Module Objectives Upon completing this module you will
Module Objectives • Upon completing this module, you will be able to: – Types of Procurement. – Methods of Procurement. – Forms of Procurement. A © 2014 B. 1
Agenda • Types of Procurement. • Methods of Procurement. • Forms of Procurement A © 2014 B. 2
Understanding Procurement • Procurement is the acquisition of goods, services or work from an outside external source. • In some cases the materials may also be procured from internal sources. • It is required that the goods/services are procured with the right quality and cost to meet the requirements in terms of quantity, quality, time and location. • Procurement activities will usually be done buy a separate procurement department consisting of buyers. • Buyers will contact the vendors and negotiate the terms of purchase and will place the orders by means of Purchase Orders. A © 2014 B. 3
Types of Procurement • Internal Procurement. • External Procurement A © 2014 B. 4
Types of Procurement • Internal Procurement In a company, goods movements do not only occur in the form of goods receipts and goods issues. Depending on the organization of the company and its sales policy, internal stock transfers may also be necessary. • The following are a must for internal procurement between plant to plant within the same company code. • • • Creating a stock transport order in plant B Generating a delivery in plant A Picking the material in plant A Posting the goods issue in the delivering plant i. e. Plant A Posting the goods receipt in the receiving plant i. e. Plant B • The quantity posted from stock is first of all managed as stock in transit for the receiving plant. • The quantity is only posted to the unrestricted-use stock of the receiving plant once the goods receipt has been posted. • This enables the quantity 'on the road' to be monitored. A © 2014 B. 5
Types of Procurement(Internal Procurement contd. ) • You post a stock transfer from company code to company code in the same way that you post a stock transfer from plant to plant, except that both plants belong to different company codes. The following are a must for internal procurement between plant to plant between 2 different company codes. • Creating a purchase order at the receiving plant • Creating delivery and billing documents at the issuing plant • Posting the goods receipt at the receiving plant • Posting the invoice receipt at the receiving plant The key points in this kind of procurement is • The issuing plant enters a delivery for the stock transport order and a billing document. This is an inter company billing document. Pricing takes place as normal. • When the goods arrive, the receiving plant posts a goods receipt for the purchase order. The unrestricted-use stock increases and an accounting document get created. • The invoice is checked with reference to the purchase order A © 2014 B. 6
Types of Procurement • External Procurement. • General cycle of activities: • Payment • Invoice Verification • Goods Receipt • PO Monitoring A © 2014 B. • Determination of requirement • Selection of vendors from the vendor database Procurement • Vendor Selection and Comparison of Quotations • PO processing 7
Types of Procurement(External Procurement contd) • Determination of Requirements Materials requirements are identified either in the user departments or via materials planning and control & passed on to the Purchasing department via a Purchase requisitions. You can enter purchase requisitions yourself, or they can be generated automatically by the materials planning and control system. • Source Determination The Purchasing component helps you identify potential sources of supply based on old orders and existing longer-term agreements with the vendor. This speeds the process of creating requests for quotation (RFQs), which can be sent to vendors. • Vendor Selection and Comparison of Quotations The system is capable of simulating pricing scenarios, allowing you to compare a number of different quotations. Rejection letters can be sent automatically. • Purchase Order Processing The Purchasing system takes up input data’s from the requisition and the quotation to help you create a purchase order. As with purchase requisitions, you can generate Pos yourself or have the system generate them automatically. A © 2014 B.
Types of Procurement(External Procurement contd) • Purchase Order Monitoring The buyer can check the status of the PO i. e. if the goods or invoices have been received for a particular PO. The system checks the reminder periods you have specified and - if necessary -automatically prints reminders or expediters at the predefined intervals. • Goods Receipt Goods receiving personnel can confirm the receipt of goods simply by entering the PO number. By specifying permissible tolerances, buyers can limit over- and under deliveries of ordered goods. • Invoice Verification Vendor invoices are checked for accuracy of prices and contents. • Payment Processing Based on the invoice verification, the Accounts Dept / Finance Dept normally deals with vendor payments. A © 2014 B.
Agenda • Definition, Assignment and Conceptual understanding of organizational units. • Types of Procurement. • Methods of Procurement. • Forms of Procurement A © 2014 B. 10
Methods of Procurement • Procurement for Stock A stock material is a material that is kept in stock. These materials are kept in stock once received from the vendor. The stock of this materials keeps on increasing or decreasing based on amount of the quantity received or issued. To order a material for stock, the material ‘must’ have a master record. • Procurement for Direct Consumption When you procure for direct consumption, you specify the consumption purpose by entering an account assignment (for example, a cost center). To order a material for consumption, the material ‘may’ have a master record. A © 2014 B.
Methods of Procurement There are 3 basic forms of external procurement supported by MM Purchasing component. • One-time purchase orders • Longer-term contracts with the subsequent issue of release orders • Longer-term scheduling agreements and delivery schedules A © 2014 B.
Agenda • Definition, Assignment and Conceptual understanding of organizational units. • Types of Procurement. • Methods of Procurement. • Forms of Procurement A © 2014 B. 13
Forms of Procurement • One-Time Purchase Order You use one-time orders for materials or services that you order irregularly. You can reference a purchase requisition, RFQ, or another PO when creating a one-time order. • Contract and Release Orders For materials that are being ordered regularly and in large quantities, we can negotiate a deal with the vendor for pricing or conditions & record then in a contract. In a contract you also specify the validity date. • Scheduling Agreement If a material is ordered on a regular basis and is to be delivered according to an exact time schedule, then you set up a scheduling agreement. This method of procurement is typically used when Just-in-Time deliveries are required from the vendor (for example, in the automobile industry). A © 2014 B.
Sample PO A © 2014 B. 15
Sample Contract A © 2014 B. 16
Sample Scheduling Agreement A © 2014 B. 17
Quiz/Check point • Questions/Discussions : • • • Define types of procurement? Define methods of procurement? Define forms of procurement A © 2014 B. 18
Questions and Comments • What questions or comments do you have? A © 2014 B. 19
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