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The role of the ERP system in the procurement process

 on Wednesday, November 23, 2016  

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Implementing enterprise systems
Enterprise Resource Planning (ERP) systems offer a single solution from a single supplier with integrated functions for major internal processes such as production, distribution, sales, finance and human resources management. Three core ERP processes are procurement, fulfilment and production. The activity of procurement will be used as an example of the use of an ERP system.

The procurement process
The role of procurement is to acquire all the materials needed by an organisation in the form of purchases, rentals, contracts and other acquisition methods. The procurement process also includes activities such as selecting suppliers, approving orders and receiving goods from suppliers. The term purchasing usually refers to the actual act of buying the raw materials, parts, equipment and all the other goods and services used in operations systems. However the procurement process is often located in what is called the purchasing department. Figure 6.3 outlines the main steps in the procurement process and the role of the functional areas of operations, purchasing and suppliers in the process.

The procurement process begins with the department requiring the goods or services issuing a purchase requisition which authorises the purchasing function to buy the goods or services. The requisition will usually include a description of what is to be purchased, the amount to be purchased and a requested date for delivery. Other information provided will be the account to which the purchase cost will be charged, the delivery address and the approval of an appropriate person of the transaction. The purchasing department will receive the request and prepare a ‘request for quotation’ document to a suitable supplier or suppliers. The quotation will require a price, any other payment terms such as quantity discounts, a delivery date and any other conditions stipulated by the supplier. When a supplier has been chosen then they are issued with a purchase order which represents a legal obligation by the buyer to pay for the items requested. The purchase order will usually include information.
specifying the item to be purchased, its price and delivery date. The supplier will then produce the goods or service and deliver them to the relevant department and provide an invoice form requesting payment. When the organisation is satisfied the good or services and the invoice details are satisfactory a payment will be issued to the supplier.

The role of the ERP system in the procurement process
The ERP system will make the procurement process more efficient by supporting the execution of the process, capturing and storing data generated by the process steps and providing information that can be used to monitor process performance. The execution of the process is supported by using the ES to store relevant data and documents in a common database. This eliminates the need to re-enter data at different stages of the process and means documents can be quickly and easily created and stored. Process execution is also supported by providing automatic notification of tasks that need completing by staff involved in the process. For example after a purchase requisition is received the purchasing department can be alerted to send requests for quotations from potential suppliers. The processes involved in the procurement process are now discussed in more detail to outline differences between the manual and ES approaches.

1. Request order (create purchase requisition)
In a manual system, physical checks of stock would need to be made to ascertain whether  a purchase of new materials is necessary. Then forms would need to be gathered that covered information such as previous purchases of items and lists of potential suppliers. Using the ES will enable a display of the supply of inventory at any time so the need to make a purchase requisition can be made. If necessary the purchase requisition process can be triggered automatically when stock drops below a determined level. Once the need for an order has been determined the ES displays a ‘purchase requisition’ screen which allows the user to search for the required materials from the database and allocate suppliers. The system will automatically recall details of previous suppliers. When complete the purchase requisition information is immediately available to other users in the organisation.

2. Get quotes (create request for quotation)
In a manual system the relevant suppliers would need to be identified and customer inquiry forms prepared requesting availability and pricing information for the relevant items. Customer quotation letters would need to be collated as they were received before orders could be approved. An ES will allow the automatic generation of customer inquiry letters using supplier information held in the database. Customer quotations are then received electronically and automatic notification is given as they are received.

3. Approve order (create purchase order)
In a manual system once suppliers have been selected purchase requisition information will need to be transferred to purchase orders before they can be delivered to suppliers. An ES can automatically generate purchase orders and electronically dispatch them to the suppliers.

4. Receive products and services (create receiving report)
In a manual system the delivery list which identifies the contents of the shipment and contains the purchase order number must be match with the relevant purchase order from the paper files. A good receipt form must then be generated. In an ES the user simply enters the purchasing number from the delivery list to retrieve the details of the purchase order and to allow checking of the delivery contents. The goods receipt information can then be stored on the database.

5. Make payment (receive invoice and send payment)
In a manual system, when the invoice has been received from the supplier, then this will need to be matched with the purchase order and goods receipt document before payment can be authorised and sent. Using an ES, an invoice can quickly be generated and crosschecking of purchase order, goods receipt and invoice amounts is undertaken automatically.  Any payment terms can be allocated by the system and payment can be made electronically to the supplier’s bank account.
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The role of the ERP system in the procurement process 4.5 5 eco Wednesday, November 23, 2016 Implementing enterprise systems Enterprise Resource Planning (ERP) systems offer a single solution from a single supplier with integrated f...


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