The Procurement Process

Introduction (1) The procurement process involves purchasing goods from vendors through an internal purchasing organization These goods might be used for resale in a manufacturing process as packaging

Introduction (2) Processes Vendors must be managed Supplier agreements Purchase orders are issued (automated) Goods are received into inventory (warehouse) Generates automated accounting transactions Invoices are verified (automated) (accounting) Payments are made (automated) (accounting)

Vendors Vendors (suppliers) sell goods to us Some information is pertinent to the company Some is accounting related We should have secondary suppliers We have pricing agreements

Vendors (Automated Assignment) We have supplier agreements with vendors to automate procurement Generate automatic purchase orders It’s accomplished through agreements

Purchasing Purchasing can be centralized or decentralized Centralized (one purchasing organization for many plants) Decentralized (many purchasing organizations) When to use one over another?

Organizational Structure (Plants 1) In plants, we make things, store things, or do things A plant has a purchasing organization assigned to it In OFBiz we make and store things in a warehouse There is a hierarchical relationship between the Company It’s plants The storage locations within a plant

Materials Introduction Materials are the things we buy from vendors Supplies that we consume internally Trading goods that we buy and resell Raw materials that we use in production Semi-finished goods (assemblies) that we make from raw materials and use in the production of finished goods Finished goods that we make and sell using raw materials and semi-finished goods (assemblies)

Purchasing Information We purchase materials from vendors Purchasing information defines the relationship between a vendor and a material This information is used to create purchases from Quotations Manually

Standard Purchasing Documents Purchase requisition Request for quotation Purchase order Goods receipt Vendor invoice processing

Common Purchasing Sequence

Purchase Requisition An internal rather than external document It instructs purchasing to request specific goods be purchased to arrive at a specific time A requisition gets created Manually Automatically through MRP, production orders, or sales orders

Requisition Sourcing Requisitions must be assigned a source of supply Internally Get goods from our own plant or centralized warehouse A list of sources Vendors who provide the particular material Outlined agreements Long-term purchasing agreements RFQ

Request for Quotation Use for very expensive goods or goods with no known source It’s an invitation for a vendor to bid Quotations from vendors are legally binding offers Price, materials, shipping details are all defined

Vendor Evaluation SAP allows you to evaluate vendors based on Price Quality Delivery You define scoring ranges You define detailed criteria

Purchase Order It’s really the acceptance contract for the vendor’s quotation A request to procure specific materials or services and the conditions of procurement

Types of Purchase Orders Standard For services For consignment And others

An Order 

Purchase Order Structure Remember the structure of a document Header information Vendor / payment terms Item overview Materials, quantities, item delivery dates Line items Item prices

Purchase Order (OrderHeader)

Purchase Order (OrderItem)

Purchase Order Output All is not printed Purchase orders might be sent via E-mail EDI Fax XML These are just communication entities

ERP Order Automation

Goods Receipt Here is where we receive the goods from the vendor from our purchase order This is a warehouse function not a purchasing function! Tasks Determine whether order is correct Update purchase order history with receipt of goods (automatic) Updates physical inventory (automatic) Updates G/L account (Inventory) (automatic)

Receipt of Goods (Events) Several events fire when goods are received Material document created Accounting documents created Inventory is updated Purchase order status is updated

Vendor Invoice Processing Invoices are validated against the corresponding purchase order Discrepancies might cause the invoice to be blocked When processed The accounts payable liability is created Payment process is initiated for financial accounting Much of the invoice processing can be automated

Financial Accounting Processing Accounting pays the invoice Payment method Bank Items It’s possible to pay all or part of an invoice Medium Can be done manually or automatically

ERP Automated Processing

Material Movement (2) Goods can be placed into different destinations Into the warehouse Unrestricted use Blocked use Quality assurance More later when we talk about materials management