The Order Entry/Sales (OE/S) Process: Accounting Information Systems 7e

Chapter 10
The Order Entry/Sales

(OE/S)
Process
Accounting Information Systems 7e

Ulric J. Gelinas and Richard Dull
Copyright © 2008 Thomson Southwestern, a part of The Thomson Corporation. Thomson, the Star logo, and
South-Western are trademarks used herein under license.
1
Learning Objectives
• Describe the relationship between the OE/S process and its
business environment.
• Illustrate the potential of the OE/S process to assist
management decision making.
• Summarize how ERP add-ons, e-business, and other
technologies can improve the effectiveness and efficiency
of the OE/S process.
• Depict the typical logical and physical characteristics of the
OE/S process.
• Prepare a control matrix for some typical OE/S processes,
including explanations of how business process control
plans can accomplish OE/S operations and information
process control goals.
Introduction
• The order entry/sales (OE/S) process
includes the first four steps in the order-to-
cash process
1. pre-sales activities
2. sales order processing
3. picking and packing the goods
4. shipping
• Billing and processing the customer
payment, are described in Chapter 11, the
billing/accounts receivable/cash receipts
process
3
Process Definition and
Functions
• The primary function of the OE/S
process is to create information flows
that support the following:
1. Repetitive work routines of the sales order
department, the credit department, and
the shipping department
2. Decision needs of those who manage
various sales and marketing functions
4
Horizontal View OE/S
VP marketing VP finance VP logistics
Customer
2. Credit
request 1.Customer
1. Customer
3. Credit
places
order
order
approval Credit Department
Sales Order department 4b. Picking
ticket
Warehouse
4a. Acknow-
ledgement 4c. Sales
order 5. Completed
Picking ticket
4d. Sales
order
6b. Shipping
notice
B/AR/CR
Shipping department
6c. Shipping
6d. Shipping notice
notice
General ledger
6a. Shipping
notice
Carrier
5
2. Sales
2. Credit
Customer request
1. Customer
order
3. Credit order
ticket department
4a. Acknow-
ledgement 4c. Sales
Warehouse
requests
order 5. Completed
Picking ticket credit
4d. Sales
order approval
6b. Shipping
notice
from the
B/AR/CR
credit
Shipping department
6d. Shipping
6c. Shipping
notice
department
notice
General ledger
6a. Shipping
notice
Carrier
6
VP marketing VP finance VP logistics 3. Credit
department
2. Credit
Customer request
informs sales
1. Customer
order
3. Credit order
ticket department
4a. Acknow-
Warehouse
of
ledgement
disposition
4c. Sales
order 5. Completed
Picking ticket
4d. Sales
order
of credit
6b. Shipping
notice request
B/AR/CR
Shipping department
6c. Shipping
6d. Shipping notice
notice
General ledger
6a. Shipping
notice
Carrier
7
Customer
2. Credit
request
4. Sales order
department
1. Customer
order
Sales Order department
3. Credit
4b. Picking
acknowledges
ticket
order to the
Warehouse
4a. Acknow-
ledgement 4c. Sales
customer
order 5. Completed
Picking ticket
4d. Sales
order
6b. Shipping
notice
B/AR/CR
Shipping department
6c. Shipping
6d. Shipping notice
notice
General ledger
6a. Shipping
notice
Carrier
8
Customer
2. Credit
request 5. Sales
1. Customer
3. Credit
order
department
order
ticket
4a. Acknow-
Warehouse notifies
ledgement 4c. Sales
order 5. Completed shipping
Picking ticket
4d. Sales
order
department
6b. Shipping
notice
of sales
B/AR/CR
order
Shipping department
6c. Shipping
6d. Shipping notice
notice
General ledger
6a. Shipping
notice
Carrier
9
Customer
2. Credit
request 6. Sales
1. Customer
3. Credit
order
department
order
ticket
4a. Acknow-
Warehouse notifies
ledgement 4c. Sales
order 5. Completed warehouse
Picking ticket
4d. Sales
order
and
6b. Shipping
notice
B/AR/CR
B/AR/CR
process of
Shipping department shipment
6c. Shipping
6d. Shipping notice
notice
General ledger
6a. Shipping
notice
Carrier
10
Customer
2. Credit
request 7.
1. Customer
3. Credit
Warehouse
sends
order
ticket
4a. Acknow-
Warehouse completed
ledgement 4c. Sales
order 5. Completed picking ticket
Picking ticket
4d. Sales
order
to shipping
6b. Shipping
notice
B/AR/CR
Shipping department
6c. Shipping
6d. Shipping notice
notice
General ledger
6a. Shipping
notice
Carrier
11
Customer
2. Credit
request 8. Shipping
1. Customer
3. Credit
department
informs sales
order
ticket
4a. Acknow-
Warehouse order
ledgement 4c. Sales
order 5. Completed department
Picking ticket
4d. Sales
order
of shipment
6b. Shipping
notice
B/AR/CR
Shipping department
6c. Shipping
6d. Shipping notice
notice
General ledger
6a. Shipping
notice
Carrier
12
Customer
2. Credit
request 9. Shipping
1. Customer
3. Credit
department
informs
order
ticket
4a. Acknow-
Warehouse carrier,
ledgement 4c. Sales
order 5. Completed B/AR/CR
Picking ticket
4d. Sales
order
process,
6b. Shipping
notice
and
B/AR/CR
general
Shipping department ledger
6c. Shipping
6d. Shipping
notice
notice
process of
General ledger
shipment
6a. Shipping
notice
Carrier
13
The OE/S Process –
Context Diagram
C u s to m e r
C u s to m e r o rd e r
G e n e r a l le d g e r
in v e n t o r y
s a le s u p d a t e G e n e ral
le d g e r
C u s to m e r O E /S p ro c e ss
a c k n o w le d g e m e n t p ro ce ss
C o m p le te d
p a c k in g s lip
S a le s o r d e r
n o t if ic a t io n
S h i p p i n g 's
B ill o f
b illin g
la d in g
n o t if ic a t io n
B illin g /
a c c o u n ts C a r r ie r
r e c e iv a b le /
c a s h r e c e ip ts
(B /A R /C R )
p ro c e ss 14
OE/S
Level
Zero
DFD
15
Vertical Perspective of the
OE/S System
16
OE/S
Level 1
DFD:
Validate
Sales
Order
17
Level 1 DFD: Validate Sales Order
• 1.1 - Verify inventory available
– Triggered by a customer order
– Inquiry of inventory master file to check inventory availability
– “Available to promise (ATP)” can be complicated
– Facilitated by an enterprise system that can look worldwide within
the organization and up and down the supply chain to determine
when goods can be delivered
– If a sufficient level of inventory is on hand to satisfy the request, the
order is forwarded for further processing, as depicted by the data
flow “Inventory available order”
– If a customer orders goods that are not in stock, process 1.1 runs a
special back order routine
– Record demographic and other info in marketing data store
18
• 1.2 - Check credit
– Process 1.2 establishes the customer’s existence and then
approves credit
– With an enterprise system one record should exist for each
customer, wherever he or she is located and from whatever parts
of the organization he or she makes purchases
– This allows an organization to readily determine the amount of
credit available to that customer worldwide
– Without this central database a customer could incur multiple
receivable balances that in total exceed an amount the selling
organization considers desirable
19
• 1.3 Complete sales order
– process 1.3 receives an accepted order from process 1.2.
– It then completes the order by adding price information,
from the inventory master data
– As noted earlier, this could be a complicated calculation
based on who and where the customer is and if the item is
to be discounted
– Then, process 1.3 performs the following activities
simultaneously:
• Updates the inventory master data to allocate the quantity ordered
to the sales order
• Updates the sales order master data to indicate that a completed
sales order has been created
• Disseminates the sales order
20
Level 1 DFD-Dissemination data flows:
Validate Sales Order

• A picking ticket authorizes the warehouse to
“pick” the goods from the shelf and send them to
shipping
– The picking ticket identifies the goods to be picked and
usually indicates the warehouse location
• A customer acknowledgment is sent to the
customer to notify him or her of the order’s
acceptance and the expected shipment date
• A sales order notification is sent to the billing
department to notify them of a pending shipment
– this could take many forms including a message received
on a computer screen or a report of pending shipments
21
Questions that need
answers
• Where is sales volume (quantity and dollars)
concentrated?
• Who are the specific major customers (by
sales and by profitability), both present and
potential?
• What opportunities exist to sell after-sales
services?
• What types of advertising and promotions
have the greatest influence on customers?
22
23
Level 1 DFD: Complete Picking Ticket
24
Level 1 DFD: Execute Shipping Notice
25
Level 1 DFD-Dissemination of Data Flows:
Execute Shipping Notice
• Shipping’s billing notification (to notify billing to begin the billing
process)
• Bill of lading, a contract between the shipper and the carrier in which
the carrier agrees to transport the goods to the shipper’s customer
– The carrier’s signature on the bill of lading, and/or the customer’s
signature on some other form of receipt, substantiates the shipment
• A packing slip is attached to the outside of a package and identifies
the customer and the contents of the package
• General ledger inventory sales update to notify the general ledger
process that inventory has been sold and the cost of goods sold has
increased
26
OE/S Data Stores
• Marketing data
• Customer master data
• Sales order master data
• AR master data
• Inventory master data
27
Entity-
Relationship
Diagram for
OE/S Process
28
The OE/S Process Flowchart
29
• Figure 10.11 presents a systems flowchart of the
model
• Take some time now to examine the flowchart
• We start with customer calls received in the
customer service center
• Customer service representatives may perform a
number of services for a customer including:
– Checking the availability of inventory
– Determining the status of open orders
– Initiating sales
– Confirming orders
30
• Let’s assume that the customer sales
representative enters a sales order and sees a
screen much like the SAP screen in Figure 10.6
• First, the system prompts the CSR to enter the
customer number
• If the CSR enters a customer number for which the
system has no record, the system rejects the
order, and the recording of the event is terminated
31
• Assuming the CSR enters a valid customer
number, the system automatically retrieves certain
standing data from the customer master data such
as:
– customer name
– address
– credit terms, from the
• Next, the CSR enters the other data in the sales
order, guided by the cursor moving to each new
position in the preformatted screen
32
• When the CSR enters data for each item ordered, the
system automatically displays the description and price
• Finally, the CSR enters the quantity ordered
– If the total amount of the current order, any open orders, and the
outstanding receivable balance exceeds the customer’s credit limit,
the operator is warned of this fact, the order is suspended, and
credit rejection procedures are initiated
– If the total amount falls within the customer’s credit range, the
processing continues
• Should the balance shown on the inventory data be less
than the quantity ordered, back order procedures are
initiated
33
• Once the customer service representative
has finished entering the order data, the
computer updates the sales order and
inventory master data, and gives the CSR a
sales order number that is then relayed to
the customer
• Simultaneously, a picking ticket, containing a
bar code of the sales order number, is
printed in the warehouse
34
• As each item is picked, warehouse
personnel insert the picked quantities on the
picking ticket
• When all the goods have been picked, they
compare the goods to the picking ticket,
initial the ticket, and then move the goods
and the completed picking ticket to the
shipping department
35
• Shipping personnel scan the bar code on the picking ticket
to bring the sales order up on their computer screen
• After they confirm that this is the correct order and that the
quantities are correct, they select the option to record the
shipment
• This action causes the computer to update the sales order,
inventory, and general ledger master data to reflect the
shipment and to print a packing slip and bill of lading
• The goods are packed, with the packing slip inside, the
shipping label (bill of lading) is attached to the box, and the
box is given to the carrier for delivery
• The completed picking ticket is discarded
36
• Error routines would be initiated if:
– the customer record did not exist
– the customer’s credit limit was not sufficient
– the goods were not available in the correct
quantity
– or the goods to be shipped did not match the
picking ticket and the sales order
37
Control Matrix for OE/S
Control Goals of the OE/S Business Process
Control Goals of the Operations Process Control Goals of the Information Process
Ensure effectiveness of Ensure Ensure For sales order inputs (i.e., For sales For shipping notice For sales
operations: efficient security of customer orders), ensure: order and inputs (i.e., shipment order and
employmen resources inventory data), ensure: inventory
t of (inventory, master data, master data,
resources customer ensure: ensure:
(people, master data)
computers)
Recommended control plans A B C IV IC IA UC UA IV IC IA U UA

C
P-1: Enter customer order close to P-1 P-1 P-1 P-1 P-1
where the order is received
P-2: Customer credit check P-2 P-2 P-2
P-3: Populate input screens with master P-3 P-3 P-3 P-3 P-3 P-3
data
P-4: Programmed edit checks P-4 P-4 P-4 P-4
P-5: Compare input with master data P-5 P-5 P-5 P-5 P-5
P-6: Preformatted screens P-6 P-6 P-6 P-6
P-7: Online prompting P-7 P-7 P-7 P-7
P-8: Procedures for rejected inputs P-8 P-8 P-8 P-8 P-8 P-8
P-9: Confirm input acceptance P-9 P-9
38

OE/S Control Matrix, Cont’d. Control Goals of the OE/S Business Process
Control Goals of the Operations Process Control Goals of the Information Process
Ensure effectiveness of Ensure Ensure For sales order For sales For shipping notice inputs (i.e., For sales
operations: efficient security of inputs (i.e., order and shipment data), ensure: order and
employm resources customer orders), inventory inventory
ent of (inventory, ensure: master data, master data,
resource customer ensure: ensure:
s master
(people, data)
computer
s)
Recommended control plans A B C IV IC IA UC UA IV IC IA UC UA
P-10: One-for-one checking of P-10 P-10 P-10 P-10 P-10

picking ticket with the goods
P-11: Enter shipment data in P-11 P-11 P-11 P-11

shipping
P-12: Turnaround document P-12 P-12 P-12 P-12
P-13: Automated data entry P-13 P-13 P-13
P-14: Independent shipping P-14 P-14

authorization
P-15: One-for-one checking of P-15 P-15 P-15

goods, picking ticket, sales order
M-1: Independent customer master M-1 M-1 M-1

data maintenance
M-2: Review open sales orders M-2 M-2

(tickler file)
39
Using Data Mining to Support
Marketing
• Intended to allow the use of sophisticated
statistical and other analytical software to
help an organization’s members develop
insights about customers, processes, and
markets
– Data warehousing and data mining have
become common application to increase the
effectiveness of pricing and promotions
40
Global e-Business
• E-Business systems are broken into two
categories: buy-side and sell-side
– Buy Side
• Buy-side systems use the Internet to automate and manage
corporate vendors and purchases.
• The predominant technology in this area is electronic data
interchange (EDI)
– Sell Side
• Sell-side systems are designed to allow a company to market,
sell, deliver, and service goods and services to customers
throughout the world via the Internet
• Sell-side applications can handle both B2B and B2C business
transactions
• One facet of sell-side systems is known as customer
relationship management (CRM) applications
41
CRM Systems
• Better customer service means happier customers and
yields greater sales—particularly repeat sales
• CRM systems are designed to manage all the data related
to customers, such as marketing, field service, and contact
management data
– CRM has become the focus of ERP vendors who realize the need to
tap into this growing market and to integrate CRM data with the
other data already residing within the ERP system’s database
• At the same time, the software supports the organizing and
retrieving of information on historical sales activities and
promotions planning
– This facilitates the matching of sales promotions with customers’
buying trends
– The buzzword in CRM is “segmentation,” the grouping of customers
into categories based on key characteristics
• Customer/Sales data is being stored in terabyte-sized
databases and analyzed
42
Automated Data Entry
• Bar code readers are devices that use light
reflection to read differences in bar code
patterns in order to identify a labeled item
• Optical character recognition is similar to
bar code readers work, but recognize a
pattern of handwritten or printed characters
• Scanners are input devices that capture
printed images or documents and convert
them into electronic digital signals that can be
stored on computer media
43
Digital Image Processing
• Digital image processing systems are computer-based
systems for capture, storage, retrieval, and presentation of
images of real or simulated objects
• The following briefly describes the major steps in a typical
digital image processing system
– In the input stage, scanners are generally used to capture images or
documents
– A clerk uses a PC or workstation to retrieve the image of a source
document
• In addition to screen output, images also may be printed
– After a document has been input, additional processing may take place.
• Additional data related to the document might be added, or someone
might act on data contained in, or associated with, the document
• Retrieval and processing capabilities may be incorporated into
existing applications
• Linking these images in an enterprise system makes accessibility
greater and easier and information can readily be distributed
throughout the organization to where it is needed
44

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Chapter 10

The Order Entry/Sales

Accounting Information Systems 7e

Validate Sales Order

Recommended control plans A B C IV IC IA UC UA IV IC IA U UA

P-2: Customer credit check P-2 P-2 P-2

P-4: Programmed edit checks P-4 P-4 P-4 P-4

P-6: Preformatted screens P-6 P-6 P-6 P-6

P-7: Online prompting P-7 P-7 P-7 P-7

P-9: Confirm input acceptance P-9 P-9

Recommended control plans A B C IV IC IA UC UA IV IC IA UC UA

P-10: One-for-one checking of P-10 P-10 P-10 P-10 P-10

P-11: Enter shipment data in P-11 P-11 P-11 P-11

P-12: Turnaround document P-12 P-12 P-12 P-12

P-13: Automated data entry P-13 P-13 P-13

P-14: Independent shipping P-14 P-14

P-15: One-for-one checking of P-15 P-15 P-15

M-1: Independent customer master M-1 M-1 M-1

M-2: Review open sales orders M-2 M-2

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