Purchasing for Manufacturing Businesses

Purchasing for Manufacturing Businesses


This is a list of the basic procedures needed to ensure that purchasing (acquisition) needs are met for companies that purchasing for manufacturingmanufacture 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.


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:

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 e-mail, 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/e-mails 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/e-mail. 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. 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 for 1-800 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.

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. Download the Brief for a purchasing agreement “sample.”


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.

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