Purchase department ensures that organisation receives the raw material / services at the right time at right price of right quality and right quantity. The department functioning is critical in making goods / services available to production / other departments all the times; otherwise, productivity would be largely affected and customers would not be able to receive the goods timely.

The department has relevance not only in manufacturing organisations but in other organisations like trading and service industry. The number of activities may be less in these organisations but the challenges remain same to identify right vendors. Vendors may even provide printing & stationery items or capital assets or maintenance goods, etc.

Vendor Verification

Vendors are important extended team of the organisation. The organisation needs vendors since it cannot produce all the goods itself and that too with economies of scale. Large organisations build list of certified vendors before undertaking any dealings.

Similarly, vendors provide cushion to organisation’s growth saga. There are moments of temporary surge in customers’ orders. These temporary phases are the ones where timely supply of raw materials is critical. Unless vendors are identified to take care of such situations, organisation will lose that advantage and not be prepared for facing bigger challenges.

Detailed Vendor verification exercise is desirable for following reasons:

      • Initial dealings
          • Capacity to provide the goods of the quantity required by the organisation?
          • Capability to provide goods of good quality;
          • Whether vendor can deliver the goods timely?
          • Experience of other customers with vendor’s dealings;
          • Product profile of the vendor (other products of the vendor not required now but may be required in future);
      • Future
          • Whether vendor has urge for expansion or satisfied with present growth?
          • Whether vendor can handle additional orders and become partner in organisation’s growth?
      • Other
          • Vendor’s customer profile → what other products required by them? → whether organisation can venture into those products (explore from Marketing / Production function)
      • Vendor verification form
          • Initial exercise;
          • Subsequent visits to update the developments at vendor’s work-place;
          • Regular updation of the form to track the performance of the vendor;
          • Format

Vendor Evaluation Format - Page 1

Vendor Evaluation Format – Page 1

Vendor Evaluation Format - Page 2

Vendor Evaluation Format – Page 2


Deliverables (i.e. expectations from the Department)

    • Procuring goods / services of good quality;
    • Improving profit margins by saving the purchasing cost;
    • Availability of goods / services timely;
    • Ability to get the quantity in minimum lot but more frequently so that organisation can work on JIT (Just-in-time) and minimum inventory saving precious working capital.

Important developments in the Purchase function

    • Development of internet
        • Availability of online catalogues;
        • Online comparative analysis;
        • Video conferencing with vendors and product display;
        • Remote locations connected for analysing the price advantage.
    • Tenders can be invited online
    • Development of GPS for tracking consignments
    • Development of ERP (Enterprise Resource Planning) software facilitating:
        • Automatic generation of purchase requisitions;
        • Linking with vendors’ computers;
        • Automatic order placement with vendors for lot quantity;
        • Updation of PO status;
        • Release of vendors’ payments online;
        • Updation of vendors’ verification forms.

Traditional / Normal ways of working in Purchase function

    • Manual generation of PO / JO;
    • Non-standardisation of PO / JO → disputes regarding various commercial costs;
    • Manual tracking of PO;
    • Not tracking vendors’ dealing experience → vendors’ constantly delivering late or sub-standard goods

Conflicts (Inter-departmental) / Challenges with Purchase function

    • Identification of ‘right vendors’ who:
        • Provide the goods matching organisation’s requirements;
        • Provide the goods of best quality;
        • Provide the goods in right quantity;
        • Make available the goods at best price;
        • Deliver the goods before due date of delivery;
        • Provide best possible after sale services;
        • Advice the organisation for better alternatives;
        • Advice how to use the goods;
        • Provide statutory forms timely for claiming concessional tax;
        • Available when contacted.
    • Release of Purchase Orders (POs) / Job Orders (JOs) containing correct specifications of goods, payment of taxes, freight, octroi, insurance, loading & unloading charges, etc. including all terms & conditions for acceptance of goods → unless terms specified clearly → chances of delay & disputes;
    • Facilitating movement of goods from vendors’ premises to organisation’s premises by co-ordinating logistics with vendors by arranging transportation, entry permits, etc.;
    • Release of payment to vendors from Accounts department after goods reached the organisation and documents submitted → building better relations with vendors → asking for discounts in future orders;
    • Transparency in transactions
        • Major challenge;
        • General belief that department accepts goods of inferior quality at high price for monetary or other advantages;
        • Detailed vendor verification before placing the order;
        • To maintain adequate documentation and reports of independent price verification from open market;
        • To demand third party certification to prove the quality.

Some of the Process Implementation for better Purchase function

    • Standardisation of Purchase Order / Job Order containing:
        • Commercial terms & conditions like payment of taxes, freight, octroi, insurance, loading & unloading charges, etc.;
        • Requirement of initial deposits / performance deposits, guarantees, etc.
        • Product return alongwith damage clause where goods not meeting specifications;
        • Other standard terms & conditions as per present law;
    • Pending Pos / JOs
        • Vendor’s name; PO Number; PO date; PO Quantity; Quantity under movement; balance quantity; due date of receipt; expected date of receipt; overdue days
    • Vendors pending verification and due for periodical verification;
    • Pending purchase requisition requests from user departments for which POs are yet to be placed;
    • Price comparison sheet of high value products with independent market price verifications.

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