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.
A purchase order is a document that is used when a business purchases products or services from another business – it is usually sent to the supplier (either as a document or as a EDI/Electronic message) and describes what part/products are required coupled with what price is being paid and what terms and conditions apply. In the purchasing process – it will typically come after the requisition and supplier sourcing phase.
While purchase orders can include a number of different attributes (check out our article on key things to include in your purchase order template) there are some basic concepts that all purchase orders will contain
1/ Your company details
2/ Your supplier details
3/ Your Purchase Order number or reference
4/ Information about what you want to purchase (including quantity and price)
Creating a Purchase Order Template
Here’s our guide on how to produce a generic purchase order template in Excel – if you’d rather not use a spreadsheet application to produce your template word processing software will do just fine as well. Check out the video below and you’ll see how we’ve structured our template.
1/ Starting with a new workbook enter some information about your company including:
• Your Company Name (and logo)
• Your Company Address
• Your Company contact details
2/ Enter some reference information about the Order including
• A Title that reads “Purchase Order” – this clearly identifies what the document is
• A Purchase Order Number
• The Date of the order (this could be the date that the order was raised).
3/ Enter contact details for your supplier include their company name and address
4/ Enter some information about where you want your order delivered too (this is often referred to as a “ship to” address).
5/ In the middle of the document create a table where you will record the items you’ll want to purchase. Include room to record the following
• Part Number
• Part Description
• Qty (how many your buying)
• Price Each
• Total Price.
6/ Add an area under your table where you can record the total price for your order include some cells that will calculate any tax or ancillary costs that you’ll be charged.
7/ Create a text box that you can use to record additional information or notes to accompany your order.
8/ Include a sign off block as necessary
9/ Add some contact information on the buyer (or who is responsible for your purchase order.)
10/ Consider how you will include any terms and conditions that apply to your order
11/ Add some color and some formatting