Chapter 12 Purchasing Process 04 11 2013 Information Flows in the purchasing process 1 Purchase requisitions sent from inventory control to purchasing 2 PO sent to o vendor o inventory control o receiving o accounts payable o accounts payable o general ledger o purchasing Possible Goal Conflicts 3 Packing slip with goods received from vendor 4 Stock notice with goods sent to warehouse 5 Notice of goods receipt sent to Individual mangers goals may not be in congruence with organizational objectives o Purchasing may buy large quantities to reduce ordering cost and increase discounts leading to increased receiving inspecting and carrying cost Ambiguity often exist in defining goals and success in meeting goals o A purchasing goal might be to select a vendor who will provide the best quality at the lowest price by the promised delivery date Realistically one vendor may not satisfy all 3 conditions Prioritization of goals is necessary in choosing the best solution given the various conflicts and constraints placed on the process o Trade offs are made in prioritizing among the goals that conflict o If the market is sensitive to satisfying customer needs the company may pay high prices to ensure that it can obtain the highest quality goods on a timely basis Supply Chain the connections from the suppliers of merchandize and raw materiel through to an organization s customers These connections include the flow of information materiels and Organizations mange links in their supply chains to be services o Efficient get the right goods in the right amount at the right time at minimal cost o Effective Create maximum value for their customers Supple Chain management SCM the combination of processes and procedures used to ensure the deliver of goods and services to customers at the lowest cost while providing the high value to customers supply chain o SCM Software helps an organization execute the steps in the Categories of SCM Software Supply chain planning software Accumulates data about orders from retail customers sales from retail outlets and data about manufacturing and delivery capability to assist in planning for each of the SCM steps Supply chain execution software Automates the SCM steps Includes ERP software that receives and routes orders and executes invoices Many connections in the supply chain are B2B automated interfaces The multiplication of false orders up the supple chain can cause wild demand and supply fluctuations o Bullwhip Effect Benefits of SCM o Lower cost to the customer o Higher availability of products o Higher response to customer request o Reduced inventories along the supply chain o Improved buyer seller relationships o Smooth shipping and receiving o Reduced item cost o Increased customer orders o Reduced product defect Potential Problems with SCM Initiative o Data not collected or not shared across functional boundaries o Information is not shared between supply chain partners o Inaccurate data negatively affects the entire chain o Over reliance on demand forecasting that may be inaccurate o Competing marketing and sales objectives can lead to unrealistic forecast Mitigating Problems with SCM Initiatives o Types of collaboration in the supply chain CRP continuous Replenishment VMI or SMI Co managed Inventory a form of CRP CFAR collaborative forecasting and replenishment Precursor to CPFR Retailer and manufacturer forecast demand and schedule production jointly Trading partners share plans forecast and other data over the internet During planning and execution partners negotiate resolution to exceptions such as Dramatic change in plans Plans do not match Forecast accuracy is out of tolerance Overstock and understock conditions Triggering the Purchasing Process Purchase Requisitions internal request to acquire goods and services organization are o Requisitions are received for authorizes personnel within an For inventory replenishments Received from automated inventory replenishment systems such as SCM processes Routed by workflow for approval by the requisitioning 1 0 Determine Requirements department supervisor Need to determine WHAT inventory to order WHEN to order it and HOW MUCH to order Push based Supply Chain goods and services are ordered in anticipation of demand based on sales and demand forecast Pull based Supply Chain uses data from vendors and customers to make purchasing decisions on the basis of actual demand Inventory Reorder methods each item is assigned a reorder o Reorder Point ROP Analysis point based on its sales rate o Economic Order Quantity EOQ of ordering and carrying inventory o ABC Analysis technique for ranking items in a group based on order quantity based on cost the output on the items Can be used to categorize inventory items according to their importance 1 1 Accumulate Request 1 2 Calculate Requirements 2 0 order goods and services 2 1 Select Vendor 2 2 Prepare Purchase Order 3 0 Receive goods and services Inspect and Count goods Compare receiving report and purchase order Purchasing inputs and outputs Purchase Order PO services from a vendor a request for the purchase of goods or Blind Copy certain data on a document is blacked out blinded such as quantities ordered on the PO available to receiving personnel Vendor Packing Slip accompanies the purchased inventory from the vendor and identifies the shipment Receiving Report a document such as a PO annotated with the quantity received that is used to record merchandise receipts Acceptance Report documents services received to formally acknowledge the satisfactory completion of a service contract Purchasing Process Data Stores Inventory Master Data record of each item stocked or regularly Vendor master Data record of each vendor approved for use by the ordered organization Purchase requisition data Purchase Order Master Data data on all purchase requisitions Open POs including status or items on Purchasing Receipts Data record of each receipt of goods and Technology and the Purchasing Process E Procurement use of information technology to automate significant portions of the procurement process to reduce the number of people and amount of time requires to the procurement order services process o EX Purchasing agent can use intelligent agents web service Paperless Systems eliminate documents and forms as the medium and B2B exchanges for conducting business B2B Marketplaces which are particular Web sites or portals that may be used as sources of supple in the procurement process