Sep
11
Key steps in the purchasing process
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Like any process the purchasing process is made up of several steps or activities each step takes information, processes it and turns into an output to feed into the next step.
While the purchasing process may vary from organisation to organisation the major fundamentals remain the same
1 Request to purchase / requisition
This phase deals with identifying the need – what to buy – how much of it – and when it is needed for – there are two main forms of requisition – a manual one i.e. that created on a form (such as a requisition form) or other document and that created automatically via an ERP type system. The requisition will likely go through an approvals process whereby authorisation is given to purchase the item (or not!)
2 supplier selection
Buyers may already know which supplier to to buy the item from that is being requested. If not a tender (or request for quote) process may be initiated to identify a supplier, price and lead time.
3 purchase order
A purchase order is despatched to the supplier (either a paper copy or electronically) to inform the supplier of the intent to purchase. The purchase order will identify the item(s) being procured, the quantity required and the price being paid. It will also identify delivery address and any terms and conditions that relate to the order. Click here for our guide on how to create a Purchase Order template using Excel
4 Fulfillment
The supplier will then despatch the goods to the buying organisation. Lead time might be required to allow the supplier to manufacture the item or receive deliver from Mitsubishi own suppliers.
5 Goods receipt
Once the goods arrive at the buying organisation they will typically go through some form of goods receipting process where the goods are checked to ensure that they match what was ordered and that they are of the correct quality.
6 Supplier invoice/payment
At time of despatch the supplier will typically issue an invoice – which either accompanies the goods or is sent separately. This will be received by the finance department – processed and paid (assuming the goods are received and are correct).
Summary
While these are the basic steps in the purchasing process all companies are different – some will wish to automate as much as possible replacing paper forms with electronic messages- others may have complex approval rules – despite these variations however the fundamentals remain the same.
Jul
9
Does it matter which people from your organization chase parts from suppliers?
During the purchasing process one of the common tasks to be completed is the delivery schedule – typically this will be outlined during the quotation phase and confirmed at time of order placement. This is usually in the form of an agreed lead time – i.e. 3 weeks – or a specified date/time.
The expediting process refers to the procurement organization contacting the supplier for either updates on the delivery schedule or to reassess the schedule based on issues with the supply of parts.
The challenge for this process and one which is a common issue is who actually chases the supplier. In many cases this will typically be the buyer that raises the order – they may have a regular process where they reconfirm the order book or a specific order.
Where there are many stakeholders relying on delivery – in a manufacturing organization for example – there may be a temptation for everyone to get involved in this process where the part becomes critical – or is late enough to hold up production.
Where problems occur with delivery a supplier could find themselves hastened multiple times from buyers up to management. This does cause some issues – take for example a supplier that is supplying multiple products to different manufacturing cells and they are experiencing production problems impacting delivery– where they are expedited from different sources they are unable to prioritize which can result in further issues and delays and more frustration.
In many cases the buyer is divorced from the manufacturing line and therefore doesn’t have sufficient information to prioritize – this requires a formal communication method to mitigate the problem which the buyer must adhere to before agreeing to a revised delivery schedule.
Where problems continue and poor performance becomes an issue with a supplier then a suitable member of the management team should become involved (often the procurement functional lead). Ensuring this is adhered to can also alert management to the need to kick off formal supplier improvement initiatives.
Formal relationships between suppliers and buyers should be established to minimize the points of contacts – it’s understandable for dis-satisfied stakeholders to want to get involved but generally they may not be armed with all the information and skills to make the right decision.
Finally – ensure your organization has a policy/procedure for supplier escalation – ensure that it lays out when, how and who will be involved in the process and share this information with the supplier. Where suppliers do not achieve 100% on time delivery – expediting or rescheduling becomes a necessary evil – however a common sense approach can ensure that a bad situation doesn’t become worse!