Purchasing is a process made up of all the activities associated with identifying needs, locating and selecting suppliers, negotiating terms and following up on supplier performance.
This image shows the steps involved in the purchasing cycle and the following highlights these steps.
The first step in the purchasing cycle is the identification and recognition that the company is in need of the product. This need can meet the requirements by both internal and external customers. The product can be one that has reached its reorder point or it can be a new item that is not normally kept in inventory.
To be able to meet the requirements by the organisation there also needs to be recognition of the details required to ensure that the customer gets the product at the right time, at the right quality, at the right quantity, in the right place and at the right cost. There are a number of ways to specify the product or service required:
Some products attract an industry standard and these products or services have referenced standards to meet the expectations. For example, a 7.5 tonne vehicle is an industry-standard specified item and is the same across all manufacturers. To describe an industry-standard product or service, a part number or service number is used. Therefore when items or services have references, there is no need to specify quality, size, colour, etc. and these attributes are already known to both parties.
However, when there is no industry standard available the product or service requires some details. For example, many products have specifications that are measurable (size, weight etc.) and they may also have performance-based specifications.
If the product or service has been previously purchased the original purchase order or service contract can be used as a reference. This way the buyer, the seller and the end-user are clearly identifying the same item or service and have the same expectations.
Our trainers are a new product. This means the procurement team is presented with a new need and a specification, they must determine the most qualified source (supplier or vendor) to provide the material or service.