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The steps used to procure standard items are shown in figure below.
The figure indicates that the procurement process is triggered by
some event that results in a requirement to acquire materials. The
trigger is often a result of an event in another process.
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REQUIREMENTS DETERMINATION
The elements of the requirements determination step are shown in figure below.
Requirements for materials arise from a need that is identified either
automatically by another process or manually by an individual. The pro-cess
that most commonly generates requirements is the materials planning process.
Requirements are also created manually for items that are not included in
materials planning. This process occurs when an individual manages inventory
or when the company needs a nonstock item (e.g., supplies) or a service (e.g.,
janitorial or repair).
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Elements of Requirement
determination
step
Data
The data needed to create a purchase requisition are the item category, quantity,
desired delivery date, and desired delivery location or receiving plant. The ERP system
uses the material number to obtain additional data from the material master such as
description, material group, purchasing group, unit of measure, and valuation price.
Tasks
The only task in this step is to create the purchase requisition using the specified data.
Outcomes
The process document that results from this step is the purchase requisition. The
system will assign a unique requisition number to this document, which the concerned
parties can use to track its progress through the various steps in the process.
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There are three paths to create a purchase order, depending on whether the source of
supply is known.
If supply is known, then the requisition can be converted into a purchase order without
additional steps. In such cases the company selects a vendor from a list of potential
suppliers, called a source list.
If a source of supply is not known, then the company must send a request for
quotations (RFQ) to several potential vendors, receive and evaluate the quotations, and
then make a final selection. An RFQ is an invitation to vendors by an organization to
submit a quote for the supply of the materials or services. In this case, the organization
uses a quotation to create a purchase order (Path 2).
Finally, in certain cases the RFQ is directly converted into a purchase order without a
quotation (Path 3).
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The Procurement Process
GOODS RECEIPT
The next step in the procurement process is goods receipt, which records the receipt
of the materials from the vendor. The elements of this step are shown in the figure.
INVOICE VERIFICATION
The next step in the process is invoice verification, which is shown in the figure.
The most common method of invoice verification is a three way match between
the purchase order, the goods receipt or delivery document, and the invoice.
The objective is to ensure that the quantities and price in all three documents
are consistent.
An alternative is a two way match between a purchase order and the goods
receipt document. This method is not very common, and it requires a high
degree of trust and cooperation between partners.
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PAYMENT PROCESSING
The figure below shows the elements of the final step in the procurement process
namely, paying the vendor. This step is triggered by the receipt and verification of an
invoice.
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Objects in these processes, such as sales orders and production orders, are then charged
for the materials purchases. Finally, procurement involves materials movements and
quality inspections that are the domain of inventory and warehouse management.
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REPORTING
Standard reporting tools in the transactional system are used to generate both online lists
based on selected master data and documents and work lists to identify pending work
associated with various process steps.
ONLINE LISTS
Online lists can be manipulated using the various functions of the list viewer or grid control.
WORK LISTS
Work lists display work that is to be completed.
PURCHASING INFORMATION SYSTEMS
Purchasing information system (IS) is one of the components of the logistics information
system. Purchasing IS provides both standard and flexible analysis capabilities. In standard
analysis, the characteristics are organizational levels and master data relevant to the
procurement process. In contrast to standard analysis, flexible analysis enables the user to
define the content and format of the analysis.
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