Purchasing for Manufacturing Businesses

Transcription

1 Introduction: Purchasing for Manufacturing Businesses This is a list of the basic procedures needed to ensure that purchasing (acquisition) needs are met for companies that manufacture a product. Included is a sample Purchasing Agreement to supply a material used in the manufacturing process. Ethics / Integrity: Purchasing for the business must be carried out with integrity and high ethical standards. Simply put, this means all dealings with suppliers and vendors must be honest, fair, consistent, and above board. Purchasing must not compromise its objectivity or show favoritism (or the appearance of) by receiving gifts or perks from suppliers. Authority: The Purchasing Agent / Contact should be authorized (written documentation) by company official (Vice President, President / Owner) to make purchases for the company. To maintain good internal control procedures, no one else should place orders, except in an emergency and / or safety related situations. Purchasing Methods: Brief #08.10 Latest Revision: 01/2011 Purchasing for a small business (including a business that manufactures a product) can be done in a number of ways depending on what is purchased. Consider the following ways: 1) Petty Cash ($200 or less) --Authorized person receives requests from end-users for some small purchase. (Purchasing Agent / Contact establishes some basic numbering system and enters request in a log book). Authorized person typically goes out and buys the item, pays cash and passes on item to end-user. Person authorized to handle petty cash must reconcile records (cash receipts in and out) periodically and report results to Office Manager, President or Owner for checks and balance accountability (i.e., good internal controls). 2) Credit Card (Less than $500) -- End-user makes request for material or service to Purchasing Agent / Contact via , fax, or supply form. Idea here is to document what end-user needs. This gives the Purchasing Agent a bona fide business need to place an order. Again, a numbering system should be established to track purchases. Purchasing Agent faxes/ s the order to an approved supplier / vendor who accepts the company s credit card. Orders may also be phoned in, however, suppliers should confirm receipt of order via return fax/ . Material is delivered or service rendered with receipt / invoice attached or forwarded later. If invoice received at a later date, confirm that material has been 2011 SCORE Ohio, Brief Number 08.10, Revised 01/ of 5

2 received or service rendered in a satisfactory manner before paying the invoice. Minimally, annual reviews / audits of credit card purchasing system are recommended to ensure checks and balance accountability. Please note: Any of the large national credit card companies (Visa, MasterCard, American Express, etc.) will gladly work with the Purchasing Agent / Contact to set up a company purchasing system. These programs typically offer daily, weekly, or monthly financial reports which help in tracking spending. Check the web site or yellow pages for number for above national credit card companies to start the process of designing and implementing a customized credit card purchasing system. 3) Requisition and Purchase Order (Any dollar amount) End-user enters a request for material or service on a paper requisition or into a computer system. After the requisition is approved, it s forwarded to purchasing. The Purchasing Agent orders the material or service using a purchase order (paper or computer generated), which is forwarded to an approved supplier or vendor to provide the material or service. Material is delivered or service rendered with receipt / invoice attached or forwarded later. If invoice received at a later date, confirm that material has been received or service rendered in a satisfactory manner before paying the invoice. Please note: Whenever possible the purchasing functions (requisitioning, approving, ordering, receiving, and invoice paying) should have separation of duties to ensure checks and balance accountability. Ideally, this means a different person performs each function thus separating the duties. In a small business, this may be impractical. However, to maintain basic internal controls, two people should be involved in purchasing functions at a minimum with periodic reviews / audits of the system. 4) Raw Material or Parts Acquisition via Purchasing Agreement --If a purchasing agreement has been negotiated between the company and the supplier for a specific raw material or part used in the manufacturing of the company s product, then the purchasing agreement is executed based on the terms and conditions contained therein. Typically, when a raw material or part is needed or reaches a re-order point, the Purchasing Agent or designated person in the operating department contacts the supplier s designated representative via release order, fax, or phone and communicates to supplier that a shipment (tank-car, truck, pallet, dozen, etc.) is needed. Supplier will ship material requested based on specifications negotiated in the purchasing agreement regarding price, quality, quantity, delivery, terms and conditions. Material is received and checked for quality prior to putting in inventory or used on the production line. Supplier sends invoice based on the price in purchasing agreement for the quantity received. Receipts (quality and quantity) should be verified and approved before paying the supplier s invoice. The process should be reviewed / audited at least annually as part of internal controls and /or before renewing purchasing agreement SCORE Ohio, Brief Number 08.10, Revised 01/ of 5

3 Purchasing Suppliers: The business need and the purchasing system sophistication will influence the type and number of suppliers identified and / or qualified. Minimally, the Purchasing Agent should assess the business operational and manufacturing needs (for example- office supplies, computer software / hardware, building, maintenance, repair, raw materials and parts, etc.) and identify and / or qualify suppliers and vendors to meet those needs. Supply qualification criteria typically include price, quality, quantity, delivery, terms and conditions, which are all negotiable. Those suppliers with capacity to best meet the business qualification criteria should make up purchases supply list of preferred / approved suppliers. The Purchasing Agent should purchase from these suppliers first when there is a purchasing need for material or service for the business. Purchasing should also develop purchasing agreements for designated raw materials and manufacturing parts and execute releases (supply orders) as appropriate. See attached purchasing agreement sample. Summary: Purchasing is an integral part of any business. A good purchasing system will insure that the Company is spending its money wisely and will protect the Company s assets SCORE Ohio, Brief Number 08.10, Revised 01/ of 5

4 SAMPLE PURCHASING AGREEMENT OVERVIEW: This Purchasing Agreement is dated the day of, 200x, by and between., its successors and assigns ( Company ) and., its successors and assigns ( Supplier ). The principals (signees) of each organization have the full authority to enter into this agreement. TERMS and SPECIFICATIONS: Supplier to furnish Company with 100% of its raw material requirement for. Period: January 1, 200x through December 31, 200x (with annual renewals) Contacts: Company contacts - Shift Supervisor Supplier contacts - Shift Supervisor Procedure: Company s Supervisor faxes or calls Supplier s Supervisor with release order number for a shipment of. Specifications: Quality: Supplier analysis sheet must be faxed to Company prior to shipping; Sample analysis for will be performed by Company Lab prior to unloading using analytical method # YY. Rejected Samples / shipments- Supplier to expedite replacement shipment within 4 hours of notification of sample results at no extra cost to Company. Quantity: Up to 1,000,000 pounds annually Average monthly usage / requirement - 60,000 pounds Price: $ per pound full truck shipments $ per pound partial truck shipments Delivery: pound truck shipments (+/- 100 pounds) from Supplier to Company within 24 hours of receiving release order number (via fax or phone order). Expedited shipments 4 hours or less incur a $ per pound premium. Delays in shipments beyond 24 hours incur $ per hour penalty, starting after 4 hours. Payment Terms: 1-10, net 30 - (1% discount if paid within 10 days of date invoice received; net 30 days from invoice date). Invoices to be sent to Company s mailing address on file. Renewals: Annually renewals unless either party gives the other a 90 day 2011 SCORE Ohio, Brief Number 08.10, Revised 01/ of 5

5 written notice that Purchasing Agreement will be terminated at end of period. Renewal prices to be adjusted based on the previous year s chemical price index. Disputes: Any and all disputes will be mutually resolved between the Company and Supplier. INDEMNIFICATION: Company and Supplier shall each indemnify and hold the other harmless from and against any and all claims, demands, causes of action, debts or liabilities except sole negligence of either party. BINDING EFFECT: All of the agreement between the parties shall be binding upon and inure to the benefit of the parties, their successors, personal representatives, heirs or assigns. ENTIRE AGREEMENT: This agreement merges all previous negotiations between the parties hereto and constitutes the entire agreement and understanding between the parties with respect to the subject matter hereof. No alteration, modification, or amendment hereto shall be valid except in writing and when signed by the parties. COMPANY:,, (Name) (Title) (Date) SUPPLIER:,, (Name) (Title) (Date) 2011 SCORE Ohio, Brief Number 08.10, Revised 01/ of 5