The purchasing process
Purchasing usually starts with the buyer recognizing the need for a product and preparing the specifications. Market sourcing, through the selection or tendering process, assists identification of a suitable product and supplier. Thereafter, buyer and seller negotiate the terms and conditions of sale for the goods being purchased, i.e. how and when they are to be shipped and insured, and how and when payment is to be effected. Once agreement is reached, the buyer issues a purchase order, an accepted pro-forma invoice or a contract. The buyer may place this against a framework agreement already established with preselected suppliers. Transport of the goods is arranged according to the delivery terms stated in the sales contract. Upon acceptance of delivery (or as otherwise arranged to facilitate the transaction, e.g. through advanced billing), the seller prepares a commercial invoice for payment. The buyer processes the payment according to the contract.
Illustration I - Purchasing process
Participants in the process
Purchasing involves two primary parties: buyer and supplier or seller. Other entities may become part of the process as intermediaries. They are secondary stakeholders, for example, agents for purchasing, trade and credit. Purchasing agents, acting on behalf of the buyer (and sometimes the seller as well), are used especially by small and medium enterprises (SMEs) for tendering, offering, evaluation, invoicing and payment procedures, which may be combined with other responsibilities, such as packing, marking, shipment, export licensing and Customs tracking.
The UN/CEFACT Buy-Ship-Pay model and the International Supply Chain Reference model offer detailed overviews of the business processes and transactions, documents exchanged as well as parties involved in this phase of cross-border trade.