1. McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. ENTERPRISE INFORMATION SYSTEMS A PATTERN BASED APPROACH Chapter 9 The Acquisition/Payment Business Process

2. 9-2 Chapter Learning Objectives 1.Identify activities and documents common to acquisition/payment business processes for various enterprises 2.Identify the components of the REA ontology in the acquisition/payment business process 3.Explain how the acquisition/payment business process fits into an enterprise’s value system 4.Explain how the acquisition/payment business process fits into an enterprise’s value chain 5.Create a REA business process level model for an enterprise’s acquisition/payment business process 6.Identify common information needs within the acquisition/payment process 7.Create queries to meet common information needs in the acquisition/payment process

3. 9-3 Acquisition/Payment Process in an Enterprise Value System

4. 9-4 Acquisition/Payment Business Process in Enterprise Value Chains Partial value chain for a manufacturer Partial value chain for a distributor

5. 9-5 REA Acquisition/Payment Business Process Level Pattern

6. 9-6 REA Acquisition/Payment Business Process Level Pattern: Operating Assets

7. 9-7 Acquisition/Payment Process Events Instigation Events in the Expenditures –Are usually internally instigated; triggered by an identified need –External instigation is possible, e.g. need may be identified as result of supplier visit –Internal agents involved in acquisition cycle instigation events usually are department supervisors (who identify the need and who authorize the eventual expenditure) and purchasing agents (who process the requisitions) –External agents involved in acquisition cycle instigation events usually are suppliers –Typically there is no need to specifically identify a good or service for purposes of instigation events; information about the type of good or service promoted is usually sufficient

8. 9-8 Purchase/Requisition Event Purchase Requisition Event –An instigation event that is entirely internal; typically involves a department supervisor identifying a need for a type of good or service and communicating that need to the purchasing department –Is usually symbolized by a purchase requisition document or data entry screen that summarizes information about this event (e.g. which department supervisor and which purchasing agent participated, date of request, date by which goods or services are needed, what goods and/or services are needed, any recommended source/supplier, etc.)

9. 9-9 Purchase Requisition

10. 9-10 Relational Tables Encompassing Purchase Requisition event

11. 9-11 Acquisition/Payment Process Events Mutual Commitment Events in the Acquisition/ Payment Process –Involve the enterprise and an external business partner agreeing to exchange resources at a defined future time –Don’t always happen at a discrete point in time; often involves a series of activities –Internal agents are usually purchasing agents –External agents usually are suppliers –Typically there is no need to specifically identify a good or service for purposes of mutual commitment events; information about the type of good or service promoted is usually sufficient –Ideally enterprises would like to be able to trace mutual commitment events to the instigation events that triggered them

12. 9-12 Purchase Order Event A mutual commitment event whereby a supplier agrees to provide goods to the enterprise and the enterprise agrees to pay an ascertained price for those goods Is usually symbolized by a purchase order document or data entry screen that summarizes information about this event (e.g. order date, promised delivery date, payment terms, dollar amount, which supplier and purchasing agent participated, what products the enterprise ordered, etc.)

13. 9-13 Rental Order Event A mutual commitment event whereby a supplier agrees to transfer possession of some goods to the enterprise for a defined time period and bestows on the enterprise the right to use the goods for a prescribed purpose; in exchange the enterprise agrees to pay an ascertained price Is usually symbolized by a rental contract document that summarizes information about this agreement (e.g. contract date, dollar amount, goods to be rented, time period for which each good is to be rented, payment terms, which purchasing agent and suppliers participated, etc.)

14. 9-14 Service Order Event A mutual commitment event whereby a supplier agrees to perform one or more services for the enterprise during a defined time period for an agreed upon price to be paid by the enterprise Is usually symbolized by a service contract document that summarizes information about this agreement (e.g. contract date, dollar amount, services to be performed by supplier, time period during which services will be performed, payment terms, which purchasing agent and supplier participated, etc.)

15. 9-15 Purchase Order

16. 9-16 Relational Tables Encompassing Purchase Order Event

17. 9-17 Acquisition/Payment Process Events Economic Increment Events in the Acquisition Cycle –Represent the receipt of goods or services for which the enterprise will give up some other resource (usually cash) –Do not always happen at discrete points in time; may involve a series of workflow activities –Resources vary for different types of businesses Inventory (Inventory type may substitute for Inventory), Services (Service Type may substitute for Services), Temporary use of asset (as in a rental) –Internal Agents are typically purchasing agents and receiving clerks –External Agents are typically suppliers or vendors

18. 9-18 Purchase (aka Acquisition) Event Economic increment event in which title (ownership) of one or more products is transferred from a supplier to the enterprise. The transfer may take place in person (e.g., purchase agent goes to Office Depot to buy paper, or supplier hand-delivers goods to enterprise) or via transit (supplier shipped goods to enterprise) Usually symbolized by a receiving report document or data entry screen that summarizes information about the title transfer (e.g. date, dollar amount, product(s) for which title transferred, payment terms, which purchase agent and supplier participated, etc. Supplier invoice information may also be included in recording this event, but should not be used as the exclusive representation of this event (because there is usually a time lag between title transfer and receipt of supplier invoice)

19. 9-19 Rental Acquisition Event Economic increment event in which possession of goods is transferred to the enterprise by a supplier for an agreed upon length of time for an agreed upon purpose and price Usually occurs over an extended period of time, rather than occurring at a single point in time Is usually symbolized by documents or data entry screens that summarize information about the transfer of possession of goods from the supplier to the enterprise and then the return of goods to the supplier (e.g. dates, times, which products, suppliers, and employees were involved, etc.)

20. 9-20 Service Acquisition Event Economic increment event in which a supplier performs one or more types of service for the enterprise May occur over a period of time or may be performed at a single point in time Is usually symbolized by a document indicating the receipt of services (or equivalent data entry screens) that summarize the information (e.g. dates, times, types of service performed, the supplier and employee involved, possibly some notes as to the quality of services received, etc.)

21. 9-21 Receiving Report

22. 9-22 Vendor (Supplier) Invoice

23. 9-23 Relational Tables Encompassing Purchase Event

24. 9-24 Acquisition/Payment Process Events Economic Decrement Events in the Acquisition Cycle –Almost always is a Cash Disbursement event An economic decrement event whereby the enterprise transfers ownership of cash (or equivalent) to a supplier Is usually symbolized by a check or disbursement voucher document or data entry screen that summarizes the information about the event (e.g date, dollar amount, supplier to whom cash was disbursed, employee who authorized the payment, acquisition or other event to which cash disbursement applied, etc.) Resource is typically cash (a type-level resource – usually a listing of cash accounts owned by the enterprise) Internal agents are usually cashiers, accounts payable clerks, or other financing personnel External agents are usually suppliers or vendors

25. 9-25 Disbursement Voucher

26. 9-26 Relational Tables Encompassing Cash Disbursement Event

27. 9-27 Acquisition/Payment Process Events Economic Increment Reversal Events –Events in which previous economic increment events are reversed or negated –Although similar in mechanics, such events are inherently different from economic decrement events Giving something back that you had hoped would satisfy your needs, even though you will receive back what you gave in exchange, is not the same as giving something up in exchange for something you want more –Resources, Internal Agents, and External Agents are the same as those for economic increment events

28. 9-28 Purchase Return Event Economic event in which title (ownership) for goods previously transferred from a supplier to the enterprise are transferred back from the enterprise to the supplier Although a resource (or resource type) is decreased as a result, the nature of purchase returns is different from other economic decrement events. The substance of the event is such that the original economic increment event is negated. Thus we label such events as economic increment-reversal events Is usually symbolized by authorized request to return, packing list, and debit memorandum documents or data entry screens that summarize information about the event (e.g. date, what quantities of which products were returned to supplier, dollar amount, etc.)

29. 9-29 Request to Return

30. 9-30 Packing List

31. 9-31 Debit Memorandum

32. 9-32 Relational Tables Encompassing Purchase Return Event

33. 9-33 Acquisition/Payment Process Relationships Fulfillment relationships –Between Purchase Requisition and Purchase Order events –Between Purchase Order and Purchase (or Rental or Service Acquisition) events Duality relationships –Between Purchase (or Rental or Service Acquisition) and Cash Disbursement (or Disbursement of Bartered Goods/Services) events Reversal relationships –Between Purchase and Purchase Return events Participation relationships –Between each event and each internal and external agent

34. 9-34 Acquisition/Payment Process Relationships Proposition relationships –Between Purchase Requisition event and Inventory (or Inventory Type or Service Type) Reservation relationships –Between Purchase Order, Rental Contract, or Service Contract and Inventory (or Inventory Type or Service Type) –Also between Purchase Order, Rental Contract, or Service Contract and Cash Stock flow relationships –Between Purchase (or Rental or Service Acquisition) and Inventory (or Inventory Type or Service Type) –Between Purchase Return and Inventory (or Inventory Type) –Between Cash and Cash Disbursement

35. 9-35 Resource Query Types Detailed status information at one or more points in time for each resource instance Detailed status information at one or more points in time for only those resource instances meeting specified criteria Summarized status information at one or more points in time for all resource instances Summarized status information at one or more points in time for only those resource instances meeting specified criteria

36. 9-36 Acquisition Cycle Resource Queries A list of each inventory item or item type normally stocked by an enterprise A list of all inventory items or item types that possess certain characteristics Quantity on hand of an inventory item type as of a specified date Total cost value of inventory on hand as of a specified date A list of all cash accounts owned by enterprise on a specified date Balance in a specific cash account as of a specified date Total balance in all cash accounts as of a specified date A list of general and administrative supply and service types for which the enterprise maintains descriptive data A list of fixed assets owned by an enterprise Book value of a depreciable fixed asset owned by an enterprise on a specified date Average age of an enterprise’s machinery on a specified date

37. 9-37 Example Resource Tables

38. 9-38 Query to list each operating assets owned on a specific date

39. 9-39 Query to list each operating assets owned on a specific date

40. 9-40 Query to identify computers owned on a specified date

41. 9-41 Event Query Types Detailed information about each event instance –e.g., what happened, when and where did it happen, etc. Detailed information about each event instance that meets specified criteria –e.g. events of a specified type that occurred during a specified time period or that occurred at a specified location Summarized information for all instances of an event type for a specified time period –e.g. total of the event instances during a specified time period Summarized information for only those instances of an event type for a specified time period that meet specified criteria –e.g. average dollar value of the event instances for a specified location during a specified time period

42. 9-42 Acquisition Cycle Event Queries Total number of purchase orders made during a specified time period Total dollar amount for a specific purchase order, general & administrative service and supplies acquisition, operating asset acquisition, inventory acquisition, cash disbursement, or purchase return Total or average dollar amount of all acquisition/payment events of a specified type for one or more specified time periods Seller’s tracking number for an expected purchase event Date a purchase event occurred

43. 9-43 Example Event Tables

44. 9-44 Which table(s) do we need? Query to identify date and dollar amount of Purchase Order #18 Which relational algebra operators apply? What is SQL statement? Project, Select SELECT PurchaseOrderID, OrderDate, DollarTotal FROM PurchaseOrder WHERE PurchaseOrderID=18; What is Access QBE? What is the result?

45. 9-45 Agent Queries Detailed status information at one or more points in time for each agent instance Detailed status information at one or more points in time for only those agent instances meeting specified criteria Summarized status information at one or more points in time for all agent instances Summarized status information at one or more points in time for only those agent instances meeting specified criteria

46. 9-46 Acquisition Cycle Agent Queries A list of all purchase agents, accounts payable clerks, inventory clerks, or supervisors for an enterprise A list of employees that possess certain characteristics (e.g. all accounts payable clerks who have a specified minimum fidelity bond A list of employees that live in a specified city or state A list of all employee names and telephone numbers for an emergency phone tree

47. 9-47 Example Agent Tables

48. 9-48 Identify Suppliers with Performance Rating of “Very Good” Which table(s) do we need? Which relational algebra operators apply? What is SQL statement? Select SELECT * FROM Supplier WHERE PerformanceRating=“Very Good”; What is Access QBE? What is the result?

49. 9-49 Duality Relationship Query Types Identification as to whether a specified exchange is completed Identification of completed exchanges for a specified time period Identification of incomplete exchanges for a specified time period Calculation of the amount of claims, e.g. prepaid expenses, payables, unearned revenues, or receivables, either in total or for a specified exchange event Calculation of the total or average length of the timing difference(s) between the events involved in one or more exchanges

50. 9-50 Acquisition Cycle Duality Queries Calculation of the outstanding payable balance for a purchase Calculation of total accounts payable at a point in time Calculation of prepaid expenses at a point in time Aging of accounts payable Calculation of the average number of days it takes to pay vendor invoices

51. 9-51 Example Duality & Reversal Relationship Tables

52. 9-52 Querying for Accounts Payable Conceptually –Dollar value of acquisitions of goods and services (except employee labor) not yet paid in full Practically –Total of acquisitions through balance sheet date minus total of cash disbursements through balance sheet date that applied to acquisitions. Also minus purchase returns/discounts through balance sheet date. –MUST include ONLY ending date constraint (balance sheet items reflect cumulative data from beginning of company through balance sheet date). –Use acquisition date to determine which acquisitions to include. –Use cash disbursement date and duality relationships to determine which cash disbursements to include. Be sure to aggregate cash disbursements that apply to the same purchase before subtracting from purchase amount Note: Acquisitions – Cash disbursements from Vendors is not acceptable as it is theoretically less sound than using the duality relationships –Likely need for outer join and Nz function in Access (for acquisitions with no matching cash disbursements)

53. 9-53 Accounts Payable Query Steps

54. 9-54 Accounts Payable Query Steps

55. 9-55 Accounts Payable Query Steps

56. 9-56 Accounts Payable Query Steps

57. 9-57 Accounts Payable Query Steps with Nz

58. 9-58 Accounts Payable Query Steps with Nz

59. 9-59 Stockflow Relationship Query Types What resources or resource types were increased or decreased by an economic event? What quantity of a resource or resource type was increased or decreased by an economic event? What dollar value of a resource or resource type was increased or decreased by an economic event? When did an event increase or decrease a specific resource or resource type? Where did an event increase or decrease a specific resource or resource type?

60. 9-60 Acquisition Cycle Stockflow Queries Which inventory types were increased by a specific purchase event? What quantity of each inventory type was increased by a specific purchase event? Which inventory types were decreased by a purchase return event? What quantity of each inventory type was decreased by a specific purchase return event? What unit cost was charged for an inventory type on a specific purchase event? What unit cost was granted as credit for an inventory type on a specific purchase return event? What was the total dollar value of purchases for a specified time period? (Note: if total purchase dollar amount is stored in the purchase event table, then it is not necessary to use the stockflow relationship to meet this information need) What is the average dollar value of purchases of a specified inventory type for a specified time period?

61. 9-61 Querying for Inventory Weighted Average Unit Cost Tables to consider

62. 9-62 Querying for Inventory Weighted Average Unit Cost

63. 9-63 Querying for Inventory Weighted Average Unit Cost

64. 9-64 Querying for Inventory Weighted Average Unit Cost

65. 9-65 Fulfillment Relationship Query Types Identification of unfulfilled commitments or instigation events Identification of fulfilled commitments or instigation events Identification of commitment events that were not preceded by instigation events, or identification of economic events that were not preceded by commitment events Calculation of length of time between instigation and commitment events or between commitment and economic events Identification of causes of commitments and/or of economic events Identification of results of instigations and/or of commitment events

66. 9-66 Acquisition Cycle Fulfillment Queries Identification of unfilled purchase orders Identification of filled purchase requisitions (i.e., those purchase requisitions that resulted in purchase orders) Calculation of average number of days the enterprise takes to fill purchase requisitions for a given time period Identify the purchase order that corresponds to a purchase

67. 9-67 Calculation of Average Number of Days to Fulfill Purchase Requisition Tables to consider

68. 9-68 Calculation of Average Number of Days to Fulfill Purchase Requisition

69. 9-69 Proposition Relationship Query Types What resources or resource types does the instigation event propose to increase or decrease? What quantity of a resource or resource type is the proposed increase or decrease for an instigation event? When did an instigation event propose to increase or decrease a specific resource or resource type?

70. 9-70 Acquisition Cycle Proposition Queries Which inventory types were identified as needed in a purchase requisition event? What unit cost was estimated for an inventory type in a specific purchase requisition event? How many different times has a specified inventory type been requisitioned during a time period? How many different types of inventory were requisitioned in a specific purchase requisition event?

71. 9-71 Query to calculate number of times an item has been requisitioned during a time period Tables to consider

72. 9-72 Query to calculate number of times an item has been requisitioned during a time period

73. 9-73 Reservation Relationship Query Types What resources or resource types is a commitment event agreeing to increase or decrease? What quantity of a resource or resource type is a commitment event agreeing to increase or decrease? What dollar value of a resource or resource type is a commitment event agreeing to increase or decrease? When did an event commit to increase or decrease a specific resource or resource type? Where did an event commit to increase or decrease a specific resource or resource type?

74. 9-74 Acquisition Cycle Reservation Queries Which inventory types does a specific commitment event agree to increase? What quantity of each inventory type does a specific commitment event agree to increase? What unit cost was quoted for each inventory type in a specific commitment event? What was the total dollar value of purchase orders for a specified time period? (Note: if total dollar amount is stored in the purchase order event table, then it is not necessary to use the reservation relationship to meet this information need) What is the average dollar value of purchase orders of a specified inventory type for a specified time period?

75. 9-75 Participation Relationship Query Types Which agent(s) participated in a specified event? How many events of a specified type has a specified agent participated? What is the total dollar value of events of a specified type in which a specified agent has participated for a specified time period? When did a specified event in which a specified agent participated occur? Where did a specified event in which a specified agent participated occur?

76. 9-76 Acquisition Cycle Participation Queries From which supplier was a specific purchase made? By which purchase agent was a specific purchase order placed? How many purchase orders did a specified purchase agent make during a specified time period? What is the total (or average) dollar amount of purchases made by each purchasing agent during a specified time period? When was a specified purchase received, and by which receiving clerk (include clerk’s id, name, and telephone number)? To which supplier have the most purchase returns been made?

77. 9-77 Query for date and receiving clerk associated with specific purchase Tables to consider

78. 9-78 Query for date and receiving clerk associated with specific purchase

79. 9-79 Multiple-Relationship Acquisition Cycle Queries Which purchase orders have been partially filled? –requires stockflow, reservation, and fulfillment- purchaseorder-purchase relationships What is the total dollar value of accounts payable for a specified supplier at a point in time? –requires duality, participation-supplier-purchase, and participation-supplier-cash disbursement relationships On which requisitions has a specified vendor been recommended as the recommended supplier? –requires proposition and participation- purchaserequisition-supplier relationships

80. 9-80 Multiple-Relationship Acquisition Cycle Queries Which purchase agent ordered a specified inventory type from a specified supplier? –requires reservation, participation-supplier- purchaseorder, and participation- purchaseagent-purchaseorder relationships What is the total dollar amount of purchases of a specified inventory type that have been made from suppliers in a specified region? –requires stockflow-purchase-inventory and participation-supplier-purchase relationships

81. 9-81 Accounts Payable per Supplier Tables to consider

82. 9-82 Accounts Payable per Supplier Constrain purchase date and sum purchase dollar amount for each supplier

83. 9-83 Accounts Payable per Supplier Join purchase and cash disbursement tables and constrain cash disbursement date

84. 9-84 Accounts Payable per Supplier Sum the cash disbursements by supplier

85. 9-85 Accounts Payable per Supplier Join purchase and purchase return tables; Constrain purchase return date

86. 9-86 Accounts Payable per Supplier Sum purchase returns by supplier

87. 9-87 Accounts Payable per Supplier Combine purchases and purchase returns by supplier to get unreturned purchases

88. 9-88 Accounts Payable per Supplier Combine unreturned purchases and cash disbursements by supplier to get unpaid purchases Result for May 31, 2010

89. 9-89 Summary We discussed the acquisition/payment process and how it fits in at the value system and value chain levels We discussed the extended REA pattern at the business process level We examined documents typically used to represent events and discussed related resources and agents We examined examples of relational database tables for the acquisition cycle and discussed data input into those tables We systematically discussed types of queries for the acquisition/payment process that may be needed to support decision-makers in various functional areas We provided selected examples of queries of various types

90. McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved. ENTERPRISE INFORMATION SYSTEMS A PATTERN BASED APPROACH Chapter 9 End of Chapter