Presentation on theme: "The Purchasing Process"— Presentation transcript:
1 The Purchasing Process Chapter 1The Purchasing Process
2 Learning Objectives Purchasing Process Know the definition and basic functions of the purchasing processUnderstand the relationship between the purchasing and its environmentAchieve a reasonable understanding of the logical and physical characteristics of a typical purchasing processBecome familiar with some of the technology used to implement the purchasing processKnow some process controls and the plans used to control a typical purchasing processPurchasingProcess
3 Purchasing Spoke on AIS Wheel In this chapter, we spotlight one business process, the Purchasing ProcessWe will describe the various users of the purchasing process, each having their own view of the enterprise system and enterprise databaseIn addition, we will analyze the process controls related to the purchasing process
4 Process Definitions and Functions The purchasing process is an interacting structure of people, equipment, methods, and controls that is designed to accomplish the following primary functions:Handle the repetitive work routines of the purchasing department and the receiving departmentSupport the decision needs of those who manage the purchasing and receiving departmentsAssist in the preparation of internal and external reports
5 Internal Perspective of Purchasing Process 1. Purchase requisition sent from inventory control department to purchasing department
6 Internal Perspective of Purchasing Process 2. Purchase requisitions from various other departments sent to purchasing department
7 Internal Perspective of Purchasing Process 3. Purchase order sent to vendor
8 Internal Perspective of Purchasing Process 4. Purchase order notification sent to various other departments or to inventory management process
9 Internal Perspective of Purchasing Process 5. Purchase order notification sent to receiving department
10 Internal Perspective of Purchasing Process 6. Purchase order notification sent to accounts payable process
11 Internal Perspective of Purchasing Process 7. Good and services received from vendor
12 Internal Perspective of Purchasing Process 8. Receiving notification sent to accounts payable and general ledger processes
13 Internal Perspective of Purchasing Process 9. Receiving notification sent to purchasing department
14 Goal Conflicts and Ambiguities in the Organization Individual managers’ goals may not be in congruence with organizational objectivesPurchasing may buy large quantities of inventory for quantity discounts and to reduce ordering costsThis may drive up costs of receiving, inspecting, and carrying inventoryAmbiguity often exists in defining goals and success in meeting goals.A purchasing goals might be to select a vendor who will provide the best quality at the lowest price by the promised delivery dateRealistically, one vendor probably will not satisfy all three conditionsPrioritization of goals is necessary in choosing the best solution given the various conflicts and constraints placed on the processTrade-offs are made in prioritizing among the goals that conflictIf the market is sensitive to satisfying customer needs, the company may pay higher prices to ensure that it is procuring the best quality goods and obtaining them when needed
16 Purchasing and the Supply Chain The supply chain is the system of adding value beginning with acquiring raw materials (purchasing) and ending with product field supportOrganizations attempt to achieve maximum value added in all the supply chain activitiesInternet purchases are driving down purchasing costsSupply chain management (SCM) software assists with demand planning, one of the most important areas of supply chain management
17 2 categories of SCM Software Supply chain planning softwareAccumulates data about orders from retail customers, sales from retail outlets, and data about manufacturing and delivery capability to assist in planning for each of the SCM steps.Supply chain execution softwareAutomates the SCM steps.ERP software is assigned to this category as it receives customer orders, routes orders to an appropriate warehouse, and executes the invoice for the sale.Many of the connections between players in the supply chain are B2B automated interfaces.For example, the sourcing step may be implemented through an automatic order sent to a supplier via the Internet.
18 Benefits of Managing the Supply Chain Lower costs to the customerHigher availability of productHigher response to customer request for product customization and other specificationsReduced inventories along the supply chainImproved relationships between buyers and sellersSmooth workloads due to planned goods arrivals and departures, leading to reduced overtime costsReduced item costs as a result of planned purchases through contracts and other arrangementsIncreased customer orders due to improved customer responsivenessReduced product defects through specifying quality during planning and sharing defect information with suppliers during execution
19 Things that can go wrong in SCM initiatives Data not collected or not shared across functional boundariesLack of sharing of information between supply chain partnersInaccurate data in the supply chain negatively affects the entire chain.Over-reliance on demand forecasting that may be inaccurateGood demand forecasting requires an intelligent combination of software tools and human experienceCompeting objectives can lead to unrealistic forecasts.Marketing may want a high target to ensure a successful productThis may be unrealisticTherefore promotion and production budgets will be inaccurateSales, on the other hand, will be evaluated on its ability to meet sales quotas and wants a lower demand forecast.
20 Mitigating problems with SCM Initiatives Technology Summary 12.2Types of Collaboration in the Supply ChainCRP: Continuous Replenishment also called:VMI Vendor Managed InventorySMI Supplier Managed InventoryCo-managed InventoryA form of CRPCFAR: Collaborative Forecasting and Replenishment (precursor to CPFR)CPFR: Collaborative Planning Forecasting and Replenishment
21 Mitigating problems with SCM Initiatives Technology Summary 12.3: CPFR Process
23 Inventory Reorder Methods Reorder point analysiseach item is assigned a reorder point based on its sales rateEconomic order quantityorder quantity based on costs of ordering and carrying inventoryABC analysis a technique for ranking items in a group based on the output of the itemsABC analysis can be used to categorize inventory items according to their importance
28 Data Stores Used in the Purchasing Process Inventory master dataA record of each item stocked or regularly orderedVendor master dataStores information about approved vendors including vendor performancePurchase requisition dataData on all purchase requisitionsPurchase order master dataOpen PO information including status of items on orderPurchase receipts dataLists items received
32 Fraud and the Purchasing Function Many frauds involve manipulation of purchasing because it involves the payment of cashThe typical cases included in this category of process exploitation are instances in which:An employee (e.g., a buyer, purchasing manager, or other person) places purchase orders with a particular vendor in exchange for a kickback, secret commission, or other form of inducement from the vendor.An employee has a conflict of interest between his responsibilities to his employer and his financial interest—direct or indirect—in a company with whom the employer does business.