Purchasing
Cycle
Definition
Purchasing is a function of procuring goods & services from
sources external to the organization.
According to Alford & Beaty:
“Purchasing is the procuring of materials, supplies,
machine tools & services required for the equipment,
maintenance & operation of a manufacturing plant”
Introduction
• Understanding of consumer buying behavior.
• Consumers have limited time, energy and financial resources
• Time Consuming decision.
• Evaluate various alternatives and choose the product that
satisfies the consumer in an optimal way.
• Consumers get influenced by several major factors while they
make their decisions.
1) Social
2) Cultural
3) Psychological
4) Personal factors, etc
4 P Approach
1. Product –
• Looks, color are major considerations while purchasing a
product.
• After Sales Service is the main attributes being looked
while purchasing the product.
2. Price –
• All Consumers Look For Value For Money And Are Price
Conscious.
• Price is not the major constraint if they are providing
additional feature needed by the customer.
4 P Approach
3. Place -
• Since India is very rich in its customs and traditions, a
number of festivals are celebrated throughout the year.
• Major purchases during festival and special occasions.
4. Promotion –
• Potential customers go through a purchase cycle: pre-
transactional ( i.e before a purchase), transactional ( i.e at the
time of purchase) and post-transactional ( i.e after the
purchase has been made).
• Extended after Sales Service can be used as pull strategy of
promotion.
Responsibilities of Purchase
Department
1. Exclusive Responsibilities:
Selecting Right suppliers.
Obtaining Materials at best prices.
Follow up with suppliers for prompt delivery.
Developing & Maintaining good relations with suppliers.
Enquiring into complaints both from suppliers & user
department.
Selecting the right managers & staff for the purchasing
function.
Giving training to the personnel to improve their
effectiveness & efficiency.
Market research for purchasing.
Responsibilities of Purchase
Department
2. Shared Responsibilities:
Obtaining technical information & advice on materials.
Establishing & developing specifications for materials.
Scheduling orders for materials on suppliers & fixing
delivery dates for supplies.
Specifying modes of delivery & transportation.
Inspecting materials received.
Accounting of materials purchased, including payment of
bills.
Inventory Control.
Determining whether to Make or Buy (i.e. make the
component in one’s own factory or buy them form outside)
Elements of Purchasing cycle
ESTABLISHING THE NEED FOR PROCUREMENT
1. Recognizing the need for procurement
2. Determining the requirements
3. Spelling out the specifications
4. Communicating requirements to purchase
a. Purchase indent/Bill of material (production items)
b. Purchase indent (other items)
Purchasing Cycle
Risk Analysis
Meaning –
Risk is any event which would negatively impact the business
if it occurs. Risk analysis is the process of identifying those
“risky events” for any given business situation and setting up
contingency plans for covering the most critical ones.
Risk in purchasing can be of different natures :
1. Supply Market –
Lack of supply capacity in the market
Price increase
New regulations
Change in demand which may impact product availability
Risk Analysis
2. Supplier Risk -
Bankruptcy risk
Lack of production capacity
Quality risks
Late delivery
3. Environment, Health and Safety
Accident risks
Environmental risks
Impact on people, society, local economy, supplier business
Risk Analysis
4. Country risk –
Political risks
Exchange risks
Duties and taxes
Inflation.
When And Why To Use It?
Risk analysis is an approach that may be used in several steps
of Purchasing Process. For example:
When selecting suppliers: which supplier is less risky in terms
of, quality, delivery and cost.
When transferring the business from a current supplier to a
new one.
Thanking You
Presented By :-
Jayesh Sugand
Roll No : -
107
