adv-06 adv-06

Beginner’s procurement guidelines for a manufacturing company


Abdul Wadud

CEO  & Management Consultant, TRANSFORM

 procurementProcurement is linked with the outflow of fund from an organization while marketing is linked with the inflow of the organization. When the inflow over the period of time is consistently more than the outflow of the organization then it can sustain in the long run. So, in order to manage the outflow, we should have a proper guideline.

Procurement Process

With a perspective of a manufacturing company procurement process can be as follows: –


  1. Raising Indents & Approval of Issuance

Indent should be raised by concerned department, checked by departmental heads and approved by Factory Head or concerned Departmental Head for onward action. Before raising the indent, the indent issuance approver is responsible to make sure that the indent raised is justified and should make sure that the following things were done: –

  1. Act honestly, discuss with others if you are short of knowledge and be responsible.
  2. For big purchases like capital machinery it should be discussed with management and necessary cost and benefits with details of production, quality, utilities and supporting machinery should be considered including civil, electro-mechanical, and others. It should be placed to management and upon consent of management to be proceeded forward. For regular issues management approval is not necessary to raise the indent.
  • For raw material procurement special emphasize is required as we know “Garbage in garbage out” so better to have a comprehensive raw material management plan identifying the specification and source, ideally linked with the strategy of the company.
  1. Current stock and how long would this last under normal circumstances.
  2. Try to maintain minimum stock level without hampering safely, quality or production.
  3. Try to assess lifetime, lead time and economic order quantity for each item over time, preferable a database.
  • Put required quantity based on the current stock, life, frequency of change and consult with the user and departmental head.
  • Mention Machine Model, Part number, catalogue number, or any other things necessary to clearly communicate the need to the procurement department. If necessary, send picture or drawing to clarify.
  1. Mention unsuitable brands that had bad performance with proper records.
  2. Mention the suitable brands and currently used brands. Also, mention the specific brand that is preferable that had good performance.
  3. While raising indents it should be tried to club similar categories of requisitions from different departments and try to issue a smaller number of indents.
  • Local and Foreign Indents would be different and each of them have different segments and be issued accordingly 7 categories (i.e. Raw Material, Machinery, Spares & Consumables, Civil, Electrical, Stationary & Others) of both local and foreign indents as shown in the bellow table:


  1. Approval of Indents

After issuance of indents, they must be approved by management as follows: –

  1. The authority of indent approval can be delegated to a position in order to ensure smooth flow. This would allow to reduce involvement of MD in day-to-day activity.
  2. MD would approve the indents.
  1. Execution of Indents

Execution starts along with the approval of indents and role of procurement department comes into play till it is executed. Following are the general steps: –

  1. Act honestly, discuss with others if you are short of knowledge and be responsible.
  2. Collect offer from different suppliers.
  3. Send those to factory for their feedback.
  4. Collect final prices, delivery and other relevant terms and conditions and make a comparative statement for management approval.
  5. Upon management approval issue purchase order or work order.
  6. Based on purchase order open LC or arrange payment to supplier.
  7. Follow-up for shipment, do necessary steps to clear the consignment in case of LC and arrange delivery to factory. In case of Non-LC purchase orders or work order assure delivery within time. Keep the record of each on going indents and communicate with the relevant personnel to keep them updated on the progress of the indents.
  8. In case of any problem take necessary steps.
  9. Get feedback from factory on each indent once delivered.
  10. In case of any wrong, problematic or short/excess supply take necessary steps to resolve the issue.
  11. For local indents, arrange payments after getting the relevant papers (i.e. Invoice, PO, Delivery Challan, QC/MRR Report, etc.).
  1. Evaluation of Execution

After execution of each indent check where it went wrong or right. Keep a record which would make it easy to execute better in the future.

Having an integrated ERP would make the total process transparent, efficient and save cost. But without a proper system in place designing becomes difficult and creates bottle neck. So, its preferred to have a proper system in place first and then integrate with the ERP.