Major Organizational Levels Associated with The Procurement Process
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Major Organizational Levels Associated with The Procurement Process
CHAPTER 4 The Procurement Process 83
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LEARNING OBJECTIVES
After completing this chapter you will be able to:
- Describe the major organizational levels associated with the procurement process.
- Discuss the four basic categories of master data that are utilized during the procurement process.
- Explain the key concepts associated with the procurement process.
- Identify the key steps in the procurement process and the data, documents, and information associated with these steps.
- Effectively use SAP® ERP to execute the key steps in the pro- curement process.
- Utilize SAP ERP to extract meaningful information about the procurement process.
In Chapter 1 we presented a simple procurement process, which is repro-duced in Figure 4-1. This diagram indicates that the initial step in this process is to create a requisition, which is then converted to a purchase order
and sent to a vendor. When the vendor receives the purchase order, it ships the materials, which the ordering party receives in the receive materials step. The ordering party also receives an invoice from the vendor, and it
then makes a payment to the vendor.
This simple process has served GBI well until now due to its small size and closely connected operations. However, as GBI has grown and its opera- tions have become more dispersed and complex, GBI’s management has
come to realize that it needs to reevaluate how GBI procures materials so that the company can take advantage of the most effective and effi cient processes. To accomplish this objective, management needs to familiarize
itself with the vari- ous options available to GBI for executing the procurement process. In addi- tion, it wants to analyze the process steps and their impact in greater depth. Once management has attained a thorough
understanding of the tactical and
The Procurement Process
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strategic aspects of this current procurement process, it can then design and implement a new process that best meets GBI’s needs. It can also determine the best way to manage this process using the SAP ERP system.
In this chapter we examine the procurement process, also referred to as the purchasing or requisition-to-pay process. We begin by discussing the orga- nizational and master data relevant to this process. We then examine
some of the key concepts inherent in the procurement process. After considering the concepts, we discuss the process steps in greater detail than we did in Chapter 1. We conclude the chapter with a discussion of
reporting options.
To illustrate the various concepts and process steps, we will use the fol- lowing scenario throughout the chapter. GBI has discovered that the inventory of t-shirts (SHRT1000) in its Miami distribution center is low.
Consequently, the company must procure more shirts before it runs out and begins to lose sales (and perhaps customers). GBI procures all of its t-shirts from a company called Spy Gear. Further, it purchases them in
quantities of 500.
ORGANIZATIONAL DATA The procurement process is executed in the context of specifi c organizational levels. Organizational levels relevant to the procurement process include cli- ent, company code, and plant. We
discussed these levels in Chapter 2. Recall from that discussion that a client represents an enterprise that is comprised of many companies or subsidiaries, each of which is represented by a com- pany code. Most activities
in the procurement process occur within a company code. Recall also that a plant fulfi lls many functions in a company. In the con- text of procurement, a plant is the location where the materials are received. Therefore we
refer to it as a receiving plant, as opposed to, say, a manufactur- ing plant, where goods are actually produced. Three additional organizational data are relevant to purchasing: storage locations, purchasing organization, and
purchasing group. We consider each one next.
STORAGE LOCATION
Storage locations are places within a plant where materials are kept until they are needed. A plant can have multiple storage locations, each of which is designated for different purposes (e.g., staging area, inspection area) or stores
Figure 4-1: A basic procurement process
84 CHAPTER 4 The Procurement Process
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Organizational Data 85
specifi c types of materials (e.g., semifi nished goods). More specifi c storage locations include shelves, bins, cabinets, and trays. Locations range from small bins to entire buildings, depending on the size of the materials
being stored. For example, the storage location for nuts and bolts will be a small container, whereas the storage location for an aircraft will be a hanger. Organizations with sophisticated inventory management systems can
manage their materials on a more detailed level. We address these systems in the chapter on inventory and warehouse management.
Regardless of the nature of the enterprise, however, a plant must have at least one storage location if it needs to track the quantity and value of materi- als in its inventory. For example, a plant that serves as a production or
storage facility must maintain accurate records of the quantity and value of raw mate- rials, semifi nished goods, and fi nished goods. The plant cannot perform this function without storage locations. In other cases,
however, this function is not necessary. For example, an enterprise does not typically track the quantity or value of supplies it purchases for a corporate offi ce (a plant). Therefore, a stor- age location is not essential. Signifi
cantly, although one plant can have multiple storage locations, each storage location can belong to only one plant.
Figure 4-2 shows storage locations for the fi ve GBI plants. The Dallas plant has four storage locations. It stores raw materials (RM00), semifi nished good (SF00), fi nished goods (FG00), and miscellaneous materials
(MI00). The Miami and San Diego plants, which are distribution centers (DCs), both have three storage locations to store fi nished goods (FG00), trading goods (TG00), and miscellaneous materials (MI00). The structure of
storage locations in Germany is similar to that of the U.S. company. The manufacturing facility in Heidelberg has a structure similar to that in Dallas, and the Hamburg plant has a structure similar to the plants in Miami and
San Diego. Note that although
Figure 4-2: GBI Storage locations
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the labels of the storage locations are the same in different plants—for exam- ple, location FG00 exists in all fi ve plants—they are distinct organizational levels. The combination of plant and storage location must be unique.
Thus, the Dallas plant may not have another storage location with the label FG00. It is common to use the same labels across plants and company codes if they rep- resent the same type of storage, such as raw materials
and fi nished materials.
Major Organizational Levels Associated with The Procurement Process
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