The Purchasing Process

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The Purchase Process is an interacting structure of people, equipment, methods, and controls that is desined to accomplish the following primary functions:

Purchasing Process Activities:

  • Handle the repretitive 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 prepartion of internal and external reports.

Purchasing Process Information Flows:


1. Purchase requisition sent from inventory control
2. Purchase order sent to vendor, inventory control, receiving, and accounts payable
3. Packing slip (with goods) received from vendor
4. Stock notice (with goods) sent to warehouse
5. Notice of receipt sent to accounts payable, general ledger, and purchasing.

Recommended Control Plans:
Controls Plans that are particular to the purchasing business process:
- Approve purchase requisition
- Use authorized vendor data
- Independent vendor master data maintenance
- Compare vendors for favorable prices, terms, quality, and product availability
- Approve purchase order
- Confirm purchase order to requesting department
- Independent authorization to record receipt
- Inspect goods

Vertical Information Flows, explain:

Technologies Supporting Purchasing Process:

1. Continuous Replenishment (CRP) - aka Vendor Managed Inventory (VMI) and Supplier Managed Inventory (SMI). The vendor gets the buyer's current sales, demand, and inventory data in real time and sends the buyer new inventory based on this data. Indepth explanation of CRP
2. Co-Managed Inventory - the vendor is in charge of replenishing standard inventory and the buyer is in charge of replenishing promotional merchandise. This is a form of CRP. CMI definition and benefits for buyers and sellers
3. Collaborative Forcasting and Replenishment (CFAR) - the retailer and manufacturer forecast demand and schedule production jointly. This was the predecessor to CPFR.
4. Collaborative Planning Forecasting and Replenishment (CPFR) - collaborative processes across the supply chain using a set of processes and technology models. Basically this allows everyone in the supply chain to plan what needs to be manufactured and what needs to be ordered. This make them all more efficient. About.com definition and explanation


Narratives of the Purchasing Process:

  • Write narratives for each of the models provided in chapter 12 starting with:

Purchasing Process Context Diagram: The purchasing process has 3 inflows and 7 outflows. The process responds to the requests for goods and services recevied from the inventory process and from various departments. A purchase order is sent to the vendor while notices are sent to other departments and processes. Vendors send the goods or services along with a packing slip. This results in additional notices being sent.
Purchasing Process Level-0 Diagram: This process begins by each department identifying its need for goods and services by sending purchase requisitions. Bubble 2.0 involves the ordering of the goods and services. The first process is vendor selection. Once a vendor is selected, a purchase order is sent to the corresponding vendor. Notification is then sent to the Accounts Payable department while the Purchase Order Master Data is updated. Bubble 3 involves the receiving of goods and services. A vendor packing slip accompanies the purchased inventory from the vendor as it identifies the shipment and triggers the receiving process. A stock notice is sent to the warehouse and a receiving report is generated and sent to the Accounts Payable process. In addition, the general ledger is updated as well as the Vendor Master Data, Purchase Receipts Data, Inventory Master Data and Purchase Order Master Data.
Purchasing Process Level-1 (process 1) Diagram: The first process involves determining requirements. First, various inventory, supplies, and services requests are accumulated. Next, the requests are compared to the Inventory Master Data and the Purchase Requisition Data. This comparison allows the company to calculate the necessary requirements. Finally, the requests are sent to the Purchasing Process.
Purchasing Process Level-1 (process 2) Diagram: The second process in the purchasing process, "Order goods and services", is triggered when the order purchase requestition requirements are received from the first process. First, the buyer must consult the vendor master data to find the best approved vendor available for the order. Once an appropriate vendor is selected for the purchase requisition, the purchase order is prepared by the buyer. A purchase order usually includes the needed quantities of items (determined by consulting the inventory master data), expected unit prices, required delivery date, terms and other conditions. Finally, the purchase order is sent to the vendor and the inventory master data is updated to reflect the goods ordered. At the same time, the Purchase Order master data is updated and various departments, including purchasing, inventory, accounts payable, and receiving, are notified of the respective purchase order information.
Purchasing Process Level-1 (process 3) Diagram: The third process in the purchasing process, "Receive goods and services", is initiated upon the receipt of a vendor packing slip, which is included with the shippment of purchased goods. First, the receiving clerk must inspect and count the goods in the shippment and match them to the vendor packing slip and to the PO notification sent to the receiving department in process two. If the goods received do not match the PO or the packing slip, or they are defective, they are rejected and processed by an exception routine, not shown. When goods are rejected, a note is added to the service record of the vendor in the vendor master data. Finally, when the count and condition of the goods are obtained, the clerk can complete the receiving report by marking the report with the quantity of goods received. Now, the receiving report can be compared to the purchase order master data, updated in process two. If there are dicrepancies, the report is rejected and processed by an exception routine, not shown. Valid receiving reports are used to update the purchase receipts data, and the inventory master data. A copy of the receiving report is sent to the AP process. A copy, the "stock notice" is aslo sent to the warehouse with the goods received. Finally, the cost of the inventory is used to update the GL and data about vendor compliance with order terms are added to the vendor master data.
Purchasing Process Systems Flowchart (Puchasing): The cost center employees identifies the need for an item and the requisitioner keys in the material number, quantity, required delivery date and location into the enterprise system display screen. The requisition is recorded and sent to the cost center supervisor for reveiw and approval(s). The requisition is sent to the next person in the chain once it is approved and the approval record is attached and displayed in the appropriate boxes. One all approvals are met the requisition is updated to indicate so and sent to the purchasing department. Varying on priority the enterprise system will display requisitions (from various departments, inventory control and forecast data) on the appropriate buyer screen. It will also display to the buyer a list of approved vendors for those items. The buyer can compare these vendors for price quality etc and select the desired vendor. Some vendors may require contact to set prices. Upon final vendor selection the buyer converts the requisition to a purchase order and adds necessary vendor details. From there the system willrout the purchase order to the purchasing manager to approve. Once the PO is approved it is released. Then the system updates the approval records, inventory master data and confirms the order to the requisitioner. The purchase order is released to the EDI translator to be converted to an encyrpted EDI format with an appended digital signature.
Purchasing Process Systems Flowchart (Receiving): The vendor sends the merchandise to the receiving department who enters the PO number. An RFID reader shows the items and quantity from the RFID chip. The system compares these quantities and accepts shipments that are verified (error routine not shown for rejections). Then the system creates purchase recepts data, updates the status of the PO to show received, updates the inventory master data and the general ledger. Then prints a stock notice and shows a receiving report number. The receiving clerk attaches the stock notice to the goods and puts the receiving report number on the shipping documents. The goods are sent to the warehouse and the shipping documents are filed chronologically.