Chapter 10- Purchasing/ Buying

by • 10/06/2011 • B.COM PART 1 Introduction to BusinessComments (0)798



Q1- What do you mean by transportation? Explain its channels.


Briefly describe major transportation system used in Pakistan Business.


Transportation is a key function in overall business activities. Once goods are produce they must be sent to the sales point to make them available to customers. Taking goods from the place of production to the place of use is known as transportation.


Transportation Routes:

In transporting goods and services many routes are used.

Air Route: it includes airplanes, copters.

Land Route: it takes trains, trucks, animal carts.

Sea Route: Most of foreign trade uses this route which includes ships launches, and motorboats.

Mean/ Kinds Of Transportation:

Following are the various mean of transportation


They are used in both national and foreign trade to transport light and heavy products including machinery, cars, trucks, and raw material. This means is especially important in land-locked areas. Its use is geographically limited.


Their use is also geographically limited and mostly used in local trade. They are also used in foreign trade with the bordering countries.


It refers to ships by which heavy and voluminous goods are transported. They are mostly used in foreign and overseas trade.


It is a means of transportation to carry oil and gas from drilling places to refineries and also used to transport them from one country to the bordering country. The pipelines may be laid underground or under sea.


They are most costly means of transportation and only light and small items are transported. They are used in both local and foreign trade.

Q2- What do you known about warehousing? Also discuss kinds, advantages and function of warehousing.


Storage function is a part of a business activity and the result of buying or manufacturing. It refers to holding the goods till they are demanded, sold or consumed.


From business point of view the following are the kinds of warehouses.

1.   Public Warehouses

2.   Private Warehouses

3.   Bonded Warehouses

4.   Wholesale Warehouses

5.   Automatic Warehouses

Public Warehouses:

It refers to those that are rented for business and industrial houses. When industrial units manufacture or importers receive goods in bulk quantities , they need large spaces to store them. They cannot raise their own storage buildings. So they rent public warehouses for holding their goods.

Private Warehouses:

Such warehouses are privately owned and used but are not rented. They are owned by large business and industrial houses. They may be small or large as the need be. They are owned, possessed and used by those who can afford them financially.

Bonded Warehouses:

Those warehouses that are used under the contract with the customer authorities are referred to as bonded warehouses. They are situated near ports to facilitate the warehousing of goods imported from abroad.

Wholesale Warehouses:

In fact they are large wholesalers who buy in bulk quantities and store them in the warehouse from where they supply goods to other businessmen. Wholesale warehouse are specialized in buying.

Automatic Warehouses:

These warehouses are automatic in the sense that their paper proceedings, processing, and selecting goods are made automatic. They have been adopted in the US where all systems have been made automated and computerized.


Warehouses entail many advantages.

Seasonal Consumption:

Many commodities are consumed seasonally but have to be produced incessantly, because stopping their production may result in the closure of the factory, lying off labor, continuing paying rent and taxes without production. Warehousing bridges the gap between production and seasonal or intermittent use.

Seasonal Production:

Some products are consumed continuously but grown seasonally. This type of gap is also filled by the use of warehouses. When wheat, rice, and cotton etc. are produced in a season, they are stored in warehouses from where they are incessantly supplies to the consumer through the off season.

During Transportation:

During transportation process storage function continues. First goods are stored in a means of transportation (i.e. ship, train, truck) and then transported.


Warehouses provides safety to goods and can lengthen their lives, especially when they are air-conditioned. They also save goods from being exposed to dust, rain, sun and pilferage.


Loading abroad and unloading from the ship are facilitated by using warehouses.


Aging of products is possible by the process of warehousing. Rice, wine and agricultural produces are aged to make them better to taste.


Business always needs an optimum balance between demand and supply. Unbalanced demand and supply is normalized by warehousing. When market faces storage the warehouses starts supplying and when goods are produces to excess the surplus is stored, hence the balance between demand and supply.

Q3- Describe in detail the steps placing orders.


Buying activities are undertaken by the purchasing department of an enterprise. Purchases are made in bulk quantities. The following steps are taken in purchasing.

Determination Of Needs:

Before deciding to buy the need must be determined. It is done in the light of specifications that are received by purchase office from departments concerned. For non-repetitive goods, endorsement is also obtained from engineering or technical department to determine their exactness. For repetitive goods, confirmation as obtained from production department in case of manufacturers or assemblers, and sales manager in case of distributors or middleman.

Determination Of Grades:

Industrial units manufacture goods whose raw materials are of certain grades or qualities. Products cannot be manufactured unless their raw material of particular grades are available. The determination of grades or quality of materials comes within the preview of the production or engineering department, and not the purchase department.

Survey Or Market Research:

After determining the requirements, the next step is to search out all possible sources of the supply market. Purchase officer must find out all the suppliers, their products, their prices, the quality of their wares, their terms and conditions, their reputation in the trade and other related things that would help him in deciding the list of potential suppliers.

Placing Order:

Soon after deciding about the supplier, the purchase officer places the order to him for supply of the goods on terms and conditions already settled. Such order is usually placed in writing to have evidence in case of any dispute that may arise later on. Order in writing carries an exact description of the goods required, the prices, the quantities desired, the delivery date, the discount terms, shipping or dispatch instructions, billing instructions, and mode of packing etc. A copy of the purchase order is always maintained by the purchase officer.


In order to make sure that the order is executed by the supplier in time, following up the order becomes the usual step in purchasing. Purchase officer, therefore, monitors the progress of this order and finds out whether it is being executed by the supplier in time and as desired. This involves frequent contacts with suppliers and efforts to make certain that there are no delays in dispatch of the goods on their part and the goods so ordered will be received in time.

Receiving Goods:

On receiving the goods, the purchase officer immediately makes them to be compared with order form to see whether these are correctly sent by the supplier and meet the requirements as per order form. If the shipment is correct in both quality and quantity, the goods are sent to stock. If there is any differences in the order and the shipment, the matter is immediately brought to the knowledge of the supplier. Till the settlement of the discrepancy, the goods so received are held in the receiving room.

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