Sample Purchase Rules & Procedure Guidelines

Example / Template Corporate / Company’s Purchase Manual Format for Rules & Regulations

Purchase Manual
1.0.      Purpose

The Purpose of this manual is to establish a uniform & standard system of purchase and in order to have harmonious coordination between purchase and other departments.

2.0.      Scope

The manual is applicable to all purchases pertaining to :-

  • Fixed Assets
  • Raw Materials
  • Consumable Stores
  • Spare Parts
  • Auxiliary items
  • Building Materials, etc.
  • It does not cover contracts for labour, maintenance and transportation.

3.0.      Authorisation ( as annexed)

4.0.      I n d e n t

4.1        A user department shall raise an indent for items other than raw materials, coal and/or petty items below Rs. 500 to the Stores Department in triplicate (except in case of emergency and breakdown which shall be ratified by an indent),

Copies shall be marked as under:-

1st Copy -    Purchase Department (PD) through Stores Department.
2nd Copy  -   Stores Department (SD)
3rd Copy  -   User Department (UD)

4.2        An indent should inter-alia contain:-

ð  Name of the Department
ð  Date of Indent
ð  Detailed Technical specification of the materials
ð  Name of the technical person to contact for clarification.
ð  Tentative time within which materials are required.

ð  Serial No. & Receiving date of Indent.
ð  Stock Position
ð  Average Consumption if possible
ð  Date of last purchase & name of the Supplier (if any)

ð  Date of receipt of Indent.
ð  Purchase Order No. & Date.

4.3      In case of recurring items (including stationery) a consolidated indent (in duplicate) shall be raised by SD in advance to PD based on average consumption patterns so that PD can place the purchase order to ensure timely delivery.

4.4        The SD shall check the indent with stock position, average consumption etc. and forward to PD depending upon the requirement.

4.5        In case of raw materials and coke, the Production Department shall inform the requirement to the PD on the basis of production plan and consumption norms.

4.6        PD shall keep specimen signatures of the persons authorized to approve the indents and shall return an indent where it is not properly approved by the authorized persons.

4.7        SD shall forward to PD a report of the stock position on daily or weekly or monthly basis for raw materials, coal and other critical items.

4.8        PD shall procure the materials after analyzing the stock position & requirement.

5.0.   O r d e r

5.1        PD shall maintain a Purchase Order Register which shall inter-alia contain:

ð   Indent No. & Date
ð  Purchase Order No. & Date.
ð  Multiple register may be maintained for different categories of materials viz. Fixed Assets, Raw Materials, etc.

5.2        The PD shall take follow-up action of pending purchase order and supplies on the basis of reports from SD.

5.3        The PD shall invite quotations or float tenders and/or visit market or vendor’s place, if necessary in accordance with the nature and gravity of materials required.  Offers from at least three parties should be obtained save and except in cases of Development items, repairs of machineries/spares/motors etc. emergency and breakdown and Original Equipment Manufacturers (OEM) (where dealers, or other sources are not available).  For such orders a detailed and specific justification has to be there.  This justification for orders above Rs. 500000/- should be authorized by the unit head.

Amongst others reference may be drawn from:-

ð  Internet
ð  Yellow Pages
ð  Trade Journals
ð  Buyers Guide by the Indian Standard Institution
ð  Directory by All India Manufacturers Organisation
ð  Directory of SSI Units
ð  Other Units of the Company and Group Companies.

5.3.1  In case of tailor-made items and recurring purchase of materials, an annual or half-yearly or quarterly contract shall be entered into with the vendor(s) with a clause for review of the rates, quantity, delivery time, etc.

5.3.2   In case of monopoly or monopolistic market, other consumers using the same product may be consulted.  In case of non-recurring but repeat orders, fresh quotations should be invited, if previous quotations are 6 months old.

5.4     Purchases shall invariably be from manufacturers or authorized agents/dealers/brokers.  Other Vendors shall be considered, if the formers are not available or OEM (original equipment manufacturers) items are not essential or offer from traders is more favorable.  Preference shall also be given to inter-unit and intra-unit group purchases provided it is competitive in price and convenient.  Local vendors may be preferred to save transit period, inventory cost and quick after-sales service.

5.4.1 Purchase Order shall be placed with the suppliers if any, as approved by any central Purchase Committee of our Group.  In case of non supply clause 5.3 should be followed.

     5.5     New Vendors shall be taken after careful scrutiny inter alia as under:-

ð   The vendor may be either a manufacturer or an authorized 
      agent/dealer/broker or a reputed trader.
ð  The vendor should be registered under the Shops &
      Establishment Act (if applicable) and shall have Sales Tax
      Registration No, of its office and organization and preferably
      income tax pan (Permanent Account Number)
ð  Reference for the vendor either from other units or associated

5.6     The PD shall maintain different panel of vendors for different categories of materials.  The vendors shall be selected based on their market credibility, flexibility, co-operative nature, capability to supply, past performance, terms of business, quotations, etc.  It shall be reviewed and updated on a yearly basis or at any time earlier, if necessary.  In this respect, an internal vendor rating be assigned for convenience.

5.7        After quotations are received, a comparative statement shall be prepared up to landed cost by the PD along with pros & cone of sensitive supply offers.

5.7.1  All possible reasonable steps should be taken, if a single quotation is received and no other supplier has quoted on enquiry.

5.7.2   Fresh quotations should be invited or full justification should be given for any increase in price for the old orders.

5.8     Normally, the lowest quote (which confirms to the specifications of the materials) be accepted.  However, where it is not practicable, full justification for accepting the higher one shall be recorded and ratified by the unit head.

5.9     Where even the lowest quote is considered high or where there seems to be scope for reduction in rate, the following course of action may be taken:-

Negotiations be conducted commencing with the lowest two quotes.  The original lowest quote be given second chance to offer further reduction, if the other vendor revise its earlier rates.  The scope of negotiations can be enlarged beyond the lowest two under the following circumstances:-

a)           If the order to be placed is intended to be split among more than one vendor.
b)           If a syndicate is suspected and the negotiations with the initial lowest quotes do not yield satisfactory results.
c)           If higher quotes are in very close proximity to lowest quotes and any change in quantities can change the quotations.

5.10     Performance Bank Guarantee shall be obtained from vendor in case of Block items, to the extent possible.

5.11     PD shall arrange for samples as per market practice for approval of the SD and/or user departments in case necessary to avoid dispute.  Supplier of the samples should not be disclosed (to the maximum extent possible) to users & SD before placing the order.

5.12     While purchasing, seasonal factor shall be taken care like that of monsoons etc.

5.13     Speculative buying shall be avoided.

5.14     In case of poor performance on unethical practices, a vendor should be delisted by the unit head and the Corporate Office head shall be informed for further action.

5.15     No purchase shall be made from a party black listed by any unit or associate concern.

5.16     Purchase order shall inter alia contain clauses for :-

ð  Date
ð  Quantity
ð  Price for ex-works/FOB/CIF
ð  Value of the order
ð  Cenvat benefit
ð  Test Certificate
ð  Delivery terms & conditions for delayed delivery
ð  Performance guarantee
ð  Price escalation
ð  Mode of dispatch
ð  Terms of payment/credit period
ð  Discounts
ð  Delivery terms
ð  Replacement or return of rejections
ð  liquidated damages for delay in supply
ð  Sales Tax liability

5.17     PD shall raise Purchase Order in quadruplicate, which shall be serially numbered.  All Purchase Orders issued shall be entered in the Purchase Order Register.  Copies of purchase orders shall be marked as under:-

>       1st  Copy   -  Vendor
>       2nd Copy   -  SD (3rd copy for Accounts Department through SD)
>       3rd Copy   - PD (Office copy)

5.18     PD shall place the purchase orders and obtain their written acceptance or acknowledgement.

5.19     Copies of Purchase Order Amendment shall be marked as per original Purchase Order.

5.20     The PD shall be responsible for follow-up of the purchase orders until the materials are received by the SD.

5.21     Cash purchases shall be avoided as far as possible and shall be restored to meet only emergencies or petty items.  Any cash purchase order above Rs. 50,000/- shall be approved by Purchase Head justifying the circumstance.

6.0    Receipt of Materials

6.1     The PD shall co-ordinate with the user department and arrange inspection of materials at vendor’s place prior to dispatch wherever stipulated in the purchase order.  Only those materials cleared on inspection and conforming to purchase order specifications shall be taken by the SD.

6.2        In case of rejections, the SD shall forward a Rejection Memo to vendor & a copy to PD.

7.0    Payment

7.1        Except in case of seller’s market, the terms of payments should be after delivery and acceptance by SD.  Otherwise necessary care to be taken by PD to get the advance or payment adjusted/refunded in case of local or outstation purchases (where documents are through bank) if the materials are rejected or short or poor quality or lost in transit.  Insurance follow up shall be done by Insurance Department/section.  Advance shall be made only against proforma invoice.  Advice for advance shall be sent by PD to Accounts Department.  PD shall also record the same in its purchase order register against the vendor’s name.  In case of documents through Bank, PD shall arrange the release of materials accordingly.

7.2     Invoices as received from vendors shall be forwarded to ACCOUNTS DEPT. and care should be taken for timely payment to suppliers.

     7.3     SD shall send following to the Accounts or Bill Passing Department:-

i)             Copy of Purchase Order (as received from PD)
ii)           Copy of Rejection Memo, if any.
iii)          Copy of Purchase Order Amendments, if any.
iv)          Copy of GRN (goods received note).
v)           Any other relevant paper concerned with the supply for checking and payment.

8.0    General

8.1        In case of Cenvat items the transporter’s copy of invoice/challan shall be forwarded by SD to Excise/Accounts Department for claiming benefit.

8.2        Purchases in the form of lease & hire shall be in consultation with the Accounts Department.

8.3        Purchase pertaining to project work may be undertaken by the PD in accordance with the directions of the higher authorities.

8.4        PD shall take care of Purchase Tax liability, if any.

8.5        The documentation and procedure shall preferably be in computerized form.

8.6        The list of purchases made at factory site shall be approved in advance by the unit head.

8.7        Any exception if required can be made through authorization (related to each unit) or amendment to purchase manual duly authenticated by Audit Committee.


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