Lecture 9: The Purchasing Process – Part 1 PDF

LECTURE 9: THE PURCHASING PROCESS – PART 1 ACS 2916 Instructor: David Tenjo © 2018 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-...

LECTURE 9: THE PURCHASING PROCESS – PART 1 ACS 2916 Instructor: David Tenjo © 2018 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE. SYNPOSIS  Crucial business process: the purchasing of goods and services needed for successful operation of a business.  Introduction of the organizational setting of the purchasing process, the supply chain; the logical and physical processes involved in purchasing goods and services; and the control goals and control plans relevant to the process.  The purchasing process comprises the first three steps in the purchase-to-pay (Expenditure) cycle. © 2018 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.  Describe the relationship between the purchasing process and its business environment, including the organization’s supply chain.  Understand the implications of implementing a supply chain LEARNING OBJECTIVES (SLIDE 1 OF 2) management (SCM) system in a global business environment.  Summarize how enterprise systems, e-business, and other technologies can improve the effectiveness of the purchasing process.  Identify the logical activities and physical characteristics of a typical purchasing process.  Study how business process control plans can accomplish operations and information process control goals. 2 © 2018 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.  Purchasing process: An interacting structure of PROCESS DEFINITIONS AND FUNCTIONS (SLIDE 1 OF 2) people, equipment, activities, and controls that is designed to accomplish the following:  Determine the goods and services that need to be ordered.  Goods are raw materials, merchandise, supplies, fixed assets, or intangible assets.  Services cover work performed by outside vendors, including contractors, catering firms, maintenance firms, consultants, auditors, and the like. © 2018 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE. PROCESS DEFINITIONS AND FUNCTIONS (SLIDE 2 OF 2)  Handle the repetitive 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 preparation of internal and external reports. © 2018 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE. ORGANIZATIONAL SETTING  The purchasing process is closely linked to functions and processes inside and outside the organization. © 2018 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE. AN INTERNAL PERSPECTIVE  Purchase requisition sent from inventory control (or various departments) to purchasing  PO sent to vendor (2a), inventory control (or various departments) (2b), receiving (2c), and accounts payable (2d)  Packing slip (with goods) received from vendor  Stock notice (with goods) sent to warehouse  Notice of goods receipt sent to accounts payable (5a), general ledger (5b), and purchasing (5c) © 2018 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE. Controls implicit in the assignment of responsibilities: AN INTERNAL PERSPECTIVE  Purchasing receives authorization to execute and record the purchase.  The open PO authorizes receiving to accept the goods.  Receiving executes the receipts and, along with the warehouse, has custody of the goods.  The controller/general ledger records the increase in inventory. © 2018 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE. ORGANIZATIONAL SETTING AND POSSIBLE GOAL CONFLICTS (SLIDE 1 OF 3)  The purchasing manager usually performs major buying activities and the required administrative duties of running a department.  In many organizations professional buyers do the actual buying.  The receiving supervisor is responsible for receiving incoming goods, signing the bill of lading, reporting the receipt of goods, and transferring goods to the appropriate warehouse or department. © 2018 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.  Individual managers’ goals may not be in congruence with ORGANIZATIONAL SETTING AND POSSIBLE GOAL CONFLICTS (SLIDE 2 OF 3) organizational objectives.  Purchasing may buy large quantities to reduce costs, leading to increased receiving, inspecting, and carrying costs.  Ambiguity often exists in defining goals and success in meeting goals.  Purchasing goal might be to select vendor who provides the best quality and lowest price by the promised delivery date. One vendor may not satisfy all three conditions. © 2018 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.  Prioritization of goals is necessary in ORGANIZATIONAL SETTING AND POSSIBLE GOAL CONFLICTS (SLIDE 3 OF 3) choosing the optimal solution given the various conflicts and constraints placed on the process.  Trade-offs must be made in prioritizing among goals that conflict.  If the market is sensitive to satisfying customer needs, company may pay higher prices to ensure it can obtain the highest quality goods on a timely basis. © 2018 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE. AN EXTERNAL PERSPECTIVE  understanding the intricacies of data exchange with external partners, which is fundamental for optimizing cross-company processes and ensuring seamless integration and collaboration. © 2018 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.  Supply chain: Connections from the suppliers of SUPPLY CHAIN MANAGEMENT merchandise and raw materials through to an organization’s customers. Connections include the flow of information, materials, and services.  Organizations manage supply chain links to get the right goods, in the right amount, at the right time, and at minimal cost (efficiency) to create maximum value for their customers (effectiveness). © 2018 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.  Supply chain management (SCM): SUPPLY CHAIN MANAGEMENT © 2018 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE. Combination of processes and procedures used to ensure delivery of goods and services to customers at the lowest cost while providing the highest value.  SCM software: Helps organizations to execute the steps in the supply chain.  Supply chain planning software  Accumulates data about orders from retail customers, sales SUPPLY CHAIN MANAGEMENT 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 supply chain are B2B automated interfaces. © 2018 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE. BENEFITS OF SUPPLY CHAIN MANAGEMENT  Lower costs to the customer.  Higher availability of product and lower backorder costs.  Higher response to customer requests.  Reduced inventories.  Improved buyer-seller relationships.  Smooth workloads.  Reduced item costs.  Increased customer orders.  Reduced product defects. © 2018 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.  Data not collected or shared across functional boundaries.  Up-to-date real-time sales data must be fed to the SCM demand forecasting system.  Supply chain performance is not fed back to the planning ISSUES WITH SUPPLY CHAIN MANAGEMENT system.  Confused lines of responsibility and lack of trust leads to lack of information sharing between supply chain partners.  Inaccurate data can negatively affect the entire chain.  Over-reliance on demand forecasting software can lead to inaccurate forecasts.  Competing objectives can lead to unrealistic forecasts. © 2018 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE. SUPPLY CHAIN MANAGEMENT  Supply chain operating without using some of the collaboration techniques:  Misread demand can lead to the multiplication of orders up the supply chain causing wild demand and supply fluctuations, known as the bullwhip effect.  Any member of the supply chain can increase its orders for reasons other than an expected increase in demand.  A sales forecast is not easily converted into a demand forecast, which is what the retailer will order from its supplier and when.  Global supply chains can add additional stress to supply chain planning and coordination.  Supply chain planning and execution requires that worldwide systems and databases remain available, and the integrity of the data maintained, at all locations at all times. © 2018 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE. INFORMATION SHARING (COLLABORATION) IN THE SUPPLY CHAIN 1. Continuous Replenishment Program (CRP): - Real-time inventory management by the supplier.    Real-time data on sales and inventory.  Enhanced through EDI, Web interfaces, or hosted hubs (e.g., SAP). Benefits:  Reduced uncertainty for vendors.  Balanced inventory cost vs. customer service.  Cost savings passed to partners/customers. Case Study: P&G to Walmart since 1987. 2. Co-Managed Inventory: - A shared inventory management responsibility.   Vendor handles standard items.  Buyer manages promotional items. Impact: Added to Walmart's strategy in 1992, refining CRP with sales forecasts. 3. Collaborative Forecasting and Replenishment (CFAR): Joint demand forecasting and production scheduling.  Adopted by Warner-Lambert and Walmart in 1995/1996 for Listerine. 4. Collaborative Planning Forecasting and Replenishment (CPFR): A comprehensive collaboration approach in supply chain.   Integrative processes and technology.  Sharing of plans and data via the Internet. Innovation: Began in 1998, fostering sales forecast collaboration under VICS.   KEY ASPECTS OF CPFR PROCESS AND BENEFITS   © 2018 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE. CPFR Strategy & Planning:  Establish collaboration objectives, scope, roles, and procedures.  Develop a joint business plan accounting for market events affecting supply and demand.  Demand & Supply Management: Sales Forecasting: Anticipate customer demand at the point of sale.  Order Planning: Predict future needs for product orders and delivery.  Execution & Analysis: Convert forecasts into actionable orders.  Ensure product availability for consumer purchase.  Monitor operations for exceptions; assess performance to inform strategy. CPFR Benefits:  Up to 30% increase in sales.  Up to 6% better stock levels.  Inventory reductions up to 30%.  Forecast accuracy improved by up to 30%.  Operations and logistics costs cut by up to 28%.