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Purchase Procedures | Purchase Requisition | Bin Card | Stock Control by ABC

Arjun EP

Published on: September 8, 2021

Purchase Procedures and Control

There may be different procedure to purchase inventory from one organization to another organization.

Purchase department must analysis:

· What to purchase?

· When to purchase?

· From where/whom to purchase?

· How much to purchase?

· At what price to purchase?

Some important procedures are here:

1. Purchase requisition from production department, maintenance department and store department.

2. Find out best suppliers inviting tender or quotation.

3. Choose the supplier who can supply best quality inventory at minimum cost.

4. After receiving inventory, inspect, test and tally properly.

5. Payment made to suppliers after checking, inspecting the inventory.

6. Carry or store inventory properly on receive note.

7. Issue the inventory only after authorized requisition and record on issue note etc.

Purchase Requisition

Generally purchase officer does not purchase inventory himself.

With the help of purchase department/requisition, the purchase officer knows it.

For inventory purchase, purchase requisition form is needed.

This form is prepared by storekeeper.

The purchase requisition is prepared in three copies.

Original copy is sent to purchase department.

Second copy is kept by storekeeper or related department.

Third copy is sent to executive officer.

There are two types of purchase requisition, regular purchase and special purchase.

Regular purchase: it is prepared by storekeeper when materials reach to re-order level.

Special purchase: it is prepared by department head to avoid shortage of materials.

Specimen form of purchase requisition

Everest Company Limited Purchase Requisition
Regular/Special
S. No.: ……… Date: ………………………
Required by: XYZ Department Name of materials required: ………

SN	Description of Materials	Store Code No.	Quantity Required	Remarks








Requested by: ………………………………… Approved by: ………………………..…….

For purchase department only
Quotations invited from:
a. …………………………………………
b. …………………………………………
c. …………………………………….…..
Order placed: …………………….. Purchase officer: ………………………..………..

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Purchase Order

Generally large scale company purchases its inventory through tender or quotation.

The company chooses the suppliers who can provide best quality goods at minimum rate.

The purchase order is given in written format.

This format is evidence and agreement between the supplier and buyer.

This agreement also includes terms and conditions of delivery, payment etc.

Three to five copies are prepared of purchase order.

It is depended on organization.

If five copies are prepared:

Original copy is sent to the supplier.

One copy is sent to receiving company.

One copy is sent to the person who initiates the purchase requisition.

One copy is sent to accounting department.

The last copy is retained by purchase department for future purpose.

Specimen form of purchase order

Everest Company Limited Purchase Order

S. No; ……….… Date: ………………………………………..
Purchase requisitions No; ………………….

To,
ABC Supplier,

Your quotation number ………….. Dated …………………………………….. has been accepted. Please supply the following items in accordance with the instruction mentioned therein. Term and condition listed on the reserve of this purchase order.
SN	Description of Materials	Quantity	Rate	Total Cost	Delivery Date	Remarks





Term of delivery: …………………………………………………..…………………… Term of payment: ………………………………………………………………………. Package and dispatch instructions: ………………………………………….… Discount allowed: …………………………………………………………….…………
Purchase officer: …………………………..……..

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Materials Receiving And Handling

In large organization, materials receiving and inspection department are separated.

But in small organization, this work is done by storekeeper.

There are two types of materials laboratory testing and laboratory non-testing.

If materials are lab-testing nature, it must be tested.

While receiving materials, weight, size, colour, quantity, quality etc must be checked.

Some materials may be frozen type; these must be kept in fridge (refrigerator, cold store).

Some materials are highly inflammable; these must be kept in special storage.

Specimen form of materials inspection report

Everest Company Limited Materials Inspection Report

S. No; ……………………..				Goods received note No; …………………………
Date: ………………………..…..				Date: ……………………………….
Purchase order No; ………………………………..				Supplier’s Name: …………………………..

SN	Description of Materials	Code No.	Quantity				Remarks for Rejection
			Received		Accepted	Rejected




Special remarks: …………………………………………………………………………………………………………………………………….. …………………………………………………………………………………………………….……………………………… Inspector: …………………………..……..

After completing inspection of materials, the materials receiving clerk should enter details of materials received in ‘Store or Goods Received Note’.

Five copies are prepared for inspection.

One copy is kept by receiving department and four copies along with materials are sent to storekeeper.

The storekeeper again checks the quantity of materials with given details.

He signs on four copies.

One copy is kept by storekeeper and three copies are sent to each department:

1. Purchase department

2. Account department

3. Materials receiving department

Specimen form of goods received note

Everest Company Limited Goods Received Note

Supplier’s Name: ……………………………………………………………..…………..				No; …………………………
Purchase order No; ………………………………..				Date: …………………………..

SN	Description of Materials	Code No.	Quantity		Rate	Amount	Remarks




Received by: ……………………………………………………………. Inspected by: ……………………….…………………… Storekeeper: …………………………………………………..…….. Casted by: ……………………..………..……………….. Store ledger posted by: …………………………………….……

Note: amount column is filled by costing department.

Keep in Mind (KIM)

After checking quantity, quality, rate and arithmetical accuracy mentioned on invoice and goods received note by store accounting section; it is sent to payment department.

Payment is made according to terms and conditions mentioned on purchase order.

Bin Card

Bin may be a place, rack, container, cupboard, room, hardboard cartoon etc where materials can be kept safe.

Bin card shows the quantity of materials like receipt/purchase of materials, issue of materials and balance of materials in chronicle date.

Bin card is also called tag and stock card.

Bin card is used by storekeeper to keep detail quantity of materials.

It does not show amount.

Quantity and amount is shown in FIFO and LIFO.

Entries are made immediately on receipt or issue of materials.

Bin card also shows minimum stock level, maximum stock level and reorder level.

Bin card helps to storekeeper to control stock/inventory/materials.

Specimen form bin card

Everest Company Limited Bin Card
Bin No; …………..				Maximum stock: …………………………..
Code No. of materials: ………………				Minimum stock: …………………………..
Description of materials: …………………………………..				Re-order level: ……………………..………
Ledger No; ………………………….				Re-ordering quantity: …………………..

Date	Receipt		Issue			Balance Quantity	Stock verification
	Ref. No.	Quantity	Ref. No.		Quantity		Date	Initial

Note: amount is not shown in bin card.

Two Bin Systems | Double Bin System

Under this system, one small and another big bin are used to keep materials.

This helps to maintain minimum stock, maximum stock, lead time and stock management.

Small bin: minimum stock is kept in this bin.

Large bin: maximum stock is kept in this bin. First large bin is filled with materials. Remaining materials is filled in small bin. First, materials are issued from small bin then large bin.

Stock Control by ABC | Selective Control System

ABC means always better/best control for this chapter.

It is also called selective control system.

All the organization has different types of materials.

The value/cost of materials is low, medium and high.

To keep different value materials in different bin, ABC system is applied.

High value but small quantity materials is kept in bin A

Medium value and medium quantity materials is kept in bin B

Low value but large quantity materials is kept in bin C

Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = ₦ = Birr = Currency of your country

PROBLEM: 3A

Shiva Shakti Grain Dealers has following extracted information:

Basmati rice 400 kg @ $240

Premium basmati rice 200 kg @ $320

Sawa rice 10,000 kg @ $78

Dosa Rice 40,000 liter @ $61

Required: Always better control system

SOLUTION:

Always Better Control System

Name of materials	Quantity [kg]	Rate	Amount [Q x R]	Category	Degree of control
Basmati rice	400	240	96,000	A	High
Premium basmati rice	200	320	64,000	A	High
Sawa rice	5,000	78	390,000	B	Medium
Dosa rice	10,000	61	610,000	C	Low