Purchasing Purchasing is the process a business or organization uses to acquire goods or services to accomplish its goals. Although there are several organizations that attempt to set standards in the purchasing process, processes can vary greatly betwe ...

is the formal process of buying

goods and services Goods are items that are usually (but not always) tangible, such as pens, physical books, salt, apples, and hats. Services are activities provided by other people, who include architects, suppliers, contractors, technologists, teachers, doc ...

. The purchasing process can vary from one organization to another, but there are some common key elements. The process usually starts with a

demand In economics, demand is the quantity of a good that consumers are willing and able to purchase at various prices during a given time. The relationship between price and quantity demand is also called the demand curve. Demand for a specific item ...

or requirements – this could be for a physical part (

inventory Inventory (American English) or stock (British English) refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilisation. Inventory management is a discipline primarily about specifying the sh ...

) or a

service Service may refer to: Activities * Administrative service, a required part of the workload of university faculty * Civil service, the body of employees of a government * Community service, volunteer service for the benefit of a community or a pu ...

. A

requisition Requisition may refer to: *Purchase requisition, a document issued by a buyer to a seller indicating types, quantities, and agreed prices for products or services *Requisition in military logistics *Requisition of property by a government under em ...

is generated, which details the requirements (in some cases providing a requirements specification) which actions the

procurement Procurement is the method of discovering and agreeing to terms and purchasing goods, services, or other works from an external source, often with the use of a tendering or competitive bidding process. When a government agency buys goods or ser ...

department. A request for proposal (RFP) or request for quotation (RFQ) is then raised. Suppliers send their quotations in response to the RFQ, and a review is undertaken where the best offer (typically based on

price A price is the (usually not negative) quantity of payment or compensation given by one party to another in return for goods or services. In some situations, the price of production has a different name. If the product is a "good" in t ...

, availability and quality) is given the purchase order. Purchase orders (PO) can be of various types,Purchasing Handbook: Standard Reference Book on Purchasing Policies, Practices, Procedures ... By George W. Aljian including: *standard - a one time buy *planned - an agreement on a specific item at an approximate date *

blanket A blanket is a swath of soft cloth large enough either to cover or to enfold most of the user's body and thick enough to keep the body warm by trapping radiant body heat that otherwise would be lost through convection. Etymology The ter ...

- an agreement on specific terms and conditions: date and quantity and amount are not specified. Purchase orders are normally accompanied by

terms and conditions A contractual term is "any provision forming part of a contract". Each term gives rise to a contractual obligation, the breach of which may give rise to litigation. Not all terms are stated expressly and some terms carry less legal gravity as ...

which form the contractual agreement of the transaction. The supplier then delivers the products or service and the customer records the delivery (in some cases this goes through a goods inspection process). An

invoice An invoice, bill or tab is a commercial document issued by a seller to a buyer relating to a sale transaction and indicating the products, quantities, and agreed-upon prices for products or services the seller had provided the buyer. Pay ...

is sent by the supplier which is cross-checked with the purchase order and documents specifying which goods have been received. The payment is then made and transferred to the supplier.

Types of Purchases

Depending on what type of purchase you are going to make, then the process concerned is not the same. The following examples show the different processes that take place concerning the different purchase types.

Personal Purchases

The

consumer A consumer is a person or a group who intends to order, or uses purchased goods, products, or services primarily for personal, social, family, household and similar needs, who is not directly related to entrepreneurial or business activities. ...

purchases for the consumption of themselves, then they fall into this very important category class. They are ultimately driving the economy through the purchase of its products. Therefore, the economy becomes dependent on them.

Mercantile Purchasing

Facilitated by middlemen for the intention of re-sale to meet others requirements. Agents, wholesalers and retailers come under this category providing their own channels of distribution to the consumer. it is vital to organization

Industrial Purchasing

The purchaser is buying to convert material into

finished goods Finished goods are goods that have completed the manufacturing process but have not yet been sold or distributed to the end user. Manufacturing Manufacturing has three classes of inventory: # Raw material # Work in process # Finished goods A ...

and product. It entails buying

raw materials A raw material, also known as a feedstock, unprocessed material, or primary commodity, is a basic material that is used to produce goods, finished goods, energy, or intermediate materials that are feedstock for future finished products. As feedst ...

. Components, supplies and consumable stores, spares and tools, machines and equipment and office appliance.

Institutionalized or government purchasing

Government agencies or institutions are very important, critical, they purchase in bulk for

public utilities A public utility company (usually just utility) is an organization that maintains the infrastructure for a public service (often also providing a service using that infrastructure). Public utilities are subject to forms of public control and ...

References

External links

Chartered Institute of Purchasing & Supp
Procurement {{business-stub