The purchase order is placed with the selected supplier. It indicates an official announcement of the intention of the buyer addressed to the supplier to the supplier to receive the specified materials. Generally printed forms are used for the purpose and specifications such as name of the supplier, item specifications, quality, quantity price, date of requirements, mode of delivery and other relevant terms are made in the purchase order.
Generally, all purchases are made through purchase order. When emergency purchases are made through telephone or telegram, the purchases are confirmed by sending a regular purchase order following the telephone or telegram. Such purchase order should be made as “confirmation” so that any misunderstanding on the part of the supplier treating it as a fresh order can be eliminated. It is not proper to specify the preparation of the number of the copies of the purchase order. The number of copies is closely related with the complexities of the purchase organization.
However, the copies of the purchase order are generally required as under:
The original copy is sent to the supplier. Sometimes an additional copy is also sent to the supplier who is supposed to return the same signifying his acceptance. Such procedure ensures that the supplier has received the order and that he accepts the buyer’s terms and conditions. Copy may be sent to the receiving department, the accounting department, the initiating department, the stores department, the inspection department and the follow up department (in almost all the cases Purchase department’s buyer is also responsible for ‘follow up’). One copy is, of course, retained by the purchase department for record. It should be noted that the outstanding orders should be separated from the completed orders. They should be filed properly. Generally the outstanding orders would be filed alphabetically while the completed orders should be filed numerically. It is highly essential to develop a system for tackling the small orders as quickly and as cheaply as possible.
As it would not be desirable to institute control on all items bought, the principle underlying the ABC analysis should be followed. ‘A’ items are about app 20% of the total number of items which account for 80% of the total purchase expenditure. More than 75% of the total items tend to account for less than 20% of the total expenditure. Such items are denoted as “C” items. The rest are the “B” items. Rigorous control must be exercised on “A” items only.
The buying practice for the low value, small order items can be devised as under:
1) To buy from the intermediaries like wholesalers or retailers, rather than from the manufacturers.
2) To place a standing order with the supplier. Standing order is an arrangement under which the supplier continues to supply the article at regular intervals until is told to stop.
3) To place a blanket order with the supplier. The blanket order is a period contract made with the supplier to supply the items at agreed terms against the requisition made by the buyer.
4) The arrangement of cash purchases: Under this system, the staff is authorized to make the direct purchases up to certain limit e.g. special order pads marked “Not valid for orders over Rs 1000” can authorize the subordinate staff to order directly for meeting the routine requirements.
5) The junior executive or the order clerk can be delegated the authority to handle all types of purchases of this nature.
Generally it is the usual practice that all purchases should be made through the purchase department. However, sometimes the authority is delegated to certain key staff for the emergency purchases e.g. the maintenance foreman should be empowered to make emergency purchases to meet any unforeseen breakdown in the machines. However, the usual practice is to limit the authorized persons, occasions and amount of emergency purchases, and it should be confirmed by the purchase department at a later stage.