Procurement Procedure

Basic Purchasing Process

Purchase Request

Reject N Valid Item?

Y
Reject N Requester authorised for
request?

Y
Requester
Reject N Budget available?

Y
Update Budget & Issue Purchase Purchase Order
Order

Copy Purchase Order

Delivery Note
Goods Received Note Invoice

Supplier
Match PO, Invoice &
N Query
Goods Receipt

Y
Request Payment / Pay (detailed Payment
method not shown)

Record expense details / update

accounts
Procurement of Materials

 Procurement means acquiring goods and/or services from an

outside source.
 Other related terms include purchasing and outsourcing.

• KeyUser
Departments
 / Indenting Department
 Purchase
 Stores / Incoming Inspection
 Accounts / Finance
• Important Documents

Purchase Requisitions / Purchase Indent
 RFQ / RFP / RFI, Quotation
 Purchase Order, Invoice, GRN
 Contracts

 SAP AG 2001 Rajesh Dhake

 1. Pre-Purchase System

 Initiating the purchase through requisitions,

requirements, selection of suppliers, obtaining
quotation and evaluating
 Steps
 Requisition or Indent
 Enquiries
 Comparison
 Negotiation
 Finalization

 SAP AG 2001 Rajesh Dhake

Procurement Cycle

Elements of Purchase
Requisition: 1 Determination of Requirements
1.Description of required
material / service
2.Quantity required
3.Estimated unit cost Procurement
4.Operating account to be
charged
5.Date of requisition
6.Date required
7.Authorization

• Forecasts / Customer Orders

• New Product Development Teams
• Purchase Requisitions
 SAP AG 2001 Rajesh Dhake
Procurement Cycle

1 Determination of Requirements

22 Source Determination
Procurement

• Existing Supplier
• Familiarity & Track Record
• List of Preferred Suppliers
• New Supplier
• Identify potential supplier
• Evaluate & Qualify

 SAP AG 2001 Rajesh Dhake

Procurement Cycle

Supplier Identification & Selection

(Bidding vs Negotiating)
• Receipt of RFx (RFP, RFQ, RFI) 1 Determination of Requirements
• SOW/Specifications/Blueprints
• Scrutiny
• Comparative Study
• Negotiations 22 Source Determination
Procurement
• Supplier Evaluation

3 Vendor Selection

• Receipt of Quotation
• Comparative Statements

 SAP AG 2001 Rajesh Dhake

 2. Ordering System

 Takes care of raising authorized purchase order on the

supplier, expressing the terms and condition.
 The purchase order once accepted becomes a binding
contract.
 Acknowledgement copy signed for a written acceptance
 Copy of PO to concerned departments.

 SAP AG 2001 Rajesh Dhake

Procurement Cycle

• Purchase Order drafted after

supplier evaluation and selection
• Legally binding document (Offer 1 Determination of Requirements
& Acceptance)
• Visibility throughout company

22 Source Determination
Procurement

Purchase 3 Vendor Selection

order
10
• Release PO 20
• Acceptance by Supplier 30

4 PO Processing

 SAP AG 2001 Rajesh Dhake

 2. Ordering System

 Purchase Order Details

1. PO reference number
2. Date of issue
3. Purchase requisition number
4. Name & address of supplier /
vendor
5. Description of the materials,
quantity, specification (quality)
6. Quantity required and delivery  Unit price
schedule/mode  Extended price
7. Price and discounts  Discount of item
8. Billing, packing and shipping
instructions
 Net extended price
9. Location- material receipt
10. Signature of authorized person/s
11. Detailed terms and condition
12. Name & address of buyer
 SAP AG 2001 Rajesh Dhake
The Purchase Order

 The supplier has been selected

 What does it establish?
 Number must appear on:

 invoices packages
 cases bills of lading
 correspondence

 SAP AG 2001 Rajesh Dhake

  Distribution of the PO

 Vendor - legal terms

 Vendor - acknowledgment
 Accounts Payable
 Receiving
 Requisitioning authority
 Material control

 SAP AG 2001 Rajesh Dhake

 3. Post-Purchase System

 Follow-up procedure
 Receipt-Goods receipt note
 Invoice checking
 Material inspection and acceptance
 Payment to Supplier

 SAP AG 2001 Rajesh Dhake

Procurement Cycle

1 Determination of Requirements

22 Source Determination
Procurement

• Follow up with Purchase 3 Vendor Selection

Suppliers order
10
20
30

55 PO monitoring 4 PO Processing

 SAP AG 2001 Rajesh Dhake

Procurement Cycle
• Delivery by Suppliers
• Receipt & Inspection
Procurement
Receipt & Inspection
•Electronic vs Paper Documents
o Acknowledgement & Receipt
•Material Packing Slip
1 Determination of Requirements
o Details content of shipment
•Invoice
o Transfers ownership &
22 Source Determination
possession
•Receiving Discrepancy Report
o Shortages & Overages

6 Goods Receipt
Purchase 3 Vendor Selection
order
10
20
30

55 PO monitoring 4 PO Processing

 SAP AG 2001 Rajesh Dhake

Procurement Cycle

• Check Invoice with PO & Actual Quantity

1 Determination of Requirements
Invoice
Purch. ord.

? 10
20
30
22 Source Determination
7 Invoice Verification Procurement

6 Goods Receipt
Purchase 3 Vendor Selection
order
10
20
30

55 PO monitoring 4 PO Processing

 SAP AG 2001 Rajesh Dhake

Procurement Cycle
• Payment to Supplier
• Follow up to Stores

8 Payment Processing Invoice Settlement

1 Determination & Payment
of Requirements
•3 Way Match for Invoice Payment
• Purchase Order
• Invoice
22 Source
• Goods Receipt Determination
Note (GRN)
7 Invoice Verification Procurement
•Online Payment
• NEFT, RTGS, IMPS, etc.

6 Goods Receipt
Purchase 3 Vendor Selection
order
10
20
30

55 PO monitoring 4 PO Processing

 SAP AG 2001 Rajesh Dhake

Purchase Order
Accounting
Document(s)

Purchasing

Purchase Vendor
Requisition
Purchase
Order

RFQ
Agency

Master Data

 SAP AG 2001 Rajesh Dhake

Goods Receipt

Ext. Vendor or
Other Agency (ex. Correctional Industries)

Material
Material Inventory
Purchase
Order

Material Accounting
Document Document(s)

 SAP AG 2001 Rajesh Dhake

Invoice Processing

Master Data

Invoice Verification Invoice

Document
Payment
Invoice
program

Purchase Mat. doc. for

Order Goods Receipt

 SAP AG 2001 Rajesh Dhake

 Enterprise Buyer Professional

Analysis Sourcing
Integration Marketplaces
Business Warehouse- Employee
Based Enterprise
Reporting
•Browse through online catalogs Tendering (public
•Create shopping basket and non-public)
•Place order or save basket
•Check status
Reverse Auctioning

• Receive product Manager • Approve or reject

• Check invoice requirement coverage
Professional request
Purchaser
Professional Employee Components Components
Purchasing Planner Planning (Plant
Environment Maintenance)
• Receive Purchase Order
• Deliver product
• Create Invoice
One-Step Buying
Vendor Over Marketplaces

Execution Buying
 SAP AG 2001 Rajesh Dhake
Important Documents
ORDERING
GOODS Vendor
Master
File

Approval Requisition PO
Preparation of
for
Purchase PO

Open
PO Distribution
File

Open PO Purchase
Report Register
RECEIPT OF
ORDERED GOODS
Returns &
Allowances
Shipping
Document

Preparation of
Receiving
Receiving
Report
Report

PO
Distribution
Checking
of
Shipment
PAYMENT FOR
GOODS
Ve
nd
o

s
rI

e
qu
nv

he
oi
ce

C
Receiving
Report Prepare Voucher Payment
Voucher Selection

C
he
qu
PO

e
Cash

R
eg
Requirements

is
Vendor Open

te
Agin

r
Master Vouchers g Re
Op port
en
Vo
uc h
er
Re
por
t
Inputs, Process, & Outputs

Application Inputs Files Outputs

Purchasing Purchase requisition Open PO file Purchase order

Vendor master Purchase requisition
file Open PO report

Receiving Shipping document Receiving file Receiving report

(P.O.)
A/P Vendor Invoice Open voucher file Voucher register
Expense claim Vendor master file Open voucher
voucher
Cheque file report Aging
schedule Cheque
register Cheques

Payroll Salary time sheet Payroll T/A file Payroll register

Time card Employee master Deduction register
Commission file Cheque file Cheque register
voucher Pay cheques
Federal returns
Provincial returns

 SAP AG 2001 Rajesh Dhake

Input Controls

 Segregation of Duties
 Documentation
 Authorization

Processing Controls

 What is the form of these controls?

 Key controls

Output Controls

 Online Payments / Cheque register

 Accounting for online payments / cheques
 Bank reconciliation
 Distribution logs
 SAP AG 2001 Rajesh Dhake
 28452
ABC CORPORATION
Purchase Requisition

Supplier Ship To

Date Required Route Date

Department Charge To Tax

Quantity Unit of Description Cost

Measure

Special Instructions

Receiving Copies Weight

Person Ordering Approved
 RFQ 215
ABC CORPORATION
Request for Quotation

Vendor Ship Via

Date Required
Terms
FOB

Part Quantity Description Annual Unit Cost Discount Net

Number Needs Amount

Please submit, by return mail, your best quote based upon the description above. If you wish to
substitute for specifications listed, provide full details. Quantity discounts are expected.

NOTE: This is not an order. Director of Purchasing

 ABC CORPORATION Order Number

PURCHASE ORDER 78953

This number must
appear on all
To: correspondence

ABC CORPORATION
Ship To
Toronto, Ontario, L8M-3Y7
Delivery Req’d. Ship Via PO Date

Requisition Dept. Dept. Account No.

Quantity Unit of Measure Description Price

1. Submit invoice in duplicate with original bill of lading with routing shown. ABC CORPORATION

2. Render a separate invoice for each shipment against this order if partial
shipment is made.
Director of Purchasing