TYPES OF PURCHASING SYSTEM
WHAT IS A PURCHASING SYSTEM?
FUNCTIONS OF PURCHASE DEPARTMENT
SUBCONTRACTING
TENDER
BLANKET ORDER
CAPITAL EQUIPMENT PURCHASE
PETTY CASH SYSTEM
IMPORTS
E-PURCHASING
ORDER ON TELEPHONE
RATE CONTRACT METHOD
STOCKLESS PURCHASING
Kenya Coconut Production Presentation by Dr. Lalith Perera
Types of purchasing system
1. TYPES OF
PURCHASING
SYSTEM
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2. WHAT IS A PURCHASING
SYSYTEM?
A method used by businesses to buy products and/or services.
A purchasing system manages the entire acquisition
process, from requisition, to purchase order, to product
receipt, to payment.
Purchasing systems are a key component of effective inventory
management in that they monitor existing stock and help
companies determine what to buy, how much to buy and when
to buy it.
3. FUNCTIONS OF
PURCHASE
DEPARTMENT
Purchase materials at lowest possible cost while maintaining
quality.
Maintain good relationship with the suppliers.
Take advantage of economies of scale.
Maintain records efficiently.
Develop highly competent personnel.
Co-ordinate with all the departments of the organization.
4. TYPES OF PURCHASING
SYSTEM
Tender System
Stockless Purchase System
Blanket Order
E-Purchasing / E-Procurement
Subcontracting
Rate Contract Method
Petty Cash System
Capital Equipment Purchase
6. WHAT IS
SUBCONTRACTING?
Subcontracting refers to the process of entering a contractual
agreement with an outside person or company to perform a
certain amount of work.
The outside person or company in this arrangement is known
as a subcontractor.
Many small businesses hire subcontractors to assist with a
wide variety of functions.
Example:
A small business may use an outside firm to prepare its payroll.
7. SUBCONTRACTING
IS ALSO KNOWN
AS OUTSOURCING
Outsource means to
send part of a
company’s work to
outside providers to
simplify or reduce cost.
10. EXAMPLES
Subcontracting is probably most prevalent in the construction
industry, where builders often subcontract plumbing, electrical
work, drywall, painting, and other tasks.
In some cases, a general contractor may only be used as the
construction manager or supervisor. In that
case, subcontracting accounts for all of the physical work done
on the premises. The general contractor's only responsibility is
to approve the contracts, keep the project within budget, and
inspect the work.
12. WHAT IS TENDER?
In this system the entity invites suppliers to give their
quotations.
The supplier with the lowest quotation wins the contract.
It is a kind of contract mostly followed by large organisations
and governments when purchases are of large value.
13. TYPES OF TENDER
Open Tender
This is where an opportunity (including all tender documents) is
advertised inviting providers to bid directly for a contract.
All interest parties then submit a tender.
Scoring takes place and the successful organisation is
awarded the contract.
Sometimes there is a selection stage first, which is then
followed by the award stage.
15. TYPES OF TENDER
Restricted Tender
This involves the opportunity being advertised in the relevant
places and media.
Organisations will then submit an expression of interest and fill
in a pre qualification questionnaire.
Successful organisations will go onto select list and be given
an invitation to tender with the tender documents.
Tender documents are completed and submitted.
From the submitted tender documents scoring takes place and
the successful organisation is awarded the contract.
16. TYPES OF TENDER
Negotiated Tender
It can only be used in a limited number of carefully defined
cases (e.g. large capital projects where a range of solutions to
deliver are possible).
An opportunity is advertised (the specification is not
established at the start of the process) and organisations can
submit an expression of interest and fill in a pre qualification
questionnaire.
Successful bidders are invited to negotiate with the procuring
body, which is called the dialogue phase.
Once dialogue has generated solutions to the agreed
requirements, final tenders are submitted based on each
bidders individual solution.
Scoring then takes place and the successful organisation is
awarded the contract.
20. WHAT IS BLANKET
ORDER?
Company purchase many small items on day to day basis. It
becomes difficult to have inventory for all.
It is most popular method for purchasing items which are used
regularly.
There are two methods:
Agreement is made to supply a Fixed Quantity of the product at
a Fixed Price for a Specific Period.
Agreement is made to supply for a Specific Period but the
Quantity is unknown.
25. WHAT IS CAPITAL
PURCAHSE
EQUIPMENT?
It is a purchasing system which requires high capital.
It is used to purchase large value assets such as Machinery
and Equipment's.
28. WHAT IS PETTY CASH
SYSTEM?
A small fund of cash is kept in hand for purchases or
reimbursements which are too small to be worth submitting to
the more rigorous purchase and reimbursement procedures of
a company or institution.
Petty cash funds must be safeguarded and documented to
ensure that thefts do not occur.
The most common way of accounting for petty cash
expenditures is to use the imprest system.
32. WHAT ARE IMPORTS?
It is a method to purchase the goods from the area or the
country outside the India Territory.
Imports are not easy and are governed by the Central
Government.
34. ADVANTAGES &
DISADVANTAGES
Advantages:
Stabilize seasonal market fluctuations
Maintain cost competitiveness in your domestic market
Enhance potential for expansion of your business
Higher quality
More variety
Cheaper goods
Disadvantages:
High Tax
Increased Transportation Cost
Foreign exchange risk
36. E-PURCHASING / E-
PROCUREMENT
E-procurement is the business-to-business or business-to-
consumer or business-to-government purchase and sale of
supplies, work, and services through the Internet.
E-procurement helps to achieve benefits such as increased
efficiency and cost reduction.
40. WHAT IS ORDER ON
TELEPHONE?
It is a method used to place orders of small value.
In this method the purchase department does not prepare a
formal purchase order.
The order is placed by telephone.
The price is discussed an finalized on the telephone.
This works well with the captive type of vendors
43. WHAT IS RATE
CONTRACT METHOD?
A Rate Contract or a Rate Agreement (RC in short) is a
procurement cost reduction strategy aimed at standardizing
procurement prices for commonly procured, homogenous and
price varying inputs.
The basic idea behind a rate contract is to aid a company in
establishing parameters for the purchase of goods and
services necessary for the continued operation of the business.
46. WHAT IS STOCKLESS
PURCHASING?
Stockless purchase system can be defined as Arrangement in
which a supplier holds the items ordered by the customer in its
own warehouse, and releases them as and when required by
the customer.
It is also known as just-in-time purchasing.
In this system the vendor has a clear idea of the requirements
of the buyer and holds the stock in convenient location.
The seller has the financial responsibility of holding the stock.
47. EXAMPLES
Tyre warehouse near automobile manufacturing units.
Petrol pumps in transport undertaking.
Aviation fuel pumps at airport.
48. ADVANTAGES &
DISADVANTAGES
Advantages:
Reduced warehouse space
Eliminate the cost of storing, maintaining and distributing
supplies
Increased inventory turnover
Less manpower
Disadvantages:
High cost
Need of complex technology
50. INDIAN RAILYWAY
CATERING AND
TOURISIM CORPRATION
Indian Railway Catering and Tourism Corporation uses Open
Tender and Selective Tender for purchase of Capital
Equipment.
It uses subcontracting for maintenance, catering and cleaning.
It uses blanket order to purchase day to day items like
stationery, etc.
Notes de l'éditeur
A bid bond is issued as part of a bidding process by the surety to the project owner, to in hopes guarantee that the winning bidder will undertake the contract under the terms at which they bid.Performance bond: A bond issued to one party of a contract as a guarantee against the failure of the other party to meet obligations specified in the contract.
Volkswagen India have a factory in Pune, Chakan. Goodyear tires have a warehouse in the same area. They tires are supplied when they are needed. Volkswagen don’t hold the stock for the same.
Inventory Turnover is a measure of the number of times inventory is sold or used