Small Business Information Systems Professor Barry Floyd Expenditure Cycle Small Business Information Systems Professor Barry Floyd

Agenda Learning Objectives Definition of Expenditure Cycle Data flow diagrams of Expenditure Cycle QuickBooks demonstration

Objectives Continue with our understanding of ‘business processes’ Identify activities and documents in the standard ‘expenditure’ / ‘money out’ business process Discuss how the appropriate design of expenditure cycle tasks can provide value Identify key reports to assess process and organizational performance in the expenditure cycle Identify potential business risks (we’ll discuss how to handle them later in the quarter) See (and know) how to use QB to perform tasks in the expenditure cycle IN THE NEWS … SAP is moving into the small business space Is it possible to reduce the cost of inventory? Can you assure that you take discounts when offered them? Who are the best suppliers? Why? What differentiates them? How can you determine this? Is it easy to do?

References http://en.wikipedia.org/wiki/Enterprise_resource_planning http://www.quickbooks.com http://en.wikipedia.org/wiki/Microsoft_Dynamics http://www.microsoft.com/dynamics/default.mspx http://highered.mcgraw-hill.com/sites/0072404299/student_view0/chapter9/

Definition: Expenditure Cycle The set of business activities/tasks that occur regularly to acquire (purchasing) and pay for goods and services. A primary goal of the Expenditure cycle is to minimize costs in acquiring goods and services …

Key decisions Optimal level of inventory (should you have inventory?) Which are the best suppliers (on time, low cost, high quality) Which invoices to pay to take advantage of discounts. (How much money do we have) Along the same line, how to manage cash flow How efficient is the organization in the expenditure cycle activities

Three Key Activities Ordering goods, supplies, and services Receiving and storing goods, supplies, and services. Paying for goods, supplies and services As we review these activities, think about where Information Technology can play a role to improve efficiency and effectiveness (Effectiveness = doing the right thing, efficiency = doing the right thing well) Ordering goods: what, when, and how much to buy and from whom Inventory Control Methods EOQ – MRP – JIT -. http://www.inventorymanagementreview.org/2005/10/the_risks_of_be.html http://www.inventorymanagementreview.org/inventory_basics/index.html

DFD’s of Expenditure Cycle Expenditure Context Diagram Expenditure Level 0 diagram Expenditure Level 1 Receive and Store goods diagram Expenditure Level 1 Pay for goods diagram

Technology Take a few minutes and discuss with those at your table, places in this business process where you think technology can play a role to … Reduce costs. Add additional value to the supplier. Provide better information to management.

Business Documents Purchase Requisition – used internally to request that an item be purchased. Identifies, who, what, how much, when needed, etc. Purchase Order – formal request to supplier to furnish goods or services. Becomes a contract once supplier accepts it. Receiving Report – documents details about delivery including date, amount, PO#, who received it, quality check, etc. Debit Memo – records adjustments to the amount you owe based on your inspecting the shipment you just received (wrong number, damaged, poor quality) Typically have a buyer for the purchasing function. Selects appropriate supplier based on Price, quality of materials (e.g.,, any rework in the past), dependability in making deliveries. Buyer should be rewarded on total cost of buying not just price. Buyer may try to combine purchase orders from different departments and may order more than requested based on volume discounts available.

QuickBooks Money Out

QuickBooks Tasks Add a new Vendor Add a new product Buy something? Enter bill Pay bills Enter refund or credit Cash/check/credit card payments Review key reports

Reports What would you want to know about this process to see if it is performing ‘well’? What metrics are important to you? Why? Which ones are most important to your business? Why? What reports does QuickBooks provide? Are they adequate?

Summary The expenditure cycle is an important cycle to understand. Understanding the use of technology is important for both reducing costs and for improving your business operations, reducing costs and differentiating your business from your competitors.