. Purchase Requisition
The employee will submit a material or service requisition containing the details of required item or service to the immediate supervisor, who, based on the authority set, will approve the requisition. Usually requisition will contain description of the item and the quantity required. The approval authority will be typically set based on the nature cost and/or volume of the item or service. For example, standard office supplies for an individual may not need any approval. However, if there is training for which a set of office supplies are required, would need an approval from the concerned higher authority. On the other side, a desktop computer or flight ticket or hotel accommodation will always need an approval.
Once the material requisition (MR) is approved, it is given to the inventory/store/purchasing department. If that is a stoked item (like office supplies and MRO), the item will be issued to the requester. In case of a service, non stocked items and items that are out of stock, the purchasing team will initiative for the buying process.
A purchase requisition (PR) is the first formal document in the purchasing process. It is usually generated by the Purchasing department and approved by commodity managers and finance team. This will contain similar details like in a material request, however, may have same or multiple items required by various groups or individuals in the organization.A purchase requisition has the following purposes:
a. It sets the purchasing process in motion
b. It is a written record of details like quantities, any speciation etc.
c. It provides date for reference i.e., date when materials are required.
Dates are important in case responsibility for stoppage in production due to shortage of materials is to be determined.
Selecting the Supplier
The real purchase starts with finding the suppliers or service providers who can deliver the specific goods and services. Tenders and Quotations has been the traditional formal method of finding and selecting vendors. The company issues a tender notification seeking proposal from qualified suppliers. Tenders are usually notified through newspapers and other mass communication media as well as through direct communication with known or incumbent suppliers. Suppliers send the quotations along with other detail on the good or services as well as delivery terms.
Upon receipt of quotations, one or many suppliers will be selected based on the specific requirement to deliver the good or services. A purchase order (PO) will be send to chosen supplier(s) asking them deliver the goods or services. PO is the first legally valid document that companies send to its supplier. It is a legal agreement warranting to accept the goods or services delivered and to pay as agreed. Typically suppliers send a acknowledgement note for the POs received as an acceptance of the order and to confirm the delivery terms.
Receipt of Materials
Based on the agreed up on timeline, supplier will deliver goods or services. This will be notified through a Goods Receipt Note (GRN). At times, the delivery may not be in full, a partial delivery would be made based on the circumstantial requirements. The good will then go through the inward quality and acceptance process, passed good will be taken in to store, accounted in inventory and then issued to the requestor. Incase the goods get rejected for any reasons, it will be send back to supplier for replacement.
. Checking and Passing of Bills for Payment
Upon the goods acceptance, supplier send across Invoice which is a payment request for the goods or services delivered. Like in case of delivery, invoice can be for a partial delivery. A three point matching, i.e. tally Purchase Order with Goods Received with the Invoice, will confirm the integrity of the transaction. This gets entered in to the Account Payable (AP) system as a payable entry. Once the necessary finance approvals are done, payment will be made to the supplier through the agreed up on means and AP entry get updated with actual payment details.