The Purchasing Process - Ch 12 - AC 304

Purchasing Process

Is an interacting structure of people, equipment, activities, and controls that is designed to accomplish the following: -handle the receptive 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

Supply Chain Management (SCM)

Is the combination of processes and procedures used to ensure the delivery of goods and services to customers at the lowest cost while providing the highest value

Supply Chain

Is the connections from the suppliers of merchandise and raw material through to an organization's customers. These connections include the flow of information, materials, and services. -Organizations manage supply chain links to get the right goods, in the right amount, at the right time, and at minimal cost to create maximum value for the customers

Purchase Requisition Data Store

Purchase requisitions are internal requests for goods and services that are compiled in the purchase requisitions data store.

The organizational players include:

Purchasing: which is responsible for securing best price/quality product/services Receiving: which is responsible for receiving incoming products, signing bill of lading, preparing receiving report, and transferring goods to warehouse or department

Vendor Master Data

contains a record of each vendor approved for use by the organization -it stores identification data, such as name, address, telephone numbers, e-mail addresses, bank information, and payment terms and methods. - the vendor data are also used by management to evaluate vendor performance and to make various ordering decisions.

Purchase Order

document prepared by purchasing to vendor ordering product or service

Vendor Packing Slip

documents that identifies shipment and triggers receiving process -the vendor packing slip lists items in the box

E-procurement

is the use of information technology to automate significant portions of the procurement process. -It can improve SCM by reducing costs, the number of people, and amount of time required for the procurement process Example: -A purchasing organization can use intelligent agents, web services, and B2B exchanges to find vendors and products, and then the purchase process is completed electronically

Compare input receipt data to PO data

Before a receipt can be accepted and recorded, the receipt data should be compared with the PO master data to determine that the correct goods have been received.

Independent authorization to record receipt

Before a receipt is accepted and recorded, the receipt data should be compared with the PO master data to determine that an approved PO, prepared by someone other than receiving personnel, is on file.

Approve purchase order

Before being issued, the appropriate personnel should approve POs to ensure that an appropriate supplier has been selected and that the correct goods are services, for the correct amounts, are being purchased. Failure of this control will lead to financial loss if the good are not needed and cannot being returned

Compare vendors for favorable prices, terms, quality, and product availability

Before purchasing, prospective vendors should be compared to determine the optimal choice for the purchase.

Possible issues in purchasing with Fraud include:

End of the purchase-to-pay process is the payment of cash, which has high potential for fraud and embezzlement. Typical cases include: -employees orders from a particular vendor in exchange for a kickback, commission, or other inducement from the vendor. -employee has a conflict of interest between responsibilities to his employer and his financial interest, direct or indirect, in a company with whom the employer does business. -employer diverts purchased business goods for personal use. -employer purchases from a fictitious vendor (pass through, ghost vendor)

Possible Issues in Purchasing with the process include:

The goal of individual managers may conflict (or congruence) with overall organizational objectives. Example: -The purchasing manager probably will want to buy in large quantities to take advantage of quantity discounts and to reduce ordering costs. Receiving, inspecting, and storying large quantities of inventory, however, will more than likely present problems for the receiving department supervisor and the warehouse manager. Ambiguity often exists in defining goals and successfully meeting those goals. Example: -One of the purchasing goals might be to select a vendor who will provide the best quality at the lowest price by the promised delivery date. But what does this goal mean? That a particular vendor must satisfy all three conditions of best quality, lowest price, and timely delivery? Realistically, one vendor probably will not satisfy all three conditions.

Prioritization of goals is necessary is choosing the optimal solution given the various conflicts and constraints placed on the process

This implied that tradeoffs must be made in prioritizing among the goals that conflict. Example: -If a company operates in an industry that is extremely sensitive to satisfying customer needs, it may be willing to pay a premium price to ensure that it is procuring the best quality goods and obtaining them when needed.

Inspect goods

To ensure that the correct goods are received is acceptable condition

Receiving Report

a document used to record merchandise receipts

Approve purchase requisitions

an authorized individual, or sever individuals, such as cost center or department management, should approve purchase requisitions to ensure that the purchase is within an applicable budget and that the purchase is desirable

B2B Marketplaces

are particular web sites or portals that may be used as sources of supply in the procurement process

Paperless Systems

eliminates documents and forms as the medium for conducting business. -in a truly paperless system, printed reports disappear and are replaced with computer screen displays.

SCM Software

helps an execute steps in the supply chain

Purchase Order Master Data

is a compilation of open POs and included the status of each item on order

Bill of Lading

is a document signifying contract between shipper and carrier to transport goods to recipient

Radio-Frequency Identification (RFID)

is a system for sending and receiving data, using wireless technology, between an RFID tag and an RFID transceiver. RFID tags are computer chips containing information about the object to which the tag is attached and an antenna that sends and receives data.

Purchase Receipts Data

is an event data store with each record reflecting a receipt of good and services

Purchase Requisition

is an internal request to acquire goods and services

Bullwhip effect

is misread demand that may lead to the multiplication of orders up the supply chains causing wild demand and supply fluctuations. Example: -a retailer could misread retail demand and double its normal order. Also the wholesaler in response doubles its normals order (now four times the retail order) and so on up the chain to the manufacturer and its supplier.

Idenpendent vendor master data maintenance

requires that there is a separation of duties between the personnel who create vendor records (to authorize purchases and payments) and those that create and approve POs, record accounts payables, and approve payments. Without this separation, a buyer could execute a purchase with a vendor with which there is some arrangement (kickback) or conflict of interest (ownership) Also, without this separation, accounts payable personnel could create a vendor account to facilitate the creation of an invalid or fraudulent invoice that would subsequently be paid to a bank account that they created on the vendor record.

Confirm purchase order to requesting department

to prevent duplicate purchase requests and to allow the requesting department to ensure that a PO is created, the requesting department should be informed when a PO has been issued in response to a purchase requisitions

Use authorized vendor data

vendors should be vetted to determine suitability to provide goods and services. the screening process might include vendor financial viability and performance record. the vendor date includes payment terms, address, and bank account