## Materials Procurement Procedure

Procurement follows a documented chain: BOM → MRN → RFP/NIT → Purchase Order → GRN → Invoice Verification.

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### 1. Bill of Materials (BOM)

Also called Material Specification List or Material List.

Prepared by the Engineering/Planning Department.
States exact description, specifications, and standard quantities for a job/production unit.
5 copies distributed to: Marketing/Purchase, Production, Stores, Cost/Accounts, and one retained.

Department	Use of BOM
Marketing/Purchase	Basis for procurement
Production	Planning production volume and scheduling
Stores	Reference when issuing materials
Cost/Accounts	Estimating cost; verifying purchases, issues, usage

### 2. Material Requisition Note (MRN)

Authorises the storekeeper to issue materials to a consuming department.
Prepared by the Foreman of the consuming department (or Planning Dept if no foreman).
Cannot replace a BOM; records actual material drawn (useful for historical cost only).

BOM vs MRN — Key Differences

Feature	BOM	MRN
Prepared by	Drawing/Engineering office	Foreman of consuming dept
Nature	Standard schedule of all components	Authority to issue specific items
Can replace the other?	BOM can serve as stores requisition	MRN cannot replace BOM
Use	Quotations, quantity control, planning	Historical/actual cost recording

### 3. Purchase Order

Written request to supplier specifying materials, rates, delivery period, and terms.
Prepared by the Purchase Manager.
5 copies: Supplier, Stores/Indenting Dept, Receiving Dept, Accounts Dept, Purchase Dept (file copy).

### 4. RFP / Notification Inviting Tender (NIT)

Before issuing a purchase order, the purchase department answers:

1. What to purchase? 2. When? 3. How much? 4. From where? 5. At what price?

GeM (Government e-Marketplace): Mandatory for government/PSU procurement; offers e-bidding, reverse e-auction, demand aggregation.
Transparency scrutinised by CVC and CAG.
Comparative statement prepared to evaluate quotations on price, quality, delivery, payment terms.

### 5. Receipt, Inspection & Payment

Goods Received Note (GRN): Raised when materials match the purchase order — distributed to Stores, Purchase, Accounts.
Material Returned Note: Raised when materials are damaged or incorrect — goods sent back to vendor.
Invoice verification: Accounts section cross-checks quantity (vs GRN) and price (vs PO) before approving payment.

Worked example

### Example 1

Example — Flow for a manufacturing order: A furniture company receives a customer order for 100 chairs. Engineering prepares a BOM listing 300 metres of timber, 400 screws, and 100 sets of upholstery fabric. Purchase raises an RFP, selects a vendor by comparative statement, issues a Purchase Order. On delivery, Stores inspects the timber and raises a GRN. Accounts cross-checks the vendor invoice with the GRN and PO before releasing payment.

### Example 2

Example — MRN in action: The production foreman needs 50 kg of timber from stores mid-production. He fills an MRN referencing the job order number. The storekeeper issues the timber and records the issue in the Bin Card. This 50 kg is traceable to the specific job in the Stores Ledger.

⚠️ Common exam mistakes

Saying a BOM can be replaced by an MRN — it is the other way around: a BOM can serve as a stores requisition, but an MRN cannot replace a BOM.
Forgetting that 5 copies of a Purchase Order are generated (not just one for the supplier).
Confusing the GRN (raised when goods are acceptable) with the Material Returned Note (raised when goods are rejected/returned).

Reference:

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Materials Procurement Procedure — BOM, MRN, Purchase Order, RFP/NIT, GRN

Worked example

⚠️ Common exam mistakes