Carrying on in our process series where we take a look at the key steps in the purchasing process we’ll now take a look at the suppliers side – that of Purchase Order Fulfillment.
Once the purchase order has been created and issued to the supplier – the supplier’s role – that of fulfilling order by providing the product and services, begins. From the supplier’s perspective this is very much administered as a sales order, after all they are selling their products to the company buying the products. This step in the purchasing process can broadly be segmented into four steps
1/ Order receipt and acknowledgement
The purchase order is received and usually processed into the company ERP/MRP system – the order will often need to be verified against an earlier quotation that’s has been previously issued to the buying company – common checks will include whether the price and lead time are still available.
Once the order has been verified then an order acknowledgement is typically sent back to the buying organization – this confirms that the order has been received and accepted – usually the delivery date is confirmed and any specific terms and conditions stated.
2/ Production of the goods and materials
After the order has been loaded the supplier will endeavor to fulfill the request – this will usually be achieved through one (or a combination) of the following methods
– Issue the parts from stock
– Manufacture the parts
– Procure the parts from another supplier or manufacturer
3/ Dispatch the goods
Once the required goods are available then they will be packed and dispatched. Accompanying the goods will be a dispatch/shipping note, which will indicate what is being sent, coupled with information pertaining to the order for example the order number or reference.
4/ Issue the invoice
Often at the same time that the goods have been sent the supplier will send an invoice, which is the effective “bill”, or “charge” for the goods. This may either accompany the goods or be sent separately.
Purchasing requisition process
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The first key step of the purchasing process – is the identification of need – as we stated in our purchasing process video, typically this comes in two forms
1/ An internal request based on a requisition form
2/ A “buy” signal generated from the companies ERP/MRP system
Companies typically employ a purchase requisition process to “manage” these buy signals – allowing requests to be documented/tracked whilst following an appropriate approvals workflow. It’s important to differentiate this step in the buying process from raising an order – Purchase requisitions are not purchase orders and do not form a contract with a supplier for materials or commit money.
What actually triggers a purchasing requirement?
There can be various reasons for a company needing to buy something this could come from
• Materials needed for the manufacturing process
• Parts that are required to sell on to customers
• Safety stock
• Internal use / development needs
• New employees (e.g. requirements for IT equipment or office furniture)
Indeed –the signal to “go and buy” can come from almost anywhere (from requests for pens to requests for heavy machinery).
What is included in the Purchase requisition?
Whilst many requisitions simply state the product – depending on the end usage a requisition might need to be accompanied by various information from a technical specification to a concept to assist the buyer when seeking price and availability enquiries.
A purchase requisition will usually include key information such as
• What part/product is required
• How much of the part is needed
• When is it required by
Supplier selection
Whilst it is normally the role of the buyer to select the supplier that will be used – there is often input into supplier selection as part of the requisition process for example the requisition may stipulate proprietary items or the product may come from a vendor catalogue. Whatever supplier information is presented as part of this phase – final supplier selection is normally a procurement function.
To authorize or not to authorize – that is the question
Once a need has been identified that doesn’t necessarily mean that the purchase will proceed – there is usually an authorization process that accompanies the requisition phase – this is often a line manager or someone that has budgetary responsibility – they will verify a number of things before approval – for example
1/ Do I have budget funds for this item
2/ Is it completely necessary that we purchase the item
3/ Are we buying the right item
4/ Are we buying enough of the item
Once enough information has been gathered on the requirement and it has been approved it will usually be forwarded to the buying department for action.