BizMove General Management

Purchase Order: Receiving and Inspecting Goods

Goods and materials receiving process procedures template

 

Receiving and Inspecting Goods

by Meir Liraz

Many manufacturers lack clear documentation of receipt of shipments. This can cause problems when the business has to prove that there was a shortage in shipment or that the shipment does not meet quality specifications, or when other problems exist.

Receiving Report

Upon receiving purchased goods or even services from a supplier, it is important that the shipment is checked to make sure that the correct quantity and quality was received. A receiving report should immediately be completed which indicates:

  • the date the material was received or service was performed
  • whether the delivery was on time
  • the quantity of material received and whether any discrepancies exist when compared with the packing slip
  • whether the quality of the material meets specifications
  • the names of the personnel who performed these checks

This receiving report can be of great help to the bookkeeper in maintaining accurate records, and when paying the bills.

Quantity Check

When a shipment arrives, it is a good idea for receiving personnel to check it against the packing slip to make sure that the quantities are correct.

The thoroughness of the quantity check depends upon how many packages are involved, and how important the contents of the package are. If there are many packages, and there are many items in each package to count, complete counts would be a very time consuming process. In such cases, it may be better to use sampling to establish the quantity received.

Total weight or physical dimensions can be used for fairy accurate estimates of quantities in a shipment. When the material is packed in boxes, suppliers can be asked to write the quantity on the cut-side of each box so that in a shipment of several or many boxes, a few can be picked for a detailed check. If they turn out to be accurate, then there is considerable assurance that the shipment is complete.

A bulk count may be necessary when unit price is high. The receiving report should show how the count was made, i.e., by full count, by weighing and calculating the quantity, or by spot checks of packages.

Quality Inspection

It is important, upon receiving a shipment, to make sure that the material meets quality specifications. If it is of great importance that no defects in quality exist, you will probably want to run a quality check on each item of the entire shipment.

If, in your manufacturing process, you are able to detect defective materials, and it is clear that the problem lies with the supplier, then the incoming quality check can be limited to assuring that there is no massive quality problem which would disrupt your production.

In some cases, however, defective material could pass through manufacturing operations unnoticed, or a problem in production could be the fault of your people. In such situations, it is wise to conduct a quality check of materials, upon receiving the shipment.

However, since checking items against design specifications can be quite time consuming and expensive, it is rarely necessary to run a quality check on all items received.

Instead, spot checks on quality can be made on a small representative portion of the shipment. The reasoning behind spot checks is that if some of the material is defective, then you should have a fairly good chance of finding some defects if you sample items at random. Thus, you might pick some material from different places in the shipment. In the case of several packages, you might select a few pieces from the top of one package, from the bottom of another one, from the sides of a third one, etc., and run quality checks on this material instead of on the whole shipment.

Some conditions for using spot checks, or sampling, are as follows:

  • Complete accuracy in locating all defects with a shipment cannot be required. No sampling method can find all defective material.
  • It should be possible to obtain a representative sampling of materials from the shipment.
  • An accurate method for judging the quality of the material must exist. A quality inspector must be able to reliably judge what is acceptable, and what is defective.

The procedure for correctly sampling material and conducting spot checks is somewhat complicated, however, and involves looking up figures in statistical tables. One principle, of course, applies: a larger sample size, or spot checking more items, will naturally increase chances of finding defective parts, if they exist.

For example, a certain manufacturer receives a shipment of 450 components: Part B-250. Defects in these parts are unlikely to be detected during manufacturing operations. Usually about two or three defective B-250 parts are found in every 100. The purchasing manufacturer may feel that up to 3% defective parts are acceptable, but if there are more, the supplier should take the shipment back to remove the bad pieces. A table like the one shown below can be used to decide how many pieces have to be checked to gain reasonable assurance that the defect rate is 3% or less. Such tables can be found in many quality control books.

Looking at the line in the table for a Lot Size of 401 to 500, it can be seen that a sample of 70 pieces should be selected. In this sample, there should not be a single defective piece. If one should be found, the more detailed check can be used and a larger sample of 160 could be selected.

If more than three parts are found defective in the larger sample, then the probability is quite high that there are more than 3% defective and that the shipment does not meet quality standards.

Report To Accounts payable

To assure that payment will be made only if the merchandise which the vendor bills has been received in the proper quantity and of acceptable quality, the person making out the check should compare:

  • purchase order
  • receiving report
  • packing slip, when one is received, and
  • invoice from the vendor

These documents should therefore be filed together so they are available when bills are being paid.

FOLLOW-UP

Good purchasing procedures require follow-up evaluation of suppliers, and sometimes even of individual purchases. You should consider whether or not your purchasing objectives have been met and whether you are buying the best overall value in terms of the best quality, prices and service. Did the supplier provide on-time delivery and quality as promised? Were there any considerations which were forgotten in deciding upon the purchase? Did you buy the most economical quantity? Did the supplier satisfactorily resolve any problems which may have cropped up? These are some of the questions you should be asking yourself at this time.

Answers to these questions provide ideas on how purchasing can be improved in the future.

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