Purchasing Process - Material Costs, Cost Management Video Lecture | Cost Management - B Com

hi there and welcome to this video where
we'll take a look at the key steps of
the purchasing process like any process
the purchasing process is made up of
three key attributes an input and
activity and an output while company's
purchasing processes may be subtly
different the key fundamental steps
remain the same let's take another look
at a standard process as we said it has
three attributes an input and activity
and an output let's look at this in the
context of procurement here our activity
is going to be raising a purchase order
our input is the requisition our
activity is finding a supplier and
raising an order and our output is
sending the order to the supplier so
let's take a look now at the key steps
within the purchasing process the
process starts with the requirement this
identifies the business need to go out
and procure an item the trigger may come
from a requisition form being raised or
an MRP by signal indicating that stocks
are low or there is a requirement for a
new part before the company proceeds to
procure the item then maybe some
approvals that are required this
authorization process enables the
company to ensure that its money is
spent effectively that it doesn't go out
and procure materials that are not
required once the need to buy has been
identified and approved the company will
then find a supplier where the materials
can be procured from this might take the
form of selecting a supplier from an
approved supply list or selecting a
supplier from the marketplace that
offers the appropriate price and
appropriate lead time also Supply has
been identified the buying organization
will typically raise a purchase order
the purchase order will usually take one
of two forms a paper document that is
produced and mailed to the supplier or
an order that is produced as an
electronic message that can either be
emailed to the supplier or centers an
EDI message once the order has been
received and accepted by the supplier
the supplier will then either
manufacture the materials issue the
materials from stock or buy the
materials in before shipping to the
buying organization the time taken
between receiving the order and despatch
the goods is called lead time once
received the goods will typically
undergo some form of goods receipt
process where the materials are checked
to ensure that they are what was ordered
and that they are the correct quality
once they've passed inspection the goods
will normally be put into stock or
issued to the requisition the final part
of the process is where the supplier
will issue an invoice for the cost of
the goods the invoice is normally
receipted by the organization and
processed by the finance department
prior to the supply being paid and
that's the fundamentals of the
purchasing process thanks for watching
we'll see you again soon