Procurement Process

• Exam registration is open with a deadline of February 26th.
• The exam will be held on the 17th and 18th.
• Students can choose to be examined in English or Swedish. If choosing Swedish, the examiner will ask questions in English, but answers can be in Swedish.
• After registration, students will receive an invitation to the examination room on Canvas.
• The submission deadline for the first assignment is today.
• Office hours for Project 2 are next Thursday afternoon in a Zoom room.
• For questions related to Project 2 refer to Ed; for Project 3, contact the lecturer.

Procurement Process

• Procurement is the process of buying things for an organization.
• It includes budgeting, finding a vendor, vendor agreements, purchasing, and receiving purchased items.
• Purchasing is a subtask within procurement.

Lecture Format

• The lecture will cover the basic procurement process.
• The lecture will cover the role of enterprise systems in handling procurement.
• The lecture will review an example using the SSB (skateboard manufacturing company) case study.

What is Procurement?

• Procurement involves buying equipment, material, or services.
• This can include buying materials to manufacture or sell, or for daily tasks like stationary.
• It can also include outsourcing services or software subscriptions.
• Procurement can be business-to-business (B2B) or business-to-customer (B2C), but the lecture focuses on B2B.
• B2B procurement requires a lot of governance due to the large amounts of goods and money exchanged.
• Governance needs to be covered well both physically with documents and through the entprise system.

Key Aspects of Procurement

• Physical flow: actual actions taken, who is involved, how communication is coordinated.
• Required documents include legal and industry-standard documents.
• Data: master, organization, and transaction data.

Physical Flow

• What triggers the process to start
• What steps need to be taken
• What happens in each step
• Who are involved
• How is communication coordinated

Procurement Steps

• Warehouse detects low stock of materials and creates a purchase requisition.
• The purchase requisition includes details such as the wheels needed, quantity, and delivery date.
• The purchase requisition is sent to the purchasing department for approval.
• The purchasing department approves or disapproves the purchase requisition.
• If no vendor is in mind or there is no agreement with a vendor, then a request for quotation is created.
• Request for quotation is sent to potential vendors.
• Vendors send quotations with offers, including prices, specifications, and delivery times.

Vendor Selection

• Purchasing department decides which vendor to select based on criteria such as:
  • Cost and discounts
  • Quality
  • Time/lead time
  • References/reputation
  • Green procurement
• Once a vendor is selected, a purchase order is sent.
• A purchase order is a legally binding document.
• After sending the purchase order, the goods are received and a goods receipt is created.
• The invoice is received from the supplier and invoice verification is conducted.
• Invoice verification is a comparison of the purchase order, good receipt, and the invoice.
• Finally, the payment is made.

Variations in Procurement Steps

• Not all companies have the same steps or order.
• Small companies may have different departments handling tasks.
• Contracts with vendors may eliminate the need for certain steps, like vendor selection, each time.
• Companies may set a threshold for purchases that require approval.
• Thresholds are put in place to save time, manage budgets, and prevent fraud.

Physical & Document Flow (Example)

• Warehouse detects low stock, creates a purchase requisition document.
• Purchasing department creates and sends a purchase order document.
• A shipment is received with a packing list document.
• A goods receipt document is created.
• Accounting receives an invoice, does invoice verification, and sends payment.
• Internal documents: purchase requisition, purchase order, goods receipt.
• External documents: packing list, vendor invoice.

Purchase Requisition Example (SSB)

• Includes mandatory information such as:
  • Registration number/ID
  • Date of request
  • Required delivery date
  • Requester information
  • Delivery location
  • Material information (ID, description, quantity)
  • Vendor information
  • Freight on board (FOB) point
  • Payment terms (e.g., Net 30)
  • Signatures

Data Types

• Organizational data: company name, location etc.
• Master data: vendor or material information.
• Transaction data: data specific to each transaction.

Purchase Order Document

• The purchase requisition is approved and the purchasing department creates a purchase order.
• The universally known names for purchase requisition purchase PR, purchase order PO, and goods receipt GR.
• Purchase order also includes:
  • Shipping address
  • Delivery date
  • Freight on board details
  • Payment terms
  • Shipment method
  • Unit price
  • Total price
  • Shipping costs
  • Taxes
  • Discounts

Packing List Document

• Includes information such as:
  • Vendor name and address
  • Order dates
  • Customer contact
  • Packer and checker identification
  • Customer and vendor order numbers
  • Shipping and billing addresses
  • Material description and quantity
• Does not include price (considered confidential).
• Includes weight (legal and operational requirement).
• Amount ordered, amount shipped, and amount on back order

Goods Receipt (GR) Document

• Includes:
  • Company name
  • Goods receipt ID
  • Date of receipt
  • Purchase order ID
  • Vendor ID and name
  • Material information
  • Quantities
  • Signature
• Received material falls under restricted to use, quality inspection, or blocked categories.

Vendor Invoice Document

• Includes:
  • Invoice number
  • Customer ID
  • Dates
  • Shipping and billing addresses
  • Order numbers
  • Freight on board details
  • Payment terms
  • Quantities
  • Descriptions
  • Discounts
  • Taxes
  • Prices
  • Totals
  • Contact information
  • Signature

Invoice Verification

• The accounting department compares the purchase order, goods receipt, and invoice.
• Payment is made if all three match.
• If there are inconsistencies, payment is held until resolved.

Information on Instance vs. Process Level

• Instance level: status of a specific procurement process (e.g., approval stage, order status, payment).
• Process level: performance of the procurement process as a whole (e.g., average delivery time, payment issues).

Role of Enterprise Systems

• Executing the process
• Storing the stock information
• Creation of the purchase order and purchase requisition
• Monitoring the updates
• Enterprise systems help with executing the process and storing information.
• Set an adjustable threshold.
• Monitor on an instance level

Enterprise system enable automation and omni view of information in real time

• Metrics are also available with enterprise systems.
• List of metrics enable measurements of performance
• KPIs (key performance indicators) can provide this measurement

Project 3 (Last Assignment)

• Act as a consultant and choose between two open-source ERP systems (Odoo, Compiere, etc.).
• Install the open source system.
• Compare and recommend one to a company.
• Demonstrate buying and selling business processes in the system with screenshots (presentation on March 11th).
• During presentation have the system available in case it needs to shown.
• List master, organization, and transaction data used.
• Suggest implementation strategies.
• If any problems you can copy as a student to have the lecturer able to help.
• Office hours are next week and remember to register for the exam.