Ch. 4 Flashcards
It is also known as purchasing or requisition-to-pay process.
Procurement Process
3 types of procurement process
Direct procurement
Indirect procurement
Service procurement
Defined as a strategic process to streamline an organization’s operations to ethically purchase quality goods and services from suppliers to realize business objectives of saving cost, reducing time, and improving profitability.
Procurement
Acquisition of goods, materials, and/or services for manufacturing purposes.
Direct procurement
Sourcing and purchasing materials, goods, or services for internal use.
Indirect Procurement
Procuring and managing the contingent workforce and consulting services
Service Procurement
Subtypes of procurement process
Standard
Subcontracting
Consignment
Stock transfer
External Service
Getting finished material from the vendor.
Standard
Providing raw materials to the vendor and getting finished materials.
Subcontracting
Procuring material that is kept in the company’s premises and paying to the vendor for that.
Consignment
Getting material from within the organization.
Stock transfer
Getting services like maintenance from a third-party vendor.
External service
Determine what kind of materials and services are required by a company and the proper source (vendor) of supply that fulfills our requirements.
Asking Approval of Purchase Requisition.
Materials
Services
Required delivery date
Quantity needs to be prepared
Purchase Requisition
Is a document issued by the purchasing department to the vendor which describes the interest of a buyer to buy a certain quantity of a material at a certain price from a specific vendor. This is created with a reference to the purchase requisition documents.
Purchase Order
Major organizational levels associated with the procurement process.
Client
Company Code
Plant
Three additional organizational data that are relevant to purchasing
Storage location
Purchasing Organization
Purchasing Group
These are places within a plant where materials are kept until they are needed.
Storage location
Unit within an enterprise that performs strategic activities related to purchasing for one or more plants.
Purchasing Organization
Three models of Purchasing Organization
Enterprise level (Cross Company Code)
Company level (Crossplant Model)
Plant level (Plant Specific)
The most centralized model.
Purchasing Organization is responsible for overall enterprise.
Enterprise level (Cross Company Code)
Less centralized than the enterprise-level model.
Purchasing organization is responsible for multiple plants in one company code.
Company level (Crossplant Model)
most decentralized model. Each plant has its own purchasing Organization.
Plant level (Plant Specific)
a hybrid model that some enterprise adopted that consists of one centralized purchasing organization that can evaluate needs and opportunities for the entire enterprise and negotiate global contracts, which purchasing organizations then use across the enterprise
Reference Purchasing Organization
an individual or a group of individuals who are responsible for purchasing activities for a material or a group of materials. These activities include planning, creating purchase requisitions, requesting quotations from vendors, and creating and monitoring purchase orders.
Purchasing Group
4 types of Master Data
Material master
Vendor master
Purchasing Info Records
Conditions
Key elements in material master
Financial data
Purchasing data
Plant data
Key elements in Financial Data in material master
Valuation Currency
Valuation Class
Price Control
is the currency that the materials will be priced in, such as U.S. dollars or euros.
Valuation Currency
Identifies the general ledger accounts associated with the material.
Provides an important integration point between purchasing and financial accounting because it allows the system to automatically make postings to appropriate stock or inventory accounts in the general ledger.
Valuation class
identifies the method that is used to value the materials.
Price control
The two options for price control are
moving average price and standard price.
T/F
Both options of price control define the price per total of materials in stock.
False
T/F
In the standard price option, the total value of the materials is divided by the quantity in stock to determine the average price per unit.
False, moving average price
the total value of the materials is divided by the quantity in stock to determine the average price per unit.
This price is called “moving” because it is updated each time a process step affects the price; it represents an average price of the materials in stock.
Moving average price
T/F
standard price is constant for a specified period of time and does not fluctuate, even when an event occurs that causes the value of the materials to change.
True
T/F
The standard price is updated periodically.
True
is constant for a specified period of time and does not fluctuate, even when an event occurs that causes the value of the materials to change.
standard price
Key elements in purchasing data in material master
Purchasing Group
Goods receipt processing time
Delivery Tolerances
is responsible for purchasing the materials.
Purchasing group
An estimate of this time is included in the material master. The ERP system utilizes this estimate in planning activities.
Goods receipt processing time
In the material master, specify how much over delivery and under delivery the ordering party will accept.
Delivery tolerances
includes data that are needed to properly store materials.
Plant Data/Storage
include the data needed to conduct business with a vendor and to execute transactions related to the purchasing process.
Vendor Master Data
Data in the vendor master are grouped into three segments:
general data, accounting data, and purchasing data.
Includes Name, Addresses, Contacts or any basic information of a vendor. Set at a client level.
General Data
Includes tax, bank info, reconciliation account, etc. Set at a company code level.
Accounting Data
Determineprices, creating PO, verifying invoices, etc. Set at purchasing Organization level.
Purchasing Data
An intersection between material master and vendor master
Purchasing Info Records
Key elements of Purchasing Info Records
General Data
Purchasing Data
contains data specific to one vendor and one material or material group.
It includes some data that are in the vendor master and the material master, as well as data that are valid for the specific combination of vendor and material.
Purchasing Info Records
These data are very similar to the conditions discussed in the section on purchasing info records, and they are used to determine the appropriate prices, discounts, taxes, freight, and so on for the materials.
Conditions
are not defined for a specific combination of vendor and material. Rather, they are based on the overall agreements and contracts in place with vendors.
The company uses these to determine pricing when it creates purchase orders.
Conditions
The info record typically defines a number of different of these, including gross price, discounts and surcharges, taxes, and freight.
condition types
Key Concepts:
What are the six item categories?
Standard
Subcontracting
Consignment
Third-party order
Stock transfer
Services
items are goods and invoices can be received.
Standard
it pays the vendor only when it uses or sells the materials. For this category of materials, therefore, there is no invoice receipt step.
Consignment
refers to items that the vendor ships directly to a customer.
Third-party order
arrangement, a company sends materials to a vendor, who uses them to create semi-finished products. The vendor then sends these products back to the company that initiated the process.
Subcontracting
such as janitorial or landscaping services — generally do not involve receiving materials. Instead, a mechanism to record services performed – a service sheet - is necessary.
Services
the process whereby the system determines which general ledger accounts to use in a given situation — is automatic and is based on data contained in the material master, particularly the valuation class.
Account Determination
What are the four account determination?
Stock materials
Consumable materials
Account assignment object
Account assignment category
materials that is available in stock and can be reserved by the system using a reservation
Stock materials
these are materials that are acquired to be consumed by or used within the organization.
Consumable materials
identifies the bearer of the cost of the purchase and is the entity for which the materials were purchased.
Account assignment
object
Determine the specific accounting Data needed.
Account Assignment Category
What are the 5 Account assignment category?
Asset
Cost Center
Order
Sales Order
Project
A company uses this category when it acquires a fixed asset, such as a car or land.
Asset (A)
Companies use this category when they purchase materials for different types of orders.
Order (F).
When a company purchases materials for consumption, then the purchase order must include both the cost center to be charged and the appropriate general ledger expense account number
Cost Center (K)
When the purchase is associated with a specific sales order, then the sales order number and a general ledger account number must be provided.
Sales Order (C)
When the purchase is related to a project, then the project number and a general ledger account number must be specified.
Project (P)
determine the usability of materials— that is, how the company can use the materials in its various processes.
stock types or statuses
Four common stock types are:
unrestricted use;
in quality inspection;
blocked stock, and;
stock in transit.
can be used in any manner that management feels will benefit the enterprise.
unrestricted use
A company uses this status when the goods it receives from a vendor must undergo inspection before being released for consumption.
in quality inspection
is typically used for materials that are damaged or unusable for some reason, such as the when the vendor delivers the wrong materials.
Blocked stock
when materials are being moved from one plant to another, they are classified as ___________.
stock in transit.
is associated with receiving materials from a vendor, shipping them to a customer, or otherwise “moving” them from one location within the company to another.
goods movement
The four common goods movements are :
goods receipt
goods issue
stock transfer
transfer posting.
is used to change the stock type or status of or to reclassify the material into a different material type.
transfer posting
records the receipt of materials into storage, which results in an increase in inventory quantity.
goods receipt
when materials are removed from storage, in which case inventory is reduced.
(a) ships materials to a customer,
(b) uses them for internal consumption
goods issue
Is used to move goods from one location to another within the organization.
stock transfer
records data related to a goods movement, such as the receipt of goods from a vendor.
material document
Determines which Category of movement is being executed
Movement types
What are the data needed to create a purchase requisition in requirements determination?
item category, quantity, desired delivery date, and desired delivery location
What is the task in requirements deternation?
to create the purchase requisition using the specified data.
What is the outcome of requirements determination?
Purchase requisition
company selects a vendor from a list of potential suppliers
SOURCE LIST
The requisition can be satisfied through this which are longer-term agreements between an organization and a vendor.
OUTLINE PURCHASE AGREEMENTS
An invitation to vendors by an organization to submit a quote for the supply of the materials or services.
A quotation is legally binding on the vendor for a specified period.
Request for Quotation (RFQ)
is a communication sent to a vendor in which a company commits to purchasing the specified materials under the stated terms.
purchase order
Data included in order processing are
data from several master records, such as material master, vendor master, info records, and conditions.
The primary task in order processing is
to create and send the purchase order to the vendor.
The main document created in order processing is
purchase order
which records the receipt of the materials from the vendor.
goods receipt
also known as a packing list—that identifies the materials included in the delivery and the purchase order.
delivery document
The essential task in the goods receipt step is
to verify and record the materials included in the shipment in the goods receipt document.
The most common method of invoice verification is
three-way match
It is a method between the purchase order, the goods receipt or delivery document, and the invoice.
Three-way match
A method 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.
two-way match
display work that is to be completed.
This figure shows a list of purchase requisitions that are open.
Work lists
can be manipulated using the various functions of the list viewer or grid control.
Online lists
is one of the components of the logistics information system.
Purchasing information system (IS)
Purchasing IS provides two analysis capabilities:
standard and flexible analysis capabilities.
the characteristics are organizational levels and master data relevant to the procurement process.
Key figures includes
quantities, such as the amount of a material ordered or delivered;
value, such as the value of material ordered or delivered; and
counts, such as the number of purchase orders.
standard analysis
enables the user to define the content and format of the analysis.
In this analysis, characteristics and key figures can be combined as needed.
Flexible analysis
