What is Purchasing?

A purchase means taking possession of a given asset, property, item or right by paying a predetermined amount for the supply to be completed successfully. In other words, it is an exchange of value for a particular product or service, initiated by raising a purchase order which authorises the supply of products or services to an organisation in exchange for payment.

A purchasing function is a team of people with the authority to procure products or services on behalf of an organisation. Purchasing teams may operate as a separate discrete function but are often dispersed within operational teams throughout an organisation’s supply chain, to operate the mechanics of purchasing through an organisation’s purchase order processing (POP) system.

An authorised purchase order, approved by a budget manager if there is sufficient headroom in the manager’s budget, is the authority for a purchasing team to instruct a supplier to supply products or services to an organisation. Without an authorised purchase order, a purchasing team would not have the authority to spend an organisation’s financial resources and could not instruct a supplier to supply products or services.?

The payment of purchase orders is approved when the products or services are "booked in" on the organisation's purchasing system. Purchasing or the act of buying products or services is approved through spending limits that are controlled by an organisation’s budget management control process, utilising the following steps:

1. ?A purchase requisition is raised requesting the products or services.
2. The budget manager authorises the purchase requisition, which transforms the requisition into a purchase order that is sent to the appropriate supplier.
3. The products or services are supplied and "booked in" on the purchasing system, which converts the purchase order into a goods receipt note to confirm the completion of the order.
4. The Accounts Payable team receives the supplier's Invoice for the products or services, which is matched to the relevant goods receipt note.
5. The supplier's invoice is authorised for payment if the invoice and goods receipt note match in terms of the products or services described and the prices and total balance. Any anomalies are sent to the requisitioner to be resolved before the invoice is authorised for payment.
6. All authorised supplier invoices are paid typically when the Accounts Payable team processes a "Payment Run". This changes the status of the Invoice to "Paid".

This process shows the sequencing of events to authorise and pay for products or services. Purchasing tends to involve procuring semi-routine purchases up to a medium level of value from suppliers who have already been authorised as approved suppliers by the procurement team.

Purchases above the pre-approved limit will, in most cases, be forwarded to the procurement team for the products or services to be sourced. The procurement team will draw up a specification, if appropriate, ?in partnership with the requisitioner to initiate a Request for Quotes (RFQ), a Request for Pricing (RFP) or a Request for Information (RFI) tendering process.

The split between purchasing and procurement is always a blurred line. The consensus is that procurement initially sets up the suppliers in terms of commercial and generic terms and conditions of trading and will undertake to source high areas of spending through a tendering process. However, it should be noted that the purchasing systems used and the roles of procurement and purchasing will differ between organisations and will function in the way that best suits the individual organisation.

More articles can be found at?Procurement and Supply Chain Management Made Simple. A look at procurement and supply chain management issues to assist organisations and people in increasing the quality, efficiency, and effectiveness in the supply of their products and services to customers' delight. ??? Simon Callier. All rights reserved.

#procurement?#procurementtransformation?#procurementmanagement?#procurementstrategy?#supplychainmanagement?#supplychain?#supplychainexcellence?#purchasing?#purchasemanagement?#commerical?#business?#managementconsulting