The act of obtaining or buying goods and services, the process includes preparation and processing of a demand as well as the end receipt and approval of payment. It often involves
(1) Purchase planning,
(2) standards determination,
(3) specifications development,
(4) supplier research and selection,
(5) value analysis,
(7) price negotiation,
(8) making the purchase,
(9) supply contract administration,
(10) inventory control and stores, and
(11) disposals and other related functions.
The process of procurement is often part of a company’s strategy because the ability to purchase certain materials will determine if operations will continue. A business will not be able to survive if it’s price of procurement is more than the profit it makes on selling the actual product.
Management Sanction is an official permission or approval for an action.
An internal company document used in the purchasing process to authorize the requisition of materials prior to initiating a purchase order. Purchase indents are audit documents used to track the movement of materials prior to their receipt by the buyer.
REQUEST FOR QUOTATION (RFQ) / INVITATION FOR BID (IFB)
A request for quotation (RFQ) is a standard business process whose purpose is to invite suppliers into a bidding process to bid on specific products or services. RFQ generally means the same thing as IFB (Invitation For Bid). An RFQ typically involves more than the price per item.
The process of choosing the best or cheapest company to supply goods or do a job by asking several companies to make offers for supplying the goods or doing the work.
PURCHASE ORDER (PO)
A purchase order (PO) is a commercial document and first official offer issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services.
This term places the maximum obligation on the buyer and minimum obligations on the seller. The Ex-Works term is often used when making an initial quotation for the sale of goods without any costs included. EXW means that a buyer incurs the risks for bringing the goods to their final destination.
FREE ON BOARD (F.O.B.)
Indicating “FOB port” means that the seller pays for transportation of the goods to the port of shipment, plus loading costs. The buyer pays cost of marine freight transport, insurance, unloading, and transportation from the arrival port to the final destination
COST AND FREIGHT (C.A.F.)
It means the seller pays for transportation of goods to the port of shipment, loading cost. The buyer pays cost of marine freight transportation, insurance, unloading and transportation cost from the arrival port to destination. The passing of risk occurs when the goods are in buyer account
FREIGHT ON RAIL (F.O.R.)
A freight train or goods train is a group of freight cars (US) or goods wagons (UIC) hauled by one or more locomotives on a railway, transporting cargo all or some of the way between the shipper and the intended destination as part of the logistics chain.
LETTER OF CREDIT (LC)
A letter of credit is a document from a bank guaranteeing that a seller will receive payment in full as long as certain delivery conditions have been met. In the event that the buyer is unable to make payment on the purchase, the bank will cover the outstanding amount.
Item index is a sequential arrangement of material, especially in alphabetical or numerical order. All items index contains classes, attributes, data elements and Business Definitions.
LATE DELIVERY (LD)
If any items, product or services are not delivered in accordance with the delivery schedule stipulated in the subsequent Purchase Order and/or agreed upon by both the Buyer and the Seller, and if the delay in delivery is not to unforeseen events (Act of God, Labor dispute, etc) the supplier shall pay liquidated damages to buyer organization.