Fundamentals of Purchasing

This report provides a comprehensive guide to the fundamentals of purchasing and procurement management. It covers topics such as request for quotation (RFQ), general terms and conditions, requirements and conditions for acquiring capital assets, and specifications for vending machines. The report is suitable for students studying purchasing and supply chain management.

Fundamentals of Purchasing
1

Contents
Introduction................................................................................................................................3
Request for Quotation (RFQ).....................................................................................................4
Requirements and conditions.....................................................................................................6
General terms and conditions...................................................................................................10
Conclusion................................................................................................................................12
References................................................................................................................................13
2

Introduction
Procurement management is one of the most essential part of a business management.
Significant part of indirect cost is spent by management on procurement of raw material
required for production process. In addition to that there are various other capital expenditure
that will require procurement management strategies on part of management. This report will
be focused on development of a request for quotation for acquisition of capital assets from
different suppliers. Requisition for quotation is a document prepared by management for
inviting quotations from different suppliers. This report will be focused on David's Tea which
is a business organization operating in manufacturing and distribution of it all across Canada
(Monczka, Handfield, Giunipero & Patterson, 2015). Different aspects of inviting quotations
from supplier will be discussed in this report. This report will identify some of the most
common terms and conditions that should be included in the contract. In addition to that
providing specifications about capital asset is also an essential requirement. It is expected that
this report will help in preparation of an effective RFQ for David's Tea.
3

Request for Quotation (RFQ)
As it is already discussed that a request for quotation is a formal document prepared by
organization for inviting quotations from different suppliers selected by the organization. It is
very important for organization to understand specific needs and requirements with relation
to asset or raw material that is required to be purchased. Quotations will be received from
supplier on the basis of specific needs and requirements. If management of the company is
not able to understand their own requirements correctly then there are chances that overall
indirect cost will increased significantly (Fredendall & Hill, 2016).
In the given scenario David's Tea is seeking to install new vending machines which will help
in the distribution of tea and other snacks at different stores of Canada. Management of the
company has estimated that around 12 vending machines would be very effective in the
current market. Request for quotation proposal is developed for the acquisition of vending
machines to the suppliers (Nair, Jayaram & Das, 2015).
Request for Quotation (RFQ)
David’s Tea Corporation
Address- 5430 Ferrier, Mount-Royal,
Quebec, Canada, H4P 1M2
Date 30/03/2019
Reference- Purchase of 10 vending
machines for distribution of pre-packaged
tea and other snacks.
Respected Sir/ Madam
This proposal has been prepared for requesting quotations for purchase of 12 vending
machines that will be able to distribute pre-packaged tea and other snacks. Delivery address
in this scenario would be headquarter of the company in Canada (Vrat, 2016). According to
general practice of the organization, this contract will be given to the supplier that will
provide assets under consideration with a reasonable price and effective after sale services.
Liquidity position of our company is very high and there will be no problems in relation
payments for acquisition of assets.
4

General specification of the acid will be provided as an attachment with this form. These
general specification will help to understand the basic needs and requirements of the
company. It is suggested that suppliers should analyse these requirements thoroughly as
penalty will be applied on suppliers that are not able to provide these services after contract is
given to them. General terms and condition of the contract will also be specified in this form.
Detailed contract will be prepared by the organization at the later stage of this process when
the contract is given to a particular supplier (Gopalakrishnan & Haleem, 2015). It is
recommended that suppliers should read the general terms and conditions in detail.
David’s Tea Corporation
5

Requirements and conditions
General requirements of this arrangement would be as follows
Terms of delivery It is expected that the product will be delivered within two weeks of
approval is provided to the supplier.
Quotations are required to be received within 15 days of the date on
which it was published.
Prices quoted by all the suppliers will be inclusive of all the taxes
applicable to the organization. In addition to that bifurcation of service
charge or any tax should be provided along with quotation price.
An invoice will be made on the name of David's Tea Corporation.
The order will be canceled in case machines are not received within 2
weeks of approval (Caniato, Luzzini & Ronchi, 2014).
Address for delivery Address for delivery will be similar to address of headquarter i.e. 5430
Ferrier, Mount-Royal, Quebec, Canada.
Time of delivery It is expected that the delivery will be made within two weeks of
confirmation of the supplier. the supplier should provide exact date on
which delivery will be made and the time of delivery should be within
working hours of the company i.e. 9 am to 6 pm.
Quality of product It is expected that quality of a product will be in accordance with the
decision taken in terms and conditions of the contract. Machines should
be new and not second hand machines. Quality Assurance department of
the organization will check the product before accepting at the time of
delivery. Any queries made by quality assurance department should be
managed by the supplier. Vending machines will not be accepted
without stipulated warranty certificate.
Rules and regulations The supplier should not be in contravention of any rules and regulations
applicable to business organizations in Canada for any other
6

international law.
All rules and regulations in relation to food safety and maintenance
should be followed by the organization and vending machines will not
be accepted in case of any contravention (Monczka, Handfield,
Giunipero & Patterson, 2015).
The right of return is maintained by David's Tea in case any
contravention is identified after the product is supplied by the supplier.
Policies and procedures should be adopted by the organization for the
safety of Machines during the time of transportation.
Colour Colour will be decided after the contract is given.
Material The material used for the production of these machines should be
stainless steel.
The language used for
documentation
All the documentation including terms and conditions of the contract
will be written in English.
Custom clearance Responsibility of preparing all the following documents in relation to
transportation will be the duty of supplier-
Bill of entry
Bill of lading
Certificate of origin
Commercial invoice
Form B3
Cargo control document
Insurance and warranty certificate (Aguiar Costa & Grilo, 2015)
Currency All the financial transactions will be conducted in the Canadian Dollar.
Mode of payment Payment will be done with the help of electronic transfer or cheque.
7

Amount of payment Amount of payment will be decided in accordance with the quotation
provided by the supplier. The full amount will be paid at the time of
delivery.
Contact person All the contact in relation to this contract will be done with the Purchase
Manager of the organization.
8

Specifications of the good
General specification of vending machines under consideration is as follows-
 Vending machines should be able to accept dime, quarter, Nickel and dollar.
 All the messages on the machine should be displayed in the English language.
 The machine should be able to track the state of available item available charge and
currency inserted by the customer. In addition to that this information should be visible
on the digital screen of the machine (Fredendall & Hill, 2016).
 The machine should comply with current energy star eligibility criteria i.e. machine
should be energy efficient.
 The battery should be installed in the machine which will help in the continuous operation
of the machine even if electricity is not available.
 Appropriate preservation techniques should be used in the machine maintain the quality
of the tea and other snacks (Van Weele & Van Raaij, 2015).
 Operability of the machine should not be very complex and it should be user-friendly.
 Three business organizations to which this request for quotation will be sent are-
1. Canadian vending services
2. Vending products of Canada Limited
3. Vending design works
9

General terms and conditions
1. This section of the report will identify the general terms and conditions of the
contract. A detailed contract will be prepared which will include detailed terms and
conditions after the contract is given to one of the above-mentioned contractors.
2. Quotation provided by the supplier can be rejected or accepted and management of
the company is not required to provide any justifications in relation to search rejection
for rejection.
3. Estimations in relation to transportation cost from the premises of the supplier to the
premises of the company should be provided along with quotation amount by the
suppliers. This transportation cost will be divided equally between the supplier and
David's Tea Corporation (Stadnicka & Ratnayake, 2015).
4. All the rules and regulations applicable to Canadian business organization should be
followed by supplier while manufacturing of vending machines under consideration.
5. Reply of quotation will be provided within 5 days of receiving the quotation letter
from the supplier. Rejection letter will be sent to organizations if their quotation is not
accepted.
6. The supplier is not allowed to alter any terms and conditions of the contract. All the
specifications mentioned in the contract to should be provided by the supplier.
Exceptions can be given by management in case they are satisfied that certain
specification cannot be provided.
7. Any amendment request on part of the supplier should be provided along with
quotation letter. Reason for search amendment should also be mentioned in the RFQ
letter.
8. Terms and conditions in relation to the warranty period and conditions of warranty
should be specified in the quotation letter (Maier, 2014).
9. Testing process should be properly done by a supplier on the machines. In addition to
that user, testing will be conducted by the purchase department of the organization
under the supervision of a supplier and quality assurance manager of David's Tea.
10. The machine can be rejected by the organization of a quality assurance department is
not satisfied with the results of testing.
10

Conclusion
This report has clearly identify the different aspects of request for quotation letter that is
required to be sent by a business organization for inviting quotations for Capital Asset or raw
material required. It is expected that this request for quotation letter will help in effective and
efficient to procurement process for acquisition of vending machines to be installed at
different stores in Canada. This report has also identified the importance of specifying
accurate requirements and needs of the business organization with relation to specifications
of product for which quotation is invited. Significant consideration should be given by
business organization on developing terms and conditions of the contract.
11

References
Aguiar Costa, A., & Grilo, A. (2015). BIM-based e-procurement: An innovative approach to
construction e-procurement. The Scientific World Journal, 2015.
Caniato, F., Luzzini, D., & Ronchi, S. (2014). Purchasing performance management systems:
an empirical investigation. Production Planning & Control, 25(7), 616-635.
Fredendall, L. D., & Hill, E. (2016). Basics of supply chain management. CRC Press.
Fredendall, L. D., & Hill, E. (2016). Basics of supply chain management. CRC Press.
Gopalakrishnan, P., & Haleem, A. (2015). Handbook of materials management. PHI
Learning Pvt. Ltd.
Maier, E. (2014). Pure quotation. Philosophy compass, 9(9), 615-630.
Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2015). Purchasing
and supply chain management. Cengage Learning.
Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2015). Purchasing
and supply chain management. Cengage Learning.
Nair, A., Jayaram, J., & Das, A. (2015). Strategic purchasing participation, supplier selection,
supplier evaluation and purchasing performance. International Journal of Production
Research, 53(20), 6263-6278.
Stadnicka, D., & Ratnayake, R. C. (2015, December). Development of a rule base and
algorithm for a quotation preparation process: a case study with a VSM approach.
In 2015 IEEE International Conference on Industrial Engineering and Engineering
Management (IEEM) (pp. 1100-1106). IEEE.
Van Weele, A. J., & Van Raaij, E. M. (2014). The future of purchasing and supply
management research: About relevance and rigor. Journal of Supply Chain
Management, 50(1), 56-72.
Vrat, P. (2016). MATERIALS MANAGEMENT. SPRINGER, INDIA, PRIVATE.
12