Purchasing Process
The purchasing process is the systematic method of acquiring goods and services required by
an organization. It helps ensure continuous supply of materials without interruption. A proper
purchasing process reduces cost, avoids over-stocking, and improves efficiency. It also
supports smooth production and business operations. In addition, it helps in better inventory
control and financial planning.
1. Purchase Regulation
Main line: Purchase regulation refers to the rules and policies followed by an organization while
purchasing materials.
These rules define purchasing authority and approval limits. They help control unnecessary and
emergency purchases. Purchase regulations ensure honesty and transparency in buying
activities. They also help in standardizing procedures across departments. Proper regulations
reduce chances of favoritism and corruption. They improve accountability in the purchasing
department.
Additional lines:
Purchase regulations help maintain discipline in the purchasing system. They ensure that
purchases are made strictly according to organizational needs. Clear rules reduce delays and
confusion in decision-making. They also support effective supervision by top management.
Example: A company policy states that at least three quotations must be taken for any major
purchase.
2. Exploring Sources of Supply and Choosing the Best Supplier
Main line: This step involves searching for various suppliers and selecting the most suitable one.
Suppliers are identified through market surveys, advertisements, and references. Quotations are
invited to know prices and terms. Suppliers are compared on quality, cost, delivery period, and
after-sales service. Financial stability and reputation of suppliers are also considered. Selecting
the right supplier ensures timely supply and consistent quality. It also helps in building long-term
business relationships.
Additional lines:
This step helps the organization obtain materials at competitive prices. It reduces the risk of
supply failure or delays. Reliable suppliers support smooth production activities. Long-term
supplier relations also lead to better credit terms.
Example: A manufacturing company selects a supplier who delivers raw materials on time with
consistent quality.
3. Purchase Order
Main line: A purchase order is a formal written document sent by the buyer to the supplier.
It clearly mentions specifications, quantity, price, and delivery instructions. It acts as an official
authorization to supply goods. A purchase order serves as legal evidence in case of disputes. It
helps in matching invoices and deliveries. It also supports better planning and record
maintenance. Multiple copies are used by different departments for control.
Additional lines:
A purchase order avoids misunderstandings between buyer and seller. It ensures both parties
agree on the same terms. It helps the accounts department verify bills correctly. Proper
documentation strengthens internal control.
Example: A retailer issues a purchase order for 1,000 garments for the festive season.
4. Receiving and Inspecting Material
Main line: Receiving and inspection involve checking goods at the time of delivery.
The receiving department verifies goods with the purchase order. Physical inspection is done to
check quality and condition. Quantity is measured or counted properly. Defective or excess
goods are recorded and reported. A goods received note is prepared for records. This step
avoids acceptance of wrong or damaged items.
Additional lines:
This step protects the organization from losses due to poor-quality materials. Immediate
inspection allows quick return of rejected goods. It ensures only approved materials enter the
store. Proper inspection supports smooth production.
Example: A warehouse checks food items for expiry dates before storing them.
5. Checking and Payment of Bills
Main line: This step involves verifying supplier bills and making payment after approval.
The bill is compared with the purchase order and goods received note. Mathematical accuracy
of the invoice is checked. Terms of discount, taxes, and delivery charges are verified. Any
discrepancy is reported to the supplier. After verification, payment is processed through cheque
or bank transfer. Timely payment builds trust and goodwill with suppliers.
Additional lines:
This step prevents overpayment and financial fraud. It ensures payment is made only for goods
actually received. Proper bill checking helps maintain accurate accounting records. Regular
payments improve the company’s reputation.
Example: An office verifies an invoice for computers before releasing payment.