by Procurement refers to the process of acquiring goods, services, or raw materials from external sources to support an organization’s operations. It involves identifying needs, selecting suppliers, negotiating contracts, and ensuring timely delivery while maintaining quality and cost efficiency. Procurement plays a crucial role in supply chain management, ensuring that businesses obtain the necessary resources at optimal prices. It can be classified into direct procurement (for production materials) and indirect procurement (for operational needs like office supplies). Effective procurement strategies focus on cost reduction, supplier relationships, risk management, and sustainability to enhance efficiency and profitability in an organization.
Procedure for Procurement of Materials and Documentation involved in Materials Accounting
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Identifying Material Requirements
The first step involves determining the quantity and type of materials required based on production schedules, inventory levels, and demand forecasts. The Bill of Materials (BOM) and requisition forms help identify the exact needs.
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Preparing Purchase Requisition
The concerned department submits a Purchase Requisition (PR) to the purchasing department. This document contains details like material specifications, quantity, required date, and supplier preferences. It is approved by authorized personnel before proceeding.
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Supplier Selection and Purchase Order Issuance
Potential suppliers are evaluated based on quality, cost, delivery time, and reliability. A Request for Quotation (RFQ) is sent, and upon comparison, the best supplier is chosen. A Purchase Order (PO) is then issued, specifying price, quantity, terms, and delivery schedule.
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Receipt and Inspection of Materials
When materials arrive, the Goods Receipt Note (GRN) is prepared after verifying quality, quantity, and specifications against the purchase order. Any discrepancies or damages are reported using a Rejection Report for corrective action.
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Invoice Verification and Payment
The supplier submits an invoice, which is matched with the Purchase Order and GRN before payment approval. A Payment Voucher is prepared, and payments are made as per agreed terms.
- Recording in Material Accounting
The materials are recorded in the Stock Ledger and Inventory Control System. Any material issued for production is documented through Material Issue Slips to ensure proper tracking and cost allocation.
