Purchasing: Meaning and Principles of Purchasing

Q. What do you mean by Purchasing ? Explain the principles of purchasing.

Ans: MEANING OF PURCHASING: Purchasing is the process of buying material, parts and components, etc., in the right quantity at right time and place for the production of goods. The term purchasing is used in two senses– narrow sense and broader sense. In narrow sense, it means to buy an item and in broader sense it means a manerial activity including planning and policy formulation.

According to Prof. K. Shridhara Bhat & Sowmya R. Rao, “Purchasing refers to the functions of procuring of materials, supplies, machines, requirements, tools, spare parts and services required for meeting the needs of production department and maintenance department.”

As per Prakash Jai, “Purchasing is defined as the activity of acquiring goods and services at optimum cost from a competent and reliable source.”

Purchasing should not be confused with procurement. Purchasing is a narrow term and is included in procurement. Procurement is a broader term and includes the total responsibility of acquiring goods and services. Procurement include additional activities such as supervision, inspection, inventory control, etc. in addition to purchasing.

PRINCIPLES OF PURCHASING: Purchasing is the most important function in all types of firms whether it is small or large doing manufacturing or trading etc. Therefore it is essential that certain principles should be followed at the time of purchasing. These are:

1. Right Quality: Right quality means the suitability of item for the purpose (for which) it is required. It may either be of low quality, medium quality or best quality as per the product to be manufactured. Quality of the final product will depend upon the quality of the input. The quality of the item is expressed in terms of grades. The quality of the materials may be measurable or attributable. The quality can be measured by physical tests or checking, chemical analysis, etc. Use of brand name, standardising specification like height, weight, etc., can be helpful in maintaining quality of materials. The quality needed are specified by the concerned departments.

Factors Affecting Quality: The cost is the major factor which can affect the quality. The parum has to price the product keeping in view the competitors. Therefore, the purchase department cannot purchase the high priced quality items. The second factor is the suitability. A high quality item may not be suitable for production.

2. Right Quantity: The second principle is, purchasing the material in the right quantity. Right quantity refers to the quantity that may be purchased at a time with minimum total cost. When a purchase is made then two types of costs are to beard – one is carrying cost and the another is ordering cost. The purchase manager should maintain a balance between the two to keep the cost of material at minimum. Simulultaneously the material should be made continuously available so that stock short costs could be avoided. Therefore , the purchase manager should use his knowledge, experience and common sense to determine the right quantity.

Classification of Quantity: The order quantity can be classified into three classes:
(a) Economic Order Quantity (EOQ): It helps in determining the right quantity of material. The following formula is used to determine the EOQ.



(b) Bulk Order Quantity: Bulk order quantity means the large quantities. This quantity will be more than the EOQ. It gives the advantage of discount or low prices but increases the carrying and storage cost. 

(c) Arbitrary Order Quantity: the future is uncertain and there may be varying market conditions, uncertain availability of material and funds, uncertain lead time, uncertain consumption. Thus in those cases, the purchase manager has to apply its own discretion and order the material in varying quantities from time to time.

Factors Affecting Quantity: There are different factors like cost of mederial, nature of material, manufacturing process, storage capacity, market conditions, availability of funds, etc., affect to the purchasing quantity.

3. Right Price: The right price doesn't mean the lowest price rather, it is the price which provides value for money. The cost structure of the product can guide to arrive at right price. The right price is that lowest possible price where the item is available as per standardised quality. The right price may differ from person to person, item to item, etc. Although the right price is an individual opinion yet it depends not only on market conditions but also on knowledge of price movements. 

Factors Affecting Pricing: There are certain factors like quantity, quality, delivery time, life of the material, demand and supply curve, competition, discounts, terms of purchase, business relations, after-sales service, etc. which affect the pricing of the product. While making purchase, these factors should be kept in mind to determine the right price.

The organisations generally follow the tender system for making purchase. For obtaining the right price, the following documents can be referred.

(i) Catalogue price

(ii) Quotations

(iii) Previous purchased records

(iv) Letter of offer from supplier

(v) Prevalent market price.

4. Right Time: The time at which the purchase should be made is very important. The right time means the time at which the item should be made available. The right time of making order depends upon the lead time. Lead Time is the time between record recognition of the need and the item available for use. The right time will be the time when the stock reaches the minimum level. The inventory cost involves carrying cost and it goes on increasing in case of holding more stock than required. It will also block the capital of the firm. The chance of waste and obsolcence will also increase. Therefore the concept of right time is very important. 

Factors Affecting Right-Time: The following factors affect right time.

(i) Lead time

(ii) Re-Order Level

(iii) Production cycle

(iv) Market Conditions 

(v) Contingencies 

Today many options such as integrated supply, vendor-held inventory, just in time and other practices are available which require more up-to-the minute supplier flexibility than just meeting a date on purchase order as was in classic delivery model.

5. Right terms or Right Contract: The purchase order, issued by a firm for making purchases, is a legal contract. This contract binds the seller and the buyer with the terms and conditions mentioned on it. Actually the terms and conditions should be mentioned on the quotation letters and tenders. These terms and conditions may be regarding insurance, sales tax, octroi, freight, excise duty, custom duty, etc. Sometimes the terms and conditions mentioned in the contract may too hard to complete. In that case, the suppliers may not send their quotations, etc. 

It decreases the number of suppliers and ultimately the bargaining power of the buyer decreases. It is desirable that separate policies should be followed for making contracts of capital goods and raw materials. The terms and conditions of the contract should not be one-sided and unreasonable.

6. Principle of Right Place: It will be appropriate for the buyer to have the products at the right place. The right place means the place which is most convenient to him from the view point of location of store houses or the place of production or place of plant location. It will help in reducing the cost of internal freight and time. It will also save the items from deterioration due to repeated handling. 

7. Principle of Right Mode of Transportation: Right mode of transportation needs to be identified as this includes the critical cost profile of an item. 

Factors Affecting Right Mode of Transportation: There are three main factors which affect the transportation. These are:

(i) Cost

(ii) Time

(iii) Availability of Alternating Modes. 

Sometimes the material needed to be transported urgently or the nature of material is perishable. Then the week for cost effective mode cannot be opted and has to be sent immediately. Otherwise the least cost mode of transport can be chosen. The availability of alternative modes of transportition is also important and the buyer should have the knowledge of alternatives available. He should make a comparison of costs, schedules, merits and demerits. The transportation affects the quality of service to customers also. If the delivery is made on time to customers, then it will help in improving the image of the concern also.

8. Principle of Right Source: Source means from where the material can be procured. Thus, source is the other meaning of supplier. Selecting the right source or supplier is an important consideration in the materials purchase procedure. Therefore, the purchase manager must investigate and evaluate its possible external suppliers for the specific materials. It is necessary to assess their legitimacy, evaluate their performances, technical abilities and costs. Thus, purchasing department tries to select a responsible and responsive supplier who can provide the best combination of quality, quantity and price at the same time. In addition to that, the delivery time and ability to provide material on time should also be carefully evaluated.

For routine purchases, the purchase department maintains a list of suppliers from whom the purchase may be made. If the purchase is made for the first time for an item, then the suppliers are to be evaluated.

Types of Source: The types of sources are as follows:

(i) Sole Sourcing: It means only one supplier is available. It may be due to several reasons such as technical specification, raw material, location and so on.

(ii) Single Sourcing: It means the selection of one supplier for an item from the several sources available.

(iii) Multiple Sourcing: It means to purchase an item from more than one supplier. It helps in continuity of supply and the lowering of prices due to competition. 

Factors Affecting Selection of Source: The factors like (i) Technical ability (ii) Manufacturing capability (iii) Reliability (iv) After sales service (v) Supplier location (vi) JIT capability (vii) Price and (viii) Other considerations affect the selection of source.

Types of suppliers: The suppliers may be of following types:

(i) Manufacturers 

(ii) Distributors or Commission Agents

(iii) Stockist or wholesalers

(iv) Retailers

Purchasing: Meaning and Principles of Purchasing

Q. Write short notes on the following : (a) Working partner and his remuneration. (b) Assessment as a Firm u/s 184.

Q. Write short notes on the following :
(a) Working partner and his remuneration.
(b) Assessment as a Firm u/s 184.

Ans. 

(a) Working partner and his remuneration 

‘Working Partner’ means an individual who is actively engaged in conducting the affairs of the business or profession of the firm of which he is a partner. A non-working partner may be financing partner, dormant or sleeping partner. 

Sometimes, the amount of remunation payable to each working partner is not specifically is stated in the partnership deed. It contains only the fact that the “ Working partners shall be paid the remuneration permissible u/s 40(b).” Similarly, in some cases it is mentioned in the deed that the remoneration payable to working partners shall be decided at the end of accounting year.

In this connection, the board has clarified that the partnership deed must specifically state the amount of remuneration payable to each working partner or how the remuneration will be computed otherwise no deduction will be allowed u/s 40(b) regarding remuneration to working partners. 

(b) Assessment as a Firm u/s 184

1. A firm shall be assessed as firm, if : OR A firm shall be assessed as firm if it satisfies the following conditions : 

(i) the partnership is evidenced by an instrument.

(ii) the individual shares of the partners are specified in that instrument. 

2. A certified copy of the instrument of partnership deed shall accompany the return of income of the firm for the previous year relevant to the assessment year in respect of which assessment as a firm is first sought.

3. If once a firm is assessed as a firm for any assessment year, it shall continue to be assessed as a firm for every subsequent year if there is no change in the constitution of the firm. 

4. If any change occurs in the previous year, the firm shall furnish a certified copy of the revised partnership deed along with the return of income for the relevant previous year. 

5. If there is, on the part of the firm, any failure to comply with the provisions of section 144 [viz., failure to file the return of income, failure to comply with the terms of a notice issued under section 142(1) or 143 (2)], the firm shall be assessed as a firm. In such a case the following provisions shall apply : 

(a) No deduction by way of payment of interest, salary, bonus, commission or remunration, by whatever name called, made by the firm to its partners shall be allowed in computing, the income chargeable under the head ‘Profits and Gains of Business or Profession’.

(b) Such interest, salary, bonus, commission or remunration shall not be chargeable to tax in the hands of partners under the head ‘Profits and Gains of Business or Profession’ u/s 28(v).

Assessment of firm u/s 185: [K.U 2012M] 

1. Where a firm does not comply with the provision of section 184 for any assessment year, the forum shall be assessed for the assessment year as a firm. 

2. No deduction by way of payment of interest, salary, bonus, commission or remunration, by whatever name called made by the firm to its partners shall be allowed in computing the income chargeable under the head ‘Profits and Gains of Business or Profession’.

3. Such interest, salary, bonus, commission or remunration shall not be chargeable to tax in the hands of partners under the head ‘Profits and Gains of Business or Profession’. [u/s 28(v)].

working partner remuneration assessment as firm section 184 185

Components of Business Environment Explained | Internal and External Environment

Q. Discuss the components of Business Environment in detail.

OR

What do you mean by internal and external environment of business ? How they affect the success of a business ? 

Ans. Business Environment is the sum total of internal and external factors within which the enterprise operates. These factors may have both positive and negative influence on the growth of entrepreneurship. The internal factors are within the control of business whereas the external factors like economic environment, political environment, socio-cultural environment, technological environment, international environment are beyond the control of business. Similarly, competition is external factor which significantly affects the business but is beyond the control of business. The success of business lies in understanding the environmental change and adapting its business policies.

Components of Business Environment: Various factors affecting the success of a business can be categorised in two areas viz, internal factors and external factors. These factors are as follows:

1. Internal Environmental factors: The internal business environment includes factors within the organization that impact the approach and success of an enterprise. Internal environment include five things as man, material, money, machinery, management available with the business. The components of internal environment are usually within the control of the business. Quality of human resources as component of internal environment is largely responsible for success or failure of business unit. Motivated, hardworking and talented workers generally produce better results than unmotivated, less talented employees. If employees of an organisation are skilful and committed towards the the organisation then it can take the business to the big heights. If workers are not satisfied then their efficiency will go down, they may even go on strike and it may badly affect the organisation. In a high performing work place, employees not only have talent but also they work well together.

2. External Environment Factors: External Environment refers to external aspects of the surroundings of the business enterprise which have influence on the functioning of the business. The external aspects of surroundings are beyond the control of the business. The success of a business enterprise depends to a great extent on its awareness about its surroundings, environment and adaptability to changes in the environment. 

External environment factors are as follows:

(A) Micro External Environmental Factors: Operating environment is also known as micro environment or competitive or task environment. These factors can be influenced or controlled by the firm. It consists of company’s immediate environment that affects the performance of the company. It includes suppliers, customers, market intermediaries, competitors and public. 

1. Suppliers: Every business enterprise requires a number of suppliers who supply raw materials and components to the company. If an entrepreneur has no good relation with their suppliers then it affects their enterprise in negative sense. If supplier does not provide raw material to the entrepreneur in time, he cannot produce the goods timely. This creates the negative impact on the outside parties towards an enterprise. So, for success of an enterprise, the entrepreneurs should maintain good relations with their suppliers.

2. Customers: The other micro environmental factor is the customers. For success of an enterprise, the entrepreneurs should maintain good relations with their customers. Success of a business organisation depends upon identifying customers, their needs, tastes, liking, etc. and by enhancing the level of customers’ satisfaction. Because of increase in competition, attracting and satisfying the customers, has become more challenging. For attracting new customer, companies conduct consumer research, design product as per needs and requirements of customer, spend heavily on advertisement, provide after sale services, etc. The task of customer satisfaction has become more challenging with increase in globalisation. With growing globalisation, various multinational corporations are entering into our markets and with the reduction in tarrif duties, more imported products are available in our markets. Hence, customers are becoming more global in their shopping, because they can choose from domestic products and foreign products. So, an entrepreneur special concentration on this area.

3. Market Intermediaries: Like suppliers marketing intermediaries also form an important components of the company’s overall value delivery system. Marketing intermediaries help the company to promote, sell and distribute its products to final buyers. Marketing intermediaries may be individuals or firms or agencies. They include: 

(i) Resellers: Resellers are wholesalers and retailers who buy and sell merchandise. They help the company to find the customers and make sales to them.

(ii) Physical Distribution Firms: They include, media firms, warehousing and transport agencies, shipping companies, purchase agents, etc. They help the company to stock and move goods from their point of origin to their destinations.

(iii) Marketing Services agencies: They include, media firms, advertising agencies, marketing research agencies, marketing consultancy firms, etc. They help the company to target and promote its products to the right markets.

(iv) Financial intermediaries: They include Bank credit and finance companies, Insurance companies and other financial service agencies that help in financial transaction or insure against the risk associated with the buying and selling of goods.

So, this is area which can decide the future of the business. An entrepreneur should keep in mind all these points, for successful running of a business.

4. Competitors: Competitors are those individuals and firms who sell similar goods and services in the same market. It is therefore, necessary to build an efficient system of marketing. No single competitive marketing strategy is best for all companies. Each entrepreneur should consider its own size and industry position compared to those of its competitors. Large firms with dominant position in the industry can use certain strategies that smaller firms cannot afford. Therefore, small firms can develop strategies, which give them better rates of return than large firms. The competitive environment consists of many things, which every businessman must take into consideration, while studying the marketing environment and for achieving success in the business.

5. Public: Public is any group that has actual or potential interest in the business. Broadly speaking, it includes the followings:

(i) Financial Public: It includes banks, investors, shareholders, etc. They influence the company’s ability to obtain funds.

(ii) Media Public: It includes newspapers, magazines, radios and television, etc. They carry news, features and editorial opinion about the company.

(iii) Government Public: It includes Government departments and agencies. Entrepreneur must often consult with lawyers and experts on the issues of product safety, truth in advertisement and other matters.

(iv) Internal Public: It includes managers, workers and other employees of the company. Large companies use newsletters and other means of information to inform and motivate their internal public. When employees good about their company, this positive attitude spills over to external public.

(v) Local Public: It includes neighbourhood residents and community organisations. Large companies generally appoint a community relation officer as P.R.O. to deal with the community. They attend meetings, answer questions and contribute for public cause.

So, it is clearly understandable that these factors can change the direction of the business. To achieve success, it becomes necessary for the entrepreneur to understand the importance of this factor and work accordingly.

(B) Macro Environment Factors: Macro Environment means general environment of business. It consists of demographic, economic, social, cultural, political, legal, technological and physical factors which influence marketing policies and operations. 

Macro Environment factors includes the following:

1. Economic Environment: By economic environment, we mean the purchasing power and desire to spend the income by the consumers, which results in effective demand, which in turn, influenced by economic conditions. Hence, economic conditions play a significant role in the success of the business. Economic environment refer to those factors which have impact on the working of business viz., economic system, economic policy, nature of economy, trade cycles, economic resources, level of income, distribution of income and wealth, statutory provisions, etc. Economic environment is very complex in nature. It is very dynamic. It keeps on changing with the change in government policies, change in political situations, etc. It contains the following: 

(i) Economic System: An economy system is a way in which an entrepreneur is organised to decide the following three basic questions of the economic organisation. 

● What product should be produced and in what quantities?

● How should the products be produced?

● For whom should the products be produced?

The economic system of a country may be as follows:

(a) Capitalism: Such economy is dominated by private sector. Here private sector has much important role in economic activities. It is also called open economy. e.g. economy of USA, UK.

(b) Socialism: Such economies are state owned economies. Government plays major role in economic development of such economies.

(c) Mixed Economy: In such economies, both public and private sector co-exist.

(ii) Economic Policies: Macro economic policy as determined and changed from time to time impacts business conditions more directly. The policy design can be a response to actual economic conditions or problems or to create a favoritable conditions in the near future. The basic objective of this policy is to stimulate or maintain growth, achieve economic stability, increase employment, stabilize balance of payments, correct regional imbalances and make the economy more competitive.

Important economic policies are: (a) Monetary policy (b) Fiscal policy (c) Export Import policy (d) Foreign Investment Policy (e) Industrial Policy (f) Industrial Licensing Policy. 

Besides these policies, Government has also framed legislation which regulates and controls the business. The main legislation regulating the business are as follows:

(a) Industrial Disputes Act, 1947

(b) Factories Act, 1948

(c) Industrial Development and Regulation Act, 1951

(d) Companies Act, 2013

(e) Consumer Protection Act, 1986

(f) Foreign Exchange Management, 1999

(g) Securities and Exchange Board of India Guidelines, 2000

(h) Competition Act, 2002

(iii) Economic Conditions: Economic environment exercises the most direct and immediate influence on entrepreneurship. Capital, labour, raw material and markets are the main economic factors. 

(a) Capital: Capital is one of the most important pre-requisites to establish an enterprise. Availability of capital facilitates the entrepreneur to bring together the labour of one, machine of another and raw material of another to combine them to produce goods. Capital is, therefore regarded as lubricant to the process of production. With an increase in capital investment, capital output ratio tends to increase. This results in increase to profits which ultimately goes to capital formation.

(b) Labour: The quality of Labour is another factor which affects the birth of entrepreneurship. Division of labour depends on the size of market leads to improvement in the productive capacities of labour due to an increase in the dexterity (skill) of labour. So, labour problem does not prevent entrepreneurship from emerging. 

(c) Raw Material: The necessity of raw materials hardly needs any emphasis for establishing any industrial activity and therefore its influence in the emergence of entrepreneurship. In the absence of raw materials neither any enterprise can be established nor can an entrepreneur emerge.

(d) Market: The size and composition of market both influence entrepreneurship in their own ways.

An entrepreneur must understand the type of economic system, various policies, Act, regulations of the government. All these factors are very important as they decide the success of a business. These may not be in the control of businessman, but he can be in safer zone by understanding them.

2. Political Environment: Political environment of the economy affects different units significantly. Political environment mainly includes the following:

(i) Political ideology of government 

(ii) Political stability in the country 

(iii) Relation of government with other countries 

(iv) Defence and military policy

(v) Welfare activities of government 

(vi) Centre state relationship

(vii) Thinking of opposition parties towards business 

Political ideology of government refers to the political thinking, approach and vision of the government towards various economic and  social activities of the country. Political ideology affects the business unit. It decides as to what type of business activities should the country have, what areas should be opened for private sector, what should be reserved for public sector. Laws and regulations covering all aspects of business are enacted by the government. 

In order to be a successful entrepreneur, it is expected to have a close look on the political environment of the country. This will always be helpful for him, as he will act according to the changing environment.

3. Socio-Cultural Environment: Business is an integral part of society and both influence each other. Social and cultural environment refers to influence and exercise by certain social and cultural factors which are beyond the control of business unit. Such environment includes:

(a) Attitude of people at work

(b) Family system

(c) Caste system

(d) Religion 

(e) Education

(f) Marriage

(g) Habits and preferences

(h) Languages

(i) Urbanisation

(j) Customs and traditions

(k) Value system

(l) Social responsibility of the business 

Social-Cultural environment influence the business in the long run. Our society is ever changing. New demands are created and old ones are lost. It is a essential for the success of business to prepare marketing plan according to the changing need of the society and thereby satisfy new social demands. Main aspects of social environment are: 

(a) Change an our lifestyle and social values e.g. changing role of women emphasises on quality of goods instead of quantity of goods, more preferences to recreational activities etc.

(b) Major social problem e.g. concern for pollution, need for safety in products, social responsible marketing etc.

(c) Growing consumerism is the symbol of increasing desires of the consumers. The growing consumerism is the result to two primary factors: (a) Increasing educational level of consumers (b) Scientific and technical progress. 

So, an enternepreneur is also expected to be aware about the changing social cultural environment. This will help him to achieve and maintain the success of his business.

4. Technological Environment: Technology represents the application of scientific knowledge for practical purpose. Information technology tools such as computers and mobile phones for processing, storage and transfer of data, internet communication have increased in recent years. An entrepreneur should consider the technological environment because changes in technology are uncontrollable.

The success of every business in future depends upon the factor that how efficiently they adopt the technological change. This area is the most crucial one and cannot be ignored at any cost.

5. National Environment: It includes geographical and ecological factors such as natural resources, weather and climatic conditions, port facilities to topographical factors such as soil, land forms, sea, rivers, rainfall, water pollution etc. Climatic and weather conditions affect the location of certain industries like textiles industry in maharashtra and gujarat. Similarly, geographical factors affect the location of certain industries, like iron and steel industries is located near raw material source in Bihar and Orissa. Sugar industry has been set up near to those areas where sugarcane is cultivated. Exports oriented industries are located near ports so that transportation cost can be minimized

Weather and climatic factors affect the demand pattern for clothing, building material, room heaters, air conditioner etc. Ecological (environmental) have also become significant in the study of business environment. Environment pollution in the form of air pollution, water pollution and noise pollution have caused disturbances in ecological balance. The entrepreneur must keep in mind geographical factors, pollution factors. In brief it includes:

(i) Climatic and weather conditions 

(ii) Availability of natural resources 

(iii) Topographical factors, physical features of a place

(iv) Pollution control 

(v) Location aspect

(vi) Port facilities 

Success of business is undoubtedly affected by these factors collectively. Ignorance of any of these factors may adversely affect the business unit. So an entrepreneurial project should be established after considering all these factors.

6. Demographic Environmental Factors: Demographic environment is the study of features of population viz. its size, its growth rate, age composition, sex composition, income level, education level, family size, family structure, etc. All these demograhic factors affect size of demand, taste, fashion, liking, preferences of consumer, etc. Demographic environment differs from country to country and from place to place within the same country. Important demographic factors are:

(i) Size of population and population growth

(ii) Age compososition

(iii) Sex composition 

(iv) Education level

(v) Family size and structure 

(vi) Economic satisfaction of population 

(vii) Urban-Rural population 

All the demograhic factors affect the success of every venture. Giving less weightage to these factors or ignoring these factors can lead to the failure of the business. So, demograhic factors always remain an area of concern of every entrepreneur.

7. International Environment: The international environment is particularly important for industries directly depending on import or export. The present era is of globalisation. At the company level, globalization means two things (a) the company commits itself heavily with several manufacturing locations around the world (b) it also means ability to compete in domestic markets with foreign competitors. It has been observed that major international development has its impact on domestic market. For example, due to globalisation, Indian electronic market has depressed, oil price hikes have increased the cost of production of certain industries like fertilizers, synthetic fibers, etc. If a enterprise has to survive in the open market, it has to modify its products according to different customers,  needs and tastes. They must acquaint themselves at the advanced means of transport and communication, foreign languages, currencies of different countries, legal provision, etc. 

If a business is prevailing in international market and acquaints itself with the changing environment, the success rate will be higher. They will earn more and more profit. So, they should consider these factor with right perspective.

Selection Sales Force: Meaning, Process and Stages Selection

 Q. What do you understand by selection of sales-force ? Explain various stages involved in the selection of sales force.

Ans. Meaning of Selection of Sales Force: Selection is the process of determining whether an applicant meets the qualification for a specific job and choosing the applicant who is most suitable to the organisation. Selection is a process by which qualified personnel are chosen out of applicants who have offered their services to the organisation for seeking employment. It is a negative process of employment by which few are selected and others are rejected. A well organized selection procedure involves many steps and a decision to reject a candidate can be made at any of these steps. Selection process attempts to reject unsuitable candidates, leaving only the best to be taken in the organisation.

In the words of Dale Yoder, “Selection is the process in which candidates for employment are divided into two classes those who are to be offered employment and those who are not.”

In brief, selection is the process of rejecting unfit candidates from the large number of candidates provided by recruitment process.

Selection Process – Selection process may have following steps: 

(1) Receiving Applications: The first step in the selection process is receiving applications from prospective candidates. The application form usually contains information like name of applicant, date of birth, sex, address, educational qualifications, experience, minimum acceptable salary, marital status, references etc. (References – for character viewpoint. References should not be in blood relations.) Application form gives a preliminary idea of the candidate and helps the interviewer in formulating questions. Application form should be simple and it must have all such points for which preliminary information is needed. On the basis of such information, the management screens out the undesirable applicants.

(2) Selection Tests: After eliminating undesirable applicants, the selection tests are conducted to evaluate different types of skills and qualities of applicants.  Basic assumption of these tests is that individuals differ in their abilities and skills and these skills can be accurately measured by various tests such as mental ability test, aptitude test, achievement test, interest test, etc. At this stage, the candidates with poor performance in the tests are eliminated. These tests help to know applicant’s mental ability, word fluency, speed of perception, ability to learn new jobs, etc.

(3) Interview: The main objective of interview is to obtain additional information which is not available in application form or selection tests. The purpose of the interview is to determine the suitability of applicant for job and of the job for the applicant. For recruiting sales personnel, interview is a very important step of selection process as we come to know the conversation capabilities, speech fluency, confidence and personality of candidates. Interview must be conducted in a friendly atmosphere and candidate must be made to feel at ease. Unwanted questions should be avoided. It is better to ask questions mainly based on job-specification. The interviewer should also verify the information supplied by the interviewee in the application form. The place of the interview should be comfortable and free from interruption. After all the candidates have been interviewed, a panel of selected candidates is prepared according to their merit. In this stage also undesirable candidates are rejected. The interview can be of following types:

(a) Structured Interview: Interviewer prepares a list of questions to be asked in advance on the basis of job specification.

(b) Unstructured or Free Interview: In this method, no list of specific questions is prepared in advance. The applicant is encouraged to talk freely. Experts opine that this technique is better for probing individual’s personality in depth. 

(4) Reference Check: Generally candidates are asked to give names of two or three references in their application forms. The references are contacted to know the character, conduct, behaviour of prospective candidates. The reference should be reputed persons holding reposible position. Moreover certificates/degrees are also checked from the records of colleges/universities/professional institutes. The experience of candidates can be checked by contacting previous employers. This step also helps to drop unsuitable candidates supplying wrong information or employees of doubtful character and conduct.

(5) Medical or Physical Examination: Certain jobs require more strength, travelling and involve tough working conditions. Physical examination reveals whether or not a candidate possesses these qualities. Those who are physically unfit are rejected. Medical examination prevents the employment of those candidates who suffer from some type of contagious disease. The medical examination tests can be with regard to weight, height, heartbeat, blood pressure, mental-balance, ENT, eyesight, etc. A person with poor health remains absent more frequently than a healthy person. It is important to select salesman possessing good health because he has to travel for long periods and has to make numerous sales calls.

(6) Selection and Placement: If the candidate is found suitable in above stages, then he will be selected, first on probation basis, and if his performance remains satisfactory in that period then either his probation period is extended for future review or further training is provided or he may be dropped. 

After initially selecting a person, he will be inducted in the overall organisational structure, and he is explained regarding history, customs and traditions of the company. He is introduced to his colleagues, he is told about his authority, responsibility, superiors and subordinates. He is also shown the necessary facilities such as canteen, rest-room, etc. The selected employee should be properly inducted before starting his work.