erp 1 &2 text book

Chapter 4: The Procurement Process

Learning Objectives

  • Define functional organizational structures and issues for modern businesses.

  • Describe key business processes within an organization.

  • Identify integration points between processes.

  • Understand the cross-functional nature of processes.

  • Apply an integrated view to business processes.

  • Describe the organizational structure of Global Bike Incorporated (GBI).

  • Explain how the SAP ERP system enhances integrated business processes.

The Functional Organizational Structure

  • Commonly structured into departments responsible for specific activities:

    • Accounting: Involved in payments and receipts.

    • Warehouse: Responsible for inventory management and shipping.

    • Other departments include Operations, Sales & Marketing, R&D, Finance, HR, and Information Systems.

  • Integrated business processes, like procurement, cross these departments and require collaboration.

The Silo Effect

  • Result of functional separation causing workers to focus narrowly on tasks without understanding sequence and impact on others.

  • Creates coordination challenges as business processes require end-to-end collaboration across departments.

Enterprise Systems

  • Vital to manage cross-department processes effectively.

  • SAP ERP as an example integrates processes (e.g., purchasing, procurement, fulfillment, and financial accounting).

  • Investments in ERP systems have proven to enhance productivity, efficiency, and competitive edge.

Key Business Processes

  • Procurement Process (Buy): Activities involved in acquiring materials needed to produce goods.

  • Production Process (Make): Creation of products from raw and semi-finished materials.

  • Fulfillment Process (Sell): Selling and delivering products to customers.

  • Support Processes: Include HR management and project management.

  • Financial Processes: Track and manage financial performance.

Procurement Process Overview

  • Triggered by need for materials (e.g., low inventory).

  • Major steps include:

    • Requirements Determination: Identifying materials needed based on various triggers.

    • Source of Supply Selection: Choosing between internal or external suppliers.

    • Order Processing: Creating and sending purchase orders.

    • Goods Receipt: Recording arrival and condition of materials.

    • Invoice Verification: Ensuring accuracy of received invoices against orders.

    • Payment Processing: Finalize payment to suppliers.

Organizational Data in Procurement

  • Key Levels: Client, Company Code, Plant, Storage Locations, Purchasing Organization, Purchasing Group.

  • Storage Locations: Where materials are stored within a plant; include various types for specific material needs.

  • Purchasing Organization: Manages purchasing across plants and is categorized into enterprise, company, and plant levels.

Master Data in Procurement

  • Material Master: Groups data regarding materials; includes characteristics relevant to purchasing.

  • Vendor Master: Contains essential information on suppliers necessary for transactions.

  • Purchasing Info Records: Link between material and vendor to track pricing and terms.

  • Conditions: Data specifying pricing, discounts, and periods tied to vendors.

Key Concepts in Procurement

  • Item Categories: Define type of purchase and associated process steps (e.g., standard items, consignment).

  • Account Determination: Automated system choice of inventory accounts during procurement based on material master data.

  • Goods Movements: Transaction types involving materials transfer (goods receipt, goods issue, etc.).

Steps in the Procurement Process

  1. Requirements Determination: Creation of purchase requisition based on inventory triggers.

  2. Source of Supply Determination: Selection of vendors via a source list, RFQ if unknown.

  3. Order Processing: Creation of purchase orders from requisitions or vendor quotes.

  4. Goods Receipt: Recording transactions upon receiving materials.

  5. Invoice Verification: Matching invoices, POs, and material receipts for accuracy.

  6. Payment Processing: Executing payments to vendors.

Integration with Other Processes

  • Procurement integrates with financial accounting, impacting several financial statements and documents created through processes like goods receipt and payment.

  • Reports generated from procurement data facilitate managerial decisions.

Reporting Options

  • Online Lists: Standard reports showcasing current transactions such as invoices and purchasing orders.

  • Work Lists: Display pending tasks such as open requisitions.

  • Purchasing Information Systems: Generate analyses combining purchasing data to assess vendor performance and improve purchasing processes.

Summary

  • The procurement process includes comprehensive steps from determining material needs to final payments and has financial implications across the organization.

  • Essential to maintain accurate organizational and master data for effective procurement management.