplying the material.
7. Follow Up Service
After placing the order, purchase officer will send the reminder. He can also get the written promise from vendor for supplying goods at a specific time.
8. Receipt and Checking of Invoice
It is the duty of accountant to receipt and checking of invoice. He will compare it with the original copy of purchase order. If there is any mistake, he will inform the purchase department. Only after confirmation from purchase department, payment will be made by cashier.
9. Receipt and Checking of Goods
After getting goods, purchase department will check the quality and quantity of material which has been mentioned in the purchase order. With this, we see whether everything is OK or not. After this receipt material's report will be made. With this, technical inspection is also necessary.
10. Completion of Record
To record relating to purchase is done by accounts department. If there is VAT and excise obligations, accounts department will complete.
Purchase Procedure in SAP
1. Classification of Material
In the first step of purchasing procedure, purchase department will classify all the its material according to the nature of material. For example, we can classify our material with following way.
a) Raw material
b) Machine and Equipment
c) Tool
d) Other Material
2. Recognition of Need
Purchase department studies the purchase requisition which it gets from different department. Purchase requisition is the document which shows the demand of material of any department. It makes the list of important material requirement. Suppose, C material is very limited, purchase department will buy C material first instead of buying other material.
3. Specification of Required Material
Every department will make the specification of required material. This will be helpful for purchase department to identify that material. Because some material are of technical configuration, so, its detail should be given to purchase department. For things should be included in it.
i) Date
ii) Identification
iii) Originating Department
iv) Account to be Charged
v) Complete Description relating to quality and quantity of material desired
vi) Other Special Information
vii ) Date on which material is required for use
viii) Signature of issuing authority of requisition
We also say purchase requisition as purchase requirement list or purchase indent.
4. Inviting Tenders and Quotations
For saving money and placing the order to best vendor, purchase department will invite the quotations and tenders. This work can be done through offline and online advertising. Tender may be open, limited, oral.
a) Opening of Tenders
Tender is opening at a specific date, time and at specific place.
b) Preparation of Summary of Quotations
After receiving the tenders from different seller, a comparative statement is made in which prices and conditions are compared. Best vendor will be selected for supply.
5. Selection of Source
There is the big source of suppliers. But purchase department has to be limited this on the basis of following point.
a) On the basis of financial resource: Purchase department will see his pocket before selecting the source.
b) Service after buying : Purchase department will choose that supplier which provide the service after buying.
c) On the basis of sample : Purchase department will get the sample for selecting the source of supplier.
6. Placing of Order
When the tender and source of supplier is selected, purchase department places his purchase order. Purchase order is the written agreement in which purchaser and sellers will bind its terms and condition. Purchaser will be responsible the price of material. Seller is responsible for supplying the material.
7. Follow Up Service
After placing the order, purchase officer will send the reminder. He can also get the written promise from vendor for supplying goods at a specific time.
8. Receipt and Checking of Invoice
It is the duty of accountant to receipt and checking of invoice. He will compare it with the original copy of purchase order. If there is any mistake, he will inform the purchase department. Only after confirmation from purchase department, payment will be made by cashier.
9. Receipt and Checking of Goods
After getting goods, purchase department will check the quality and quantity of material which has been mentioned in the purchase order. With this, we see whether everything is OK or not. After this receipt material's report will be made. With this, technical inspection is also necessary.
10. Completion of Record
To record relating to purchase is done by accounts department. If there is VAT and excise obligations, accounts department will complete.
Purchase Procedure in SAP
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