Purchasing is the formal process of buying goods and services. The purchasing process can vary from one organization to another, but there are some common key elements. Show
The process usually starts with a demand or requirements – this could be for a physical part (inventory) or a service.[1] A requisition is generated, which details the requirements (in some cases providing a requirements specification) which actions the procurement department. A request for proposal (RFP) or request for quotation (RFQ) is then raised. Suppliers send their quotations in response to the RFQ, and a review is undertaken where the best offer (typically based on price, availability and quality) is given the purchase order. Purchase orders (PO) can be of various types,[2] including:
Purchase orders are normally accompanied by terms and conditions which form the contractual agreement of the transaction. The supplier then delivers the products or service and the customer records the delivery (in some cases this goes through a goods inspection process). An invoice is sent by the supplier which is cross-checked with the purchase order and documents specifying which goods have been received. The payment is then made and transferred to the supplier. Types of Purchases[edit]Depending on what type of purchase you are going to make, then the process concerned is not the same. The following examples show the different processes that take place concerning the different purchase types.[3] Personal Purchases[edit]The consumer purchases for the consumption of themselves, then they fall into this very important category class. They are ultimately driving the economy through the purchase of its products. Therefore, the economy becomes dependent on them.[3] Mercantile Purchasing[edit]Facilitated by middlemen for the intention of re-sale to meet others requirements. Agents, wholesalers and retailers come under this category providing their own channels of distribution to the consumer. it is vital to organization Industrial Purchasing[edit]The purchaser is buying to convert material into finished goods and product. It entails buying raw materials. Components, supplies and consumable stores, spares and tools, machines and equipment and office appliance.[3] Institutionalized or government purchasing[edit]Government agencies or institutions are very important, critical, they purchase in bulk for public utilities.[3] References[edit]
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Open access Submitted: February 19th, 2019 Published: March 25th, 2019 DOI: 10.5772/intechopen.85380
*Address all correspondence to: There is no doubt that each and every firm have their purchasing department/professionals. Purchasing is the process of acquiring materials, components, and services from another firm. Professional purchasing have addresses following main rights: purchase of the right material, component or service, in the right quantity and quality, at the right place and time [1]. Purchasing gives the foundation of supply management, which tends to have a wider scope of activities [2]. The focus shifts from price to the total cost of ownership. Supply management is a five-phase process that starts with the identification of the materials or components required to fulfill the requirement of the enterprise. During this phase, the need is to convert into a statement describing the materials or components required to fulfill the need. It is projected that around 85% of the cost of material is determined during this phase [3, 4]. In sophisticated and multinational firms, supply management professionals and pre-qualified vendors are involved in this phase. The second phase of supply management contains identifying the supplier who will best fulfill the need. The third phase comprises the process of establishing a reasonable and fair price for the material to be purchased. The fourth phase results in an enforceable contract for the purchase that fulfills the requirement of both firms (supplier and buyer). The last phase needs managing the relationship to guarantee quality and delivery time of the material. During this last stage, the supply management firm may work with the supplier in an effort to enhance the efficiency of the supplier with the objective of reducing cost and/or improving quality [2, 5]. Advertisement 1. Definition of supply managementThere is a long list of definitions on supply management and procurement management ( Figure 1 ). But the most common definition of supply management is as follows:  Figure 1.The complex procurement process. “The process of obtaining and managing of materials, components or services needed to operate a business or other type of firm. The elements of supply management contain the actual materials/components, budgets, information, and employees. The key purpose of this procedure is to keep costs stable and use resources effectively to increase the efficiency of the business and profits” [6]. Following are the basic responsibilities of an effective purchasing and supply management team. Advertisement 2. Reducing costPurchasing has a direct impact on firms’ profitability and expenditure. The procurement professional task is to reduce the cost of product, material or service through supplier relationship development and negotiations [7]. In addition, procurement professionals have a responsibility to create value for the firm in terms of cost reduction and improving the quality of the item. Generally, the material cost is two and a half times the payroll costs [1, 8]. It is the key reason firms see great value in procurement professionals who are able to increase the quality of products and savings. Advertisement 3. NegotiationNegotiation plays a vital role in the reduction of cost and enhancing the quality of the item. Procurement professionals are tasked with negotiating terms with suppliers that benefit to the firm in terms of delivery time, quality of materials, and reduction in price/cost of material [1, 9, 10]. Undeniably, this not only affects the sales and revenue of firms but also create a competitive advantage. The successful supply management professionals’ team is relying on the ability to foresee long-term business relationship and strong negotiation skills. Advertisement 4. Developing supplier relationshipsUsually firms require suppliers on an ongoing basis due to one-off purchases is very costly and as a result, it is crucial to building a long-term relationship with suppliers. A supplier–buyer good relationship can create flexibility in the supply chain [6, 11]. In addition, by working with the supplier on a long-term basis, firms may increase competitive edge, higher cost savings, and fine-tune schedules. Further, buyer–supplier relationships benefit both and build trust and collaboration, which allowing both parties to succeed [12]. Advertisement 5. Mitigating riskPurchasing and management have a responsibility to understand the potential risks and develop innovative strategies to manage them. An effective risk mitigation strategy may protect firms from a big loss [1, 13]. Potential risks contain transparency and fraud, counterfeit materials and intellectual property. Further, supply management professionals need to have a plan B in place if supplies are delayed from the suppliers’ side or due to changes in schedule. References
Written By Syed Abdul Rehman Khan and Zhang Yu Submitted: February 19th, 2019 Published: March 25th, 2019 © 2019 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution 3.0 License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. What is the process of acquiring goods and services?Procurement is the process of acquiring goods or services from an external source. It includes everything from identifying a need and finding potential suppliers to negotiating contracts and managing relationships with vendors.
What is the process of procurement of material?Material procurement is the process of researching, selecting, ordering, and paying for the raw materials required for constructing a building or structure. Procurement of any kind involves identifying and selecting vendors or suppliers, negotiating prices and terms, and awarding contracts.
What's procurement process?For any organization, procurement is an essential business process. Organizations acquire goods and services from external suppliers at the best price to expand, enhance operations, and optimize business performance.
What are the 4 stages of procurement?Before you get started, it's important to know the basics; here are our four steps explaining the procurement process:. 1 – Identifying need. The procurement process always starts with the same component – need. ... . 2 – Supplier evaluation and selection. ... . 3 – Purchase order. ... . 4 – Delivery.. |
