The Procurement Process

Chapter 4
The Procurement Process
1 Magal and Word | Integrated Business Processes with ERP Systems | © 2011
Learning Objectives
1. Describe the major organizational levels associated with the
procurement process.
2. Discuss the four basic categories of master data that are
utilized during the procurement process.
3. Explain the key concepts associated with the procurement
process
4. Identify the key steps in the procurement process and the
data, documents, and information.
A Basic Procurement Process
Outline
 Organizational data
 Master data
 Key concepts
 Process
 Reporting
Organizational Data
 Client
 Company code (CC)
 Plant
 Storage location (S Loc)
 Purchasing organization (P Org)
 Purchasing group
Plant
 Many definitions or uses. A location
 That holds valuated stock (for distribution)
 Where production planning is carried out
 Where products and services are created
 That contains service or maintenance facilities
 Factory, warehouse, distribution center
 Can be assigned to one CC only
 A CC can have many plants
Storage Location
 A place, within a plant, where materials are stored
 Areas designated for different types of material (raw material,
work-in-process, finished goods)
 More sophisticated divisions including storage bins, cabinets,
trays
 A plant must have at least one storage location
 A storage location can belong to only one plant
GBI Storage Locations
Purchasing Organization
 Identify and select vendors
 Negotiate general conditions of purchase and contracts for
one or more plants or companies.
 Determine pricing conditions
 Typically three models for Purchasing Organization
 Enterprise-Level
 Company-Level
 Plant-Level
Enterprise-Level Purchasing Organization
 Also known as cross-company code model
 One Purchasing Organization assigned to all CC in a client
 Purchasing for all plants across all CC
 Highly centralized – corporate Purchasing Org
Enterprise-Level Purchasing Organization
Company-Level Purchasing Organization
 Also known as cross-plant model
 Different Purchasing Organizations are assigned to each CC
 Purchasing for all plants in one or more CC
Company-Level Purchasing Organization
Plant-Level Purchasing Organization
 Also known as plant-specific model
 Each plant has its own Purchasing Organization
 Highly decentralized
Plant-Level Purchasing Organization
Reference Purchasing Organization
 One centralized Purchase Org for high-level decisions across
the enterprise
 Multiple CC-specific and plant-specific Purchase Org
Purchasing Group
 A buyer or group of buyers responsible for certain materials
or groups of materials
 Can be internal to the company or external
 Decide to purchase land, but use a realtor (external purchasing
group) to execute the purchase
 Not assigned to or related to purchasing org
Master Data
 Material Master
 Vendor Master
 Purchasing info record
 Conditions
Material Master
 Data needed to execute transactions related to materials
(along with org data)
 Data are grouped by different user areas (views)
 Data are specific to (defined for) for different organizational
levels
Material Master – Views
 Basic data  Plant / Storage
 Purchasing  Work Scheduling
 Accounting  MRP
 Forecasting  Classification
 Sales  Warehouse Management
Material Master – Views
 Basic data
 Description, unit of measure, weight, material group
 Purchasing
 Purchasing group, GR processing time, delivery (under / over)
tolerances
 Accounting
 Currency, valuation class (link to G/L), price control (moving
price, standard price, future price)
 Plant / Storage
 Storage requirements (hazard, temperature, etc.)
 Shelf life
 Weight, volume
Material Master - Views
 Views for other processes
 Forecasting (Material Planning process)
 Sales (Fulfillment process)
 Work Scheduling (Production process)
 MRP (Production process)
 Classification (PLM process)
 Warehouse Management (WM process)
Material Master - Views
 Different material types have different required views
 Examples:
 Raw material: no sales view
 Finished Goods: no purchasing view
 Trading goods: no production related views
Material Master – Org Levels
 Defines the level at which the master data is maintained
 Can have different data for different combinations of Org
data
 Purchasing: Plant, storage location
 Sales: Sales Area (Sales Org, Distribution Channel)
 Warehouse: Warehouse #, storage type
 Example:
 SHRT1000 + MI00+ TG00
 SHRT1000 + SD00+ TG00
 SHRT1000 + US00 + Wholesale channel
 SHRT1000 + US00 + Internet channel
Vendor Master
 Data needed to do business with vendors
 Data needed to execute transactions related to vendors
(along with org data)
 Data are specific to (defined for) different organizational
levels. The three segments are:
 Client level data (General)
 Company code level data (Accounting)
 Purchasing organization level data (Purchasing)
Vendor Master Segments
Data in the Vendor Master
Vendor – General Data
 Client-level data
 Valid across all CC in a client
 Examples
 Name,
 Address
 Communication (phone, fax)
 Search term
Vendor – Accounting Data
 Company code specific data
 Valid for the entire company code across purchasing areas
 Examples
 Account information
 Bank information
 Reconciliation account
 Payment terms and methods
 Communication (dunning)
Vendor – Purchasing Data
 Separate for each Purchasing Organization
 Applies to the specified Purchase Org
 Examples
 Partner functions (vendor, invoicing party, payment recipient)
 InCoTerms: defines responsibilities and costs of shipment
 Freight, insurance, customs clearance, locations
Purchasing Info Record
 Relates vendors and materials.
 One info record per combination of vendor and material (or
material group)
 General data
 Conditions: pricing, discounts, free goods (current and future)
 Vendor data
 Texts (notes)
Conditions
 Pricing Conditions
 Gross price
 Discounts and surcharges
 Freight / shipping
 Obtained from
 Purchasing info records
 Contracts and agreements
 Other sources
Key Concepts
 Item categories
 Account determination
 Stock type/status
 Goods movement
Item Categories
 Defines the process used to procure the item
 Categories
 Standard
 Subcontracting
 Components provided; finished product received
 Consignment
 Liability only when withdrawn from stock
 Service
 Stock transfer
 Third party order
 Ship to third party; bill to us (drop shipment)
Account Determination
 Account assignment categories
 Used when purchasing material without material master
 Assets, Production Order, Cost Center, Sales, Order, Project
 Automatic GL account determination based on category
Purchase for Stock vs. Consumption
Stock Types / Status
 Based on usability of material
 Unrestricted use
 In quality inspection
 Blocked stock (damaged, unusable; wrong delivery)
 Stock in transit
Goods Movement
 A transaction that causes a change in stock (value or status)
 Categories of Goods Movement
 Specific Movement types
Structure of a Material Document
Goods Movements
 Goods Receipt
 From vendor or production process
 Increase in quantity and value of stock
 Goods Issue
 To sales order or internal consumption
 Decrease in warehouse stock
 Stock Transfer
 Physical movement of material between storage locations
 Sloc to Sloc
 Plant to Plant
 CC to CC
Goods Movements
 Transfer Posting
 Results in a change in material status
 In-quality inspection/ blocked/ unrestricted use
 One material type to another
 May or may not include a change in location (Sloc, plant)
A Detailed Procurement Process
Process Steps
 Trigger
 Data
 Task details
 Outcomes
Elements of the Purchase
Requisition Step
Purchase Requisition
 Trigger
 Other processes
 Manually
 Data
 User input: Dates, materials, quantities
 Master data: Material master, Vendor, Info record
 Organizational data: Client, CC, P Group
 Task details: none
 Outcome/Output
 Document: Purchase requisition
 Subsequent steps
 Purchase Order
 RFQ – Request for Quotation
Data in a Purchase Requisition
Converting a Purchase Requisition
to a Purchase Order
Elements of the Purchase Order Step
Purchase Order
 Creation
 Manually or automatically
 With or without reference to other documents
 Data
 Documents: Purchase requisition, Purchase order, RFQ,
Quotation
 Master data:
 Material (characteristics)
 Vendor (terms)
 Info record (pricing)
 Conditions (pricing)
Data in a Purchase Order
Purchase Order
 Tasks
 Data automatically included from input sources
 Source determination using info records, agreements and
contracts, and source lists
 Outcomes
 Purchase order
 Purchase requisition history – PO added
 Communicate
 with vendor (external procurement) using messages: fax, EDI,
print
 Plant (internal procurement) using transfer orders
Purchase Requisition to Purchase Order
Communicating with vendors
Purchase Order Processing Options
Elements of the Goods Receipt Step
Goods Receipt
 Data
 Documents: PO, Delivery document (packing list)
 Master data
 Task
 Verify materials receipt
 Create Goods Receipt GR) document
 Outcomes
 Material documents
 Header: Document number, date, reference
 Details (items): Material, quantity, location, movement type
 Financial Accounting documents
 Header: Document number, date, reference, currency
 Details (Items): GL accounts, description, amount
Goods Receipt
 Outcomes
 Notifications
 Material master: stock and value
 GL accounts (Stock/Consumption, GR/IR)
 PO history – Material document added
 Quality management
 Quality inspection lot
 Warehouse management
Data In The Goods Receipt Step
Financial Impact of Goods Receipt
Material and Accounting
Documents from a Goods Receipt
Elements of the Invoice Verification Step
Invoice Verification
 Data
 Vendor invoice
 Purchase order
 Material document
 Tasks
 Three-way match
 Outcomes
 Financial Accounting documents
Data needed for Invoice Verification
Invoice Verification
 Outcomes
 GL: vendor account, A/P, GR/IR
 PO history - invoice document added
 Material master :
 Stock value,
 Moving average price (if using moving price vs. standard price)
Financial Impact of Invoice Verification
Elements of the Payment Step
Payment Processing
 Creation: manually or via automatic payment program
 Data
 Three-way match (or other process)
 Payment method, account, items to pay,
 Tasks
 Calculate payment amount (discounts)
 Post payment document (accounting document)
Payment Processing
 Outcomes
 Financial Accounting Documents
 Payments (checks, Electronic Funds Transfer(EFT),
notifications)
 Updates
 GL accounts
 Material master :Moving average price (if using moving price vs.
standard price)
Data needed for Vendor Payment
Financial Impact of Vendor Payment
Integration With Other Processes
Reporting
 Source of data
 Instance level reporting (status)
 Process level reporting
 Lists and reports
 Purchasing Information System
Reporting - Sources
 Organizational data
 Master data
 Transaction data (documents)
 Purchasing documents
 Material documents
 Accounting documents
 Invoice documents
Reporting - Instance
 Status of a Requisition, Purchase Order
List of Invoices
Work List – List of Requisitions
Reporting - Standard
 Process level reporting
 Standard reports / List displays
 Logistics Information System
Reporting – Logistics Information System
 Components
 Purchasing Information System
 Sales Information System
 Quality Management Information System
 Inventory Control
 Transportation Information System
 Shop Floor Information System
 Plant Maintenance Information System
Reporting – Logistics Information System
 Information Structures
 Special tables of statistics from various modules that is
constantly updated
 Selection criteria (types of information)
 Key figures: variables of interest
 Quantitative values on measurable facts
 Numbers (of orders, deliveries)
 Quantities (of material)
 Cost, delivery time
 Characteristics: used to organize key figures
 Vendors, material, organizational levels
 Timeframe: day, week, month, etc.
Standard Analysis
Flexible Analysis

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Chapter 4

The Procurement Process

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