Global Purchasing and Supply Management

Chapter 4 THE PURCHASE ORDER PROCESS (p. 63-64)

Before getting into specific purchasing tasks, and ultimately considering how to improve the job, it is worthwhile to first review the purchasing process itself. The first portion may be a refresher for experienced purchasing managers, but is essential to understanding for non-purchasing personnel seeking insights into the profession. The latter sections provide an enlightening view of how e-commerce tools are redefining the fundamental procurement process.

This chapter will briefly outline the basic steps in the purchase order process, including some of the more common clauses used in purchase contracts. (The more detailed discussion of purchase order clauses will be covered in chapter 15.) The discussion will conclude with an overview of some of the information technology and Internet tools currently available to assist in this fundamental purchasing workflow.

Let’s begin with the mechanics of the buying process (refer to Chapter 1, Figure 1-3) that is initiated by a requisition or other definition of need from within the organization. The buyer will analyze the requisition and ultimately complete it by adding the pertinent purchase data. To edit the requisition, buyers will also need their company’s forms and records, supplier catalogue, purchase history records, and purchase order number file (unless forms are pre-numbered). Of course, if the department has become "paperless," then the ensuing information will relate to the electronic medium in use.

Much has been written about the basic records needed by the buyer. Buyers are urged to use as a desk reference, The Purchasing Handbook, Sixth Edition, by editors in chief Joseph Cavinato and Ralph Kauffman and published by McGraw Hill.

Several key items listed below need to be available to the buyer: Supplier identification records, containing source information and addresses.

Supplier profiles for major suppliers, listing key contact people, phone numbers, e-mail addresses, Web sites and the like. Price history records that are essential, and which should include alternate suppliers and their current pricing information.

1. FUNDAMENTAL STEPS TO COMPLETE A PURCHASE

In the context of the overall process of completing a buy, editing the requisition is among the first administrative steps taken by a buyer. The fundamental administrative steps to the purchase are: Editing the requisition

Making purchase decisions (source(s), split of business, pricing and terms of purchase)

- Issuing the purchase order (PO)
- Issuing change notices (as required)
- Receipt of order acknowledgment
- Follow up and expediting
- Receiving records
- Invoice reconciliation and approval
- Corrections or changes, if needed
- Recording purchase transaction and closing the PO

1.1 Editing the Requisition

The first step in buying is always recognition of a need. It may be a request to replenish stock on a repetitive item, or it could be a special onetime buy of a less frequently ordered item. It may be for commodities, components, or services and it may be for a few dollars or millions of dollars. It is best to be in written form, usually a requisition ("req") that represents an unfulfilled need. Today this data is frequently transmitted electronically over intra-company computer networks, or sometimes via facsimile.