A purchase means taking
possession of a given asset, property, item or right by paying a predetermined
amount for the supply to be completed successfully. It is an exchange of value
for a particular product or service, initiated by raising a purchase order
which authorises the supply of products or services to an organisation in
exchange for payment.
A purchasing function is a
team of people with the authority to procure products or services on behalf of
an organisation. Purchasing teams may operate as a separate, discrete
function, but are often dispersed within operational teams throughout an
organisation’s supply chain to manage the mechanics of purchasing through an
organisation’s purchase order processing (POP) system.
An authorised purchase
order, approved by a budget manager if there is sufficient headroom in the
manager’s budget, is the authority for a purchasing team to instruct a supplier
to supply products or services to an organisation. Without an authorised
purchase order, a purchasing team would not have the authority to spend an
organisation’s financial resources and could not instruct a supplier to supply
products or services.
The payment of purchase orders is approved when the products or services are "booked in" on the organisation's purchasing system. Purchasing or the act of buying products or services is authorised through spending limits that are controlled by an organisation’s budget management control process, utilising the following steps:
- A purchase requisition is raised requesting the products or services.
- The budget manager authorises the purchase requisition, which transforms the requisition into a purchase order sent to the appropriate supplier.
- When the products or services have been delivered to the organisation, they are "booked in" on the purchasing system if they have been supplied in full, which converts the purchase order into a goods receipt note to confirm the completion of the order.
- The Accounts Payable team receives the supplier's Invoice for the products or services, which matches the relevant goods receipt note.
- The supplier's invoice is authorised for payment if the invoice and goods receipt note match the products or services described, the prices, and the total balance. Any anomalies are sent to the requisitioner to be resolved before the invoice is authorised for payment.
- Any anomalies between the products or services ordered on the purchase order and what the supplier has delivered are sent to the requisitioner to resolve with the supplier before the invoice is authorised by the accounts payable team for payment.
- All authorised supplier invoices are typically paid when the accounts payable team processes a "Payment Run." This changes the invoice's status to "Paid."
This process shows the
sequencing of events to authorise and pay for products or services. Purchasing
tends to involve procuring semi-routine purchases up to a medium level of value
from suppliers who have already been authorised as approved suppliers by the
procurement team.
Purchases above the
pre-approved limit will, in most cases, be forwarded to the procurement team
for the products or services to be sourced. The procurement team will draw
up a specification, if appropriate, in partnership with the requisitioner to
initiate a Request for Quotes (RFQ), a Request for Pricing (RFP) or a Request
for Information (RFI) tendering process.
The split between purchasing
and procurement is always a blurred line. The consensus is that procurement
initially sets up the suppliers to authorise commercial and generic terms and
conditions of trading and will undertake to source high areas of spending
through a tendering process.
However, it should be noted
that the purchasing systems used and the roles of procurement and purchasing
will differ between organisations and will function in the way that best suits
the individual organisation.
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quality, efficiency, and effectiveness of their product and service supply to
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