Purchasing Process

1. Identify Need. Identify the need for a product purchase

2. Select Specific Product. Select a specific a product to meet the need

3. Appoint Purchase Team

4. Specify Technical Specification

5. Budget for Purchase

6. Research Potential Suppliers

7. Solicit Bids

8. Award Contract

ISO 9001 Purchasing Procedures

by Bert Markgraf

ISO 9001 requires the verification of purchased material.

1. ISO Procedures for Auditing a Purchasing Department

8 Steps of a Business Organization's Purchasing Process

What Are the Functions of a Purchasing Department in an Organization?

The Impact of ISO 9000

Purchasing procedures under ISO 9001 ensure that purchased materials meet the requirements of the
purchaser and the final customers. Companies apply ISO 9001 to their purchasing to minimize problems
with their products and services. By applying ISO 9001 principles to their purchasing program, small
businesses can reduce waste and improve customer service. When applied consistently, purchasing
according to ISO 9001 standards should result in continuous improvement in company operations.

Organization
The first step for any quality assurance process is to use the company organization chart to assign tasks
and responsibilities via job descriptions. ISO 9001 specifically requires companies to appoint a person
responsible for quality assurance who has a direct reporting path to a top company executive. This
employee is responsible for quality matters and coordinates the other functions where they impact
quality. Purchasing procedures detail who is responsible for the technical specifications, cost
authorizations, issuance of purchase orders and verification of received material.

Documentation

Purchasing procedures require documentation that ensures the purchased material corresponds to the
technical specification and budgeted cost. Procedures typically specify that the purchase order refer
back to the relevant parts of the technical specification and require that the purchaser check the current
estimates before placing an order, making sure the amounts are within budget. Purchasing procedures
that comply with ISO 9001 also specify that the company can only purchase from suppliers qualified for
the items on the purchase order.

Supplier Qualification

To purchase only from qualified suppliers, ISO 9001 specifies that companies maintain lists of approved
suppliers for each product they purchase regularly. The company must audit these suppliers for
compliance with quality assurance standards. For special orders, the company must identify potential
suppliers and audit them to find out if they qualify. To audit a supplier, a company can rely on third-
party certification that a supplier is complying with the required quality standards. In this case, the audit
consists of verifying the certification. For non-certified suppliers, a company can require that the
supplier become certified. Alternatively, the company can conduct its own audit to determine whether a
supplier adheres to the required quality standards. The purchasing procedures must specify who is
responsible for maintaining a list of qualified suppliers and how suppliers can qualify.

Material Inspection

Once the company receives the material it purchased, it must verify that the supply is in accordance
with the purchase order. Purchasing procedures detail who is responsible for carrying out the
verification and the tasks they have to carry out. Typically, purchasing procedures in accordance with
ISO 9001 require a verification that the material corresponds to the technical specifications, as
referenced in the purchase order.

Non-conforming Items

Sometimes even qualified suppliers ship the wrong material or defective material. The material
inspection identifies such problems and issues corresponding reports. Under ISO 9001, such reports list
non-conforming items and detail what is wrong with them. The company informs the supplier. The
supplier must fix the problem, often by replacing the material or, if the deficiency is not important, by
 making minor changes. The purchasing procedures detail how non-conforming item issues have to be
resolved.

Corrective Action

When a company issues a non-conforming item report, the report might specify corrective action that
the supplier has to take, or it might leave it up to the supplier to take action that corrects the problem.
The purchasing procedures must specify when the supplier must take specific corrective action -- for
example, to replace the material in case of serious defects. In other cases, the purchasing procedures
might specify an evaluation of supplier corrective action -- such as performing the incoming material
verification again -- to see if supplier action has resulted in acceptable material.

Continuous Improvement

The reason for implementing ISO9001 quality standards is to improve company operations with regard
to quality output and customer satisfaction. For purchasing procedures, ensuring quality material inputs
helps in this goal. Such improvements require continuous feedback on deficiencies in order to fix
problems with procedures and verification. Reports on non-conforming items must result not only in a
solution to the material deficiencies, but also in a correction of the practices that led to the defect.
Suppliers qualified under ISO 9001 must have such feedback in place. They also must be able to
demonstrate how they modify their practices to correct problems with supplied material. Purchasing
procedures must specify such a process as part of the qualifying process. The continuous improvement
feedback loop is a requirement under ISO 9001.

How Does a Purchase Order Work?

 1The Difference Between a Requisition & a Purchase Order

 2How to Create a Purchase Order for a Small Business
 3The Difference Between an Invoice and a Receipt
 4Sales Order vs. Sales Invoice

A purchase order is a legally binding document between a supplier and a buyer. It details the items the buyer
agrees to purchase at a certain price point. It also outlines the delivery date and terms of payment for the buyer.
Purchase order computer systems have made the purchasing process more efficient and allow for better
inventory and payment tracking.

Purposes
Purchase orders are typically used when a buyer wants to purchase supplies or inventory on account. This
means the supplier delivers or ships the purchased items prior to payment, with the purchase order serving as
its risk protection. Along with legal protection, purchase orders are significant in both inventory management
and payment tracking. Purchase orders help suppliers compare ordered inventory to inventory shipped and on
hand for accuracy. They also allow the supplier to track when payments have been made on specific orders.
Buyers hold copies of orders they place to monitor timely receipt of the items.

Submission

The purchase order is prepared by the buyer, often through a purchasing department. This process is typically
done using electronic software systems, which allow for better tracking and electronic submission of orders to
the supplier. The purchase order, or PO, usually includes a PO number, which is useful in matching shipments
with purchases; a shipping date; billing address; shipping address; and the request items, quantities and price.
Software programs usually have entry fields for each piece of critical data; the purchaser simply fills in the
fields prior to processing and sending the order.

Order Processing

Once the buyer submits the order, an in-progress purchase is created. The order's status remains in-progress
until the ordered items have been received by the buyer's warehouse. Once the inventory is physically
received, it is typically scanned into inventory and matched to the proper purchase order. The purchase order is
marked as processed or requiring payment. The buyer completes its responsibility for the purchase when it
remits payment. To ensure accurate credit for payment, the payment should indicate the PO number or
company account number.

Supplier Use

Suppliers use purchase orders for order fulfillment and payment processing. Upon receipt, the purchase order
is used to pull purchased inventory for packaging and shipping. Once the inventory is pulled, an invoice is
prepared based on the items orders and prepared for shipment. When the products are shipped, the supplier
records the shipment in its inventory system. The purchase order is filed electronically, with paper copies often
filed, as well. The order is marked as filled or waiting payment. Important payment reminder dates and
deadlines are set. This is important to the supplier for good payment monitoring and enforcement of credit
policies.