This document provides an overview of purchase functions for manufacturing organizations. It discusses key responsibilities like classifying materials, ordering techniques, and vendor management. The document outlines the typical purchase process from creating a purchase indent to goods receipt. It also describes ordering approaches for different material categories and factors to consider when evaluating vendors. The goal is to help students and professionals understand best practices for purchase management in manufacturing.

1. The Essentials - Purchase
HASH MANAGEMENT SERVICES LLP
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2. Overview
 ‘The Essentials’ series from Business Sense is an initiative to empower the students(freshers) and
professionals in performing more efficiently and effectively in the organization
 This document is a part of the “Certified Manufacturing Professional” course offered by Business Sense
 This course is aimed at bridging the gap between the institutions and the industry by providing the
fundamentals of manufacturing management which are not offered by any of our
institutions/curriculum
 This course would immensely benefit students and professionals who are joining manufacturing
organizations
 For more details, please visit www.businessense.in
 At Business Sense, we help clients through consulting engagements focusing on improving their
Operations through Lean Manufacturing Implementation covering 5S, SMED, Kaizen and other tools.
 We also serve clients on Preparation of Detailed Project Reports, Market Assessments, and Supply
Chain Re-engineering.
 You can subscribe to our bi-weekly newsletter here.
 Follow us:
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3. Contents
 Section 1 – Introduction and Basic Processes
 Section 2 – Materials Classification Techniques
 Section 3 – Ordering Techniques
 Section 4 – Vendor Management
 Section 5 – MIS Reports and Analyses Points
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4. Introduction to Purchase Function
 Purchasing refers to a business or organization attempting for acquiring goods or services
to accomplish the goals of the enterprise
 Purchasing role in any organization is considered to be important as it handle raw
materials & Sub-assemblies which have significant cost impact on material
manufactured.
 Purchasing is key element of Supply chain management of any organization more ever in
recent times as sourcing are increasingly done from many countries. Companies with
robust purchasing department and experts give better business results than others.
Purchase Supplier /
Company
Function Vendor
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5. Organization Structure
 This is a standard organization structure
for Purchase Function
 Purchase Manager reports to the CEO of
CEO
the company
 There would be a few Purchase Executives
/ Assistants reporting to the Purchase Purchase
Manager Manager
 Each Purchase executive would typically
Purchase Purchase Purchase
focus on a single raw material category Executive / Executive / Executive /
Assistant Assistant Assistant
 We have explained a typical functional hierarchy. It may
vary according to each organization
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6. Responsibilities of an Engineer in the Purchase
Function
 Acquire quality goods and services in a professional, timely and cost effective manner
 Help develop and maintain a supplier/vendor community capable of supporting the organization’s
needs with emphasis on superior service quality and cost effectiveness
 Classification of all the materials (including packing materials) as A, B and C Class items (methodology described later in the
presentation) – to be done jointly with Stores function
 Tracking of the lead time of all A & B Class items and make necessary changes in the purchase process
 Maintaining Nil Stock-Out situation all times
 Scheduled Purchase for all regular/fast moving A Class items
 Re-Order level based ordering for all A&B Class items
 Two Bin System / Min-Max for all C Class items
 All Purchases through formal PO only – no telephone based/other means of ordering
 Creation / Preparation of the Management Information Systems (MIS) that enable better decision
making processes for the present and the future, and present it to the Senior Management
 Updation of records daily including Pending Order Status
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7. Process Flow - 1
 Stores Assistant/Executive sends a Purchase Indent (PI) to the
Purchase Executive depending on the status of the material available in
the stores. The quantity is based on the Production Planning /
requirements discussed with the other functions. Pending Orders,
Items in transit etc. Each PI should have a unique no which would be
mentioned in the PO later
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8. Process Flow - 2
 Purchase Executive then collects the Purchase
Indents and creates a Purchase Orders (PO) and
sends them to Purchase Manager for approval.
The POs’ can be supplier-wise / item-wise. Each
PO should have a unique PO number which
should be mentioned in the PO, tracking
sheet/systems, should be mentioned by the
supplier while sending the Invoice back to the
company
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9. Process Flow - 3
 Purchase Manager approves the POs’ within 1
day (can be fixed by the senior management)
and send back to the Purchase Executive
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10. Process Flow - 4
 Approved POs’ should be sent to the Suppliers on the same day ( hard
copy / email)
 Once the POs’ are sent, the suppliers should be followed-up for the
deliveries. Lead time based tracking should be done and once the lead
time is crossed it should be informed to the Purchase Manager
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11. Process Flow - 5
 Supplier sends the materials to the company
with the Invoice and Delivery Challan (DC)
 Once the materials are received, the Stores
Assistant / Executive checks for the quality and
quantity and prepares a Goods Receipt Note
(GRN) and updates the stock on the same day
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12. Snapshot of Purchase Function
Purchase Process
Purchase
Manager
Purchase Approved
Order Purchase
For Approval Order
Purchase Purchase
Stores Indent Order
Assistant
Purchase Sent to Suppliers
Suppliers
Executive
Goods Receipt Note
- Stores Assistant
Invoice,
Delivery Challan
Warehouse
Shipments
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13. Contents
 Section 1 – Introduction and Basic Processes
 Section 2 – Materials Classification Techniques
 Section 3 – Ordering Techniques
 Section 4 – Vendor Management
 Section 5 – MIS Reports and Analyses Points
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14. ABC Classification
 Pareto Analysis / 80-20 rule
 20% of the items would constitute 80% of the value
 Few other examples:
 20% of the causes results in 80% of the defects
 20% of the population controls 80% of the wealth
Items Value
20% 80%
80% 20%
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15. ABC Classification
 In any organization, the raw materials form about
60~65% of the Cost of Goods Sold (COGS).
COGS:
All Raw Materials – 60~65%
Labor Cost – 7~8%
Power & utiities – 8~10%
.
.
.
_______________________
Total – 100%
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16. ABC Classification
 While analyzing the raw materials it would be clear that the top 20% of
the items would constitute about 80% of the purchase value. Next
30~40% items would constitute about 15% of the purchase value.
Remaining 50% of the items constitute 5% of the purchase value.
Few Items = More consumption in value
A Category
B Category
More Items = Low consumption in value C Category
Methodology of analyzing ABC items, and Lead time are explained in the “Certified Manufacturing
Professional” course. To access login to www.businessense.in
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17. Contents
 Section 1 – Introduction and Basic Processes
 Section 2 – Materials Classification Techniques
 Section 3 – Ordering Techniques
 Section 4 – Vendor Management
 Section 5 – MIS Reports and Analyses Points
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18. Ordering Techniques
Category Characteristics Ordering Techniques Reason
For items whose
Scheduled Shipments / Standard
consumption is regular
Order Quantity (SOQ)
through-out the season
Very High Value. Need to
A
monitor continuously
For items whose
Re-Order level consumption do not
follow a pattern
Moderate Value – Moderate
Order based on the Re-Order
B Impact on the Inventory Re-Order level
level
Holding
Low Value – No major impact
Do not focus more on the C
C on the Inventory Holding MinMax / Two Bin System
Category items
Cost
Methodology of calculating ROL, Scheduled Shipments, MinMax quantities are explained in the
“Certified Manufacturing Professional” course.To access login to www.businessense.in
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19. Contents
 Section 1 – Introduction and Basic Processes
 Section 2 – Materials Classification Techniques
 Section 3 – Ordering Techniques
 Section 4 – Vendor Management
 Section 5 – MIS Reports and Analyses Points
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20. Vendor Management
 Any addition/modification of the vendor should be carried out through proper
Vendor Evaluation Report
 Following are the parameters that have to be considered in a Vendor
Evaluation Report
S.No Parameters Weightage in %
1 Quality 30
2 Adherence to Delivery 20
3 Price 15
4 Average Lead time 15
5 Credit Period 10
6 Support during emergencies 10
Please note that the weightages are based on general management principles. They can be
modified according to the industry / companies
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21. Vendor Master Sheet
 A Vendor Master Sheet should be maintained in the purchase function.
 Following are the details to be recorded:
S.No Details to be recorded
1 Item Code
2 Item Description
3 Vendor Code
4 Vendor Name
5 Address
6 Contact Person
7 Phone No
8 Email Id
9 Vendor rating (based on the weightages)
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22. End of Free Content
 Please visit our website www.businessense.in to access the full course – “Certified Manufacturing
Professional”
 Our website also contains list of ready-to-use templates and report formats containing Charts and
pivot tables.
 Templates and report formats are available for Purchase, Stores, Production, Quality, Maintenance and
HR functions
 These templates come in excel /word and can be downloaded and used right away
 At Business Sense, we help clients through consulting engagements focusing on improving
their Operations through Lean Manufacturing Implementation covering 5S, SMED, Kaizen and
other tools.
 We also serve clients on Preparation of Detailed Project Reports, Market Assessments, and
Supply Chain Re-engineering.
 You can subscribe to our bi-weekly newsletter here.
 Follow us:
Copyright of Hash Management Services LLP www.businessense.in