Chapter The Purchasing Process Learning Objectives • • • • • Know the definition and basic functions of the purchasing process Understand the relationship between the purchasing and its environment Achieve a reasonable understanding of the logical and physical characteristics of a typical purchasing process Become familiar with some of the technology used to implement the purchasing process Know some process controls and the plans used to control a typical purchasing process Purchasing Process Purchasing Spoke on AIS Wheel • • • In this chapter, we spotlight one business process, the Purchasing Process We will describe the various users of the purchasing process, each having their own view of the enterprise system and enterprise database In addition, we will analyze the process controls related to the purchasing process 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 department Support the decision needs of those who manage the purchasing and receiving departments Assist in the preparation of internal and external reports Internal Perspective of Purchasing Process Purchase requisition sent from inventory control department to purchasing department Internal Perspective of Purchasing Process Purchase requisitions from various other departments sent to purchasing department Internal Perspective of Purchasing Process Purchase order sent to vendor Internal Perspective of Purchasing Process Purchase order notification sent to various other departments or to inventory management process Internal Perspective of Purchasing Process Purchase order notification sent to receiving department Internal Perspective of Purchasing Process Purchase order notification sent to accounts payable process 10 Mitigating problems with SCM Initiatives Technology Summary 12.2 • Types of Collaboration in the Supply Chain – CRP: Continuous Replenishment also called: • VMI Vendor Managed Inventory • SMI Supplier Managed Inventory – Co-managed Inventory • A form of CRP – CFAR: Collaborative Forecasting and Replenishment (precursor to CPFR) – CPFR: Collaborative Planning Forecasting and Replenishment 20 Mitigating problems with SCM Initiatives Technology Summary 12.3: CPFR Process 21 Purchasing Process—Context Diagram 22 Inventory Reorder Methods • Reorder point analysis – each item is assigned a reorder point based on its sales rate • Economic order quantity – order quantity based on costs of ordering and carrying inventory • ABC analysis a technique for ranking items in a group based on the output of the items – ABC analysis can be used to categorize inventory items according to their importance 23 Purchasing Process—Level Diagram 24 25 26 27 Data Stores Used in the Purchasing Process • Inventory master data – A record of each item stocked or regularly ordered • Vendor master data – Stores information about approved vendors including vendor performance • Purchase requisition data – Data on all purchase requisitions • Purchase order master data – Open PO information including status of items on order • Purchase receipts data – Lists items received 28 ER diagram Purchasing 29 Purchasing Process Systems Flow Chart 30 Purchasing Process Systems Flow Chart, Cont’d 31 Fraud and the Purchasing Function • Many frauds involve manipulation of purchasing because it involves the payment of cash – The 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 32 Purchasing Control Matrix 33 Control Matrix, Cont’d 34 ... defect information with suppliers during execution 18 Things that can go wrong in SCM initiatives • Data not collected or not shared across functional boundaries • Lack of sharing of information. .. data – Stores information about approved vendors including vendor performance • Purchase requisition data – Data on all purchase requisitions • Purchase order master data – Open PO information. .. data – Lists items received 28 ER diagram Purchasing 29 Purchasing Process Systems Flow Chart 30 Purchasing Process Systems Flow Chart, Cont’d 31