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Low value order purchasing can be defined those transaction where value is very low and processing cost is relatively high. Some time processing cost exceeds the invoice value.
There is always a dilemma with companies whether to apply the common purchasing for low value order transaction or have a different channel of procurement.
Following are the challenges
1) Number of invoices are huge hence difficult to handle. number wise approx 50% and spend wise maximum 6%.
2) Vendors are one timer / not repetitive
3) most of Vendors are local small timer needs payment immediately / can not wait
4) Processing cost exceeds the invoice value if followed normal process
The best practice is to have a separate channel / strategy for such procurement.
- Should be classified as value per invoice should not be more than Rs 1000
- Risk and value should be low
- There should be authority matrix for such payments.
- Process should be audit-able
- There should be a budget for such procurement
- Online procurement is also very practical for such transaction
While I fully agree and endorse the answer given by Vaseem Ahamad, I would like to add that in case of low value purchases it is difficult and cumbersome to monitor quality of the product as well as attract good and reputed suppliers/manufactures.
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