Key Organizational Levels Relevant to Purchasing Process
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Key Organizational Levels Relevant to Purchasing Process
R E V I E W Q U E S T I O N S
- Explain the key organizational levels relevant to the purchasing process.
- Explain the differences between the various types of purchasing organi- zations. Under what conditions is each type appropriate?
- Explain the data in the material master that are relevant to the purchasing process.
- Explain the data in the vendor master that are relevant to the purchasing process.
- What are purchasing info records? What is their role in the purchasing process?
- What are conditions used for?
- Explain the relationship between organizational levels and master data in purchasing.
- What are item categories in purchasing? Explain how each of the follow- ing item categories impacts the purchasing process: consignment pro- cess, third-party item, subcontracting item.
- What is the role of account assignment categories in purchasing?
- How is account determination different when purchasing stock items and consumable items?
- What are the stock types or statuses based on the usability of materials? What is the signifi cance of these statuses?
- Explain the four goods movements discussed in this chapter. How are goods movements related to movement types?
- What is a material document? List some key data included in a material document.
- Briefl y describe the steps in the procurement process explained in this chapter. What are some possible variations to this process?
Review Questions 125
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- Explain the different steps in the procurement process in terms of their triggers, required data, tasks completed, and outcomes.
- Which steps in the procurement process have an impact on fi nancial accounting? Explain these impacts.
- During which steps in the procurement process are material documents created. Why?
- What is meant by source of supply determination? What are the different ways of identifying a source of supply?
- What are the different paths from a purchase requisition to a purchase order? What determines which path is selected?
- Figure 4-21 illustrates the different purchase order processing options. Explain this fi gure.
- A purchase requisition can result in multiple purchase orders, and multi- ple requisitions can be combined into one purchase order. Explain the circumstances when these two scenarios are possible. Provide examples.
- What is a delivery document? What is the signifi cance of a delivery docu- ment in purchasing?
- Explain the outcomes of the goods receipt step of the procurement process
- Explain the outcomes of the invoice verifi cation step of the procurement process.
- What is a three-way match? What is its purpose? What documents are involved in a three-way match?
- Explain how the procurement process is integrated with other processes within an organization.
- Provide two examples of online lists and work lists. Explain what these reports are used for.
- Provide two examples of reports generated via standard analysis. Explain what these reports are used for.
E X E R C I S E S
Exercises for this chapter are available on WileyPLUS.
126 CHAPTER 4 The Procurement Process
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CHAPTER 4 The Procurement Process 127
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LEARNING OBJECTIVES
After completing this chapter you will be able to:
- Describe the organizational levels associated with the fulfillment process.
- List and explain the master data associated with the fulfi llment process.
- Identify the key steps in the fulfi llment process and the data, documents, and information associated with each step.
- Discuss the role of the credit management process in fulfi llment.
- Effectively use SAP® ERP to execute the key steps in the fulfi ll- ment process.
- Explain how and why fulfi llment is integrated with other processes.
- Utilize SAP ERP to extract meaningful information about the fulfi llment process.
GBI currently uses a very simple process to fi ll customer orders. This process, introduced in Chapter 1, is reproduced in Figure 5-1. The pro-cess begins when GBI receives a customer’s purchase order, which it validates and authorizes via a sales order. The warehouse then prepares and sends the shipment, after which accounting forwards an invoice. The process ends when GBI receives payment from the customer.
This simple process has worked well for GBI up to this point. Because GBI has grown rapidly, however, the company wants to utilize the new ERP system it acquired to enhance its process for fi lling customer orders. Specifi cally, it wants to make the process more effi cient and customer friendly as well as more transparent by keeping track of the status of every order throughout each step in the process. In addition, it wants to incorporate other sales-related activities, such as developing leads and responding to inquiries, into the new process.
The Fulfi llment Process
C H A P T E R 5C H A P T E R
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128 CHAPTER 5 The Fulfi llment Process
Figure 5-1: A basic fulfi llment process
In this chapter, we discuss the fulfi llment process in detail, with a spe- cial focus on how an ERP system supports the process. We begin by identify- ing the key organizational levels and the master data related to the
process. Next we examine the process steps in detail, and we explain how fulfi llment is integrated with other processes. We conclude by discussing the various reports related to fulfi llment. Unlike the previous chapter, this
chapter does not include a separate section on key concepts. The reason for this is that the basic concepts associated with fulfi llment, such as goods movement, have been addressed in previous chapters.
To illustrate the various concepts and process steps, we will use the fol- lowing scenario throughout the chapter. Rocky Mountain Bikes (RMB), a GBI customer located in Denver, Colorado, has placed an order for 40 silver deluxe touring bikes and 100 t-shirts that it plans to sell at two racing events in Colorado Springs, one to be held on May 15 and the other on June 20. Because the bikes represent a signifi cant inventory and storage
expense, RMB wants GBI to deliver them directly to the racing location just a few days before each race. Further, RMB anticipates that the May race will attract a much larger crowd, so it expects to sell more bikes and t-
shirts at that race. It has therefore requested that GBI deliver 30 of the bikes on May 10 and the remaining 10 on June 10. However, it wants GBI to deliver all 100 t-shirts in May so that it can sell as many as possible at the fi
rst race and then sell the remaining ones at the second race. Unlike the bikes, t-shirts are relatively inexpensive and are easy to store between races.
ORGANIZATIONAL DATA Several organizational elements are essential to the fulfi llment process. These are client, company code, sales area, plant, storage location, shipping point, and credit control area. Three of these—
sales area, shipping point, and credit control area—are unique to fulfi llment. A sales area is a combination of three other organizational elements—sales organization, distribution channel, and division—that are also unique
to fulfi llment. We discuss all of these organiza- tional elements in this section.
Some elements—namely, client, company code, plant, and storage location—are also relevant to other processes and have been discussed in
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Organizational Data 129
previous chapters. In this section we have included a discussion of plant and storage locations as they relate specifi cally to fulfi llment. No additional discus- sion of client and company code is necessary.
SALES ORGANIZATION
A company (company code) is divided into several sales organizations, each of which is responsible for the sale and distribution of goods and ser- vices for a particular geographical area, such as a regional or national
market. Specifi cally, a sales organization is:
- Responsible for negotiating terms and conditions of sales for that market.
- Responsible to customers with regard to liability and rights of recourse in cases of disputes.
- The highest level of aggregation in sales-related reporting. That is, sales data can be summarized up to the level of the sales organization.
A company code must have at least one sales organization, although it can have many. The latter arrangement is appropriate if the sales processes are substantially different in the different sales organizations, for instance,
to handle regional differences in practices and customs. In other cases a company might use multiple sales organizations simply to make sure that the geographic area covered remains manageable. Although a company
can include multiple sales organizations, a sales organization can belong to only one company code. The sales organizations for GBI are depicted in Figure 5-2. As the figure indicates, GBI US has two sales organizations,
one each for the Eastern and Western US. GBI Germany also has two sales organizations, one each for the Northern and Southern territories.
Figure 5-2: GBI sales organizations
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130 CHAPTER 5 The Fulfi llment Process
DISTRIBUTION CHANNEL
A distribution channel (DC) is the means by which a company delivers its goods and services to its customers. Typical channels are wholesale, retail, and online (Internet sales). Just as a company can have multiple sales
organizations, it can also have multiple DCs. Each channel has its own strategies, approaches, and constraints for getting the goods and services to the customer. More specifi cally, each channel has its distinctive
responsibilities, pricing sys- tems, plants from which shipments are made, and other characteristics. For example, a wholesale channel has the following characteristics (among others):
- It does not include sales taxes in calculating prices (in the United States).
- It requires a minimum volume of purchase and offers volume discounts.
- It may designate a specific plant or plants from which deliveries are made.
In addition, reporting can be consolidated at the DC level. That is, statis- tics can be summarized and aggregated based on distribution channels. A sales organization must have at least one distribution channel, although it
can have more than one. In addition, a distribution channel can be assigned to multiple sales organizations.
Because GBI is a manufacturing organization, it historically has sold its products through the wholesale channel. Its customers are retailers who, in turn, sell the products to the end-consumers. Recently, however, GBI has
begun to sell directly to end-customers via the Internet. Although anyone can access the GBI website to purchase a bike, factors such as complex taxes, shipping costs, and import duties make it very diffi cult for GBI to
operate a global Internet sales channel. Therefore, GBI manages both the wholesale and Internet sales channels together at the country level, as illustrated in Figure 5-3. This policy ensures that the sales organization that
ships the product to the customer is the group that is also the most familiar with the tax laws for that region.
Note that, although all four sales organizations identified in Figure 5-3 are involved with wholesale sales, only two are involved with Internet sales. The Western US sales organization manages Internet sales for the entire
United States, and the Northern German sales organization manages Internet sales for all of Germany. If GBI were to venture into retail sales at a later date, it would create a new channel—retail—to manage these sales
because the strategies for retail sales, such as pricing, minimum quantities, and taxes, will be different from the other two channels.
Intel Corporation has six independent operating groups that manufacture products, each of which operates four sales organizations: Asia-Pacifi c, the Americas, Europe, and Japan. Intel locates its sales organizations close
to their largest clusters of customers. Each of the 24 sales
organizations has two distribution channels, direct and reseller. Thus, there are 48 combinations through which Intel sells its products to its customers globally.
Source: Intel company reports.
Key Organizational Levels Relevant to Purchasing Process
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