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The steps used to procure standard items are shown in figure below.
The figure indicates that the procurement process is triggered by
some event that results in a requirement to acquire materials. The
trigger is often a result of an event in another process.


The Procurement Process


The elements of the requirements determination step are shown in figure below.
Requirements for materials arise from a need that is identified either
automatically by another process or manually by an individual. The pro-cess
that most commonly generates requirements is the materials planning process.

Requirements are also created manually for items that are not included in
materials planning. This process occurs when an individual manages inventory
or when the company needs a nonstock item (e.g., supplies) or a service (e.g.,
janitorial or repair).


The Procurement Process

Elements of Requirement
The data needed to create a purchase requisition are the item category, quantity,
desired delivery date, and desired delivery location or receiving plant. The ERP system
uses the material number to obtain additional data from the material master such as
description, material group, purchasing group, unit of measure, and valuation price.
The only task in this step is to create the purchase requisition using the specified data.
The process document that results from this step is the purchase requisition. The
system will assign a unique requisition number to this document, which the concerned
parties can use to track its progress through the various steps in the process.


The Procurement Process


There are three paths to create a purchase order, depending on whether the source of
supply is known.
If supply is known, then the requisition can be converted into a purchase order without
additional steps. In such cases the company selects a vendor from a list of potential
suppliers, called a source list.

If a source of supply is not known, then the company must send a request for
quotations (RFQ) to several potential vendors, receive and evaluate the quotations, and
then make a final selection. An RFQ is an invitation to vendors by an organization to
submit a quote for the supply of the materials or services. In this case, the organization
uses a quotation to create a purchase order (Path 2).
Finally, in certain cases the RFQ is directly converted into a purchase order without a
quotation (Path 3).
The Procurement Process

Creation of Purchase Requisition

A purchase order is a communication sent to a vendor in which a company
commits to purchasing the specified materials under the stated terms. The
figure summarizes the elements of a purchase order.

A purchase order is typically created with reference to a requisition, an RFQ, a

quotation, or a previously created purchase order. In addition, a purchase order
can be created without reference to any document. In this case, all the
necessary data are entered manually.

The Procurement Process

Elements of Purchase Order

A purchase order includes data from a variety of sources, as shown in figure. Most of the data in
a purchase requisition are included in the purchase order. In addition, the purchase order will
contain other data depending on how the order is created and which reference documents are
If the necessary data are not available from a reference document, then the user must provide
this information manually when he or she is creating the purchase order.
The primary task in this step is to create and send the purchase order to the vendor. In addition,
other steps might be necessary, depending on how the order is created.
The main document created in this step is the purchase order. If the purchase order includes
data from reference documents, then multiple documents can be used to generate one order.
Conversely, a single reference document can be used to create multiple orders.

The Procurement Process

The next step in the procurement process is goods receipt, which records the receipt
of the materials from the vendor. The elements of this step are shown in the figure.

The materials are accompanied by a delivery document also known as a packing

list that identifies the materials included in the delivery and the purchase order. The
recipient uses this document to verify that the correct materials have been delivered
in the correct quantities.

The Procurement Process

Elements of Goods Receipt step

Most of the data needed to complete the goods receipt task are contained in the delivery
document and the purchase order. Additional data regarding where the materials are to be stored
(plant and storage location) and the specific movement type are also necessary. The system will
suggest values for these data, and the user will make changes to the data as needed.
The essential task in the goods receipt step is to verify and record the materials included in the
shipment in the goods receipt document. The user will log into the system and create a goods
receipt document by providing the purchase order number.
In addition to creating the goods receipt document, the goods receipt step has numerous
consequences for multiple areas of the organization. Significantly, it is the first step in the
procurement process that has an impact on financials, specifically, on general ledger accounts.
The goods receipt step also results in updates to the purchase order and the material master.

The Procurement Process

The next step in the process is invoice verification, which is shown in the figure.
The most common method of invoice verification is a three way match between
the purchase order, the goods receipt or delivery document, and the invoice.
The objective is to ensure that the quantities and price in all three documents
are consistent.

An alternative is a two way match between a purchase order and the goods
receipt document. This method is not very common, and it requires a high
degree of trust and cooperation between partners.

The Procurement Process

Elements of Invoice Verification step

The data obtained from the invoice include the vendor number, invoice date, invoice
quantity, and invoice amount. The data from the pur-chase order include vendor number,
materials, quantities, and price. Finally, the materials and quantities received are obtained
from the material document created during the goods receipt step.
To complete this step, the user will provide the data from the invoice (vendor, date, and
amount) and the purchase order number. The system will then retrieve all the needed data
from the purchase order (vendor, materials, quantities, and price). It will also retrieve the
goods receipt data for the purchase order. The user will verify that the data are correct and,
if they are, will approve the invoice.
Invoice verification provides the linkage between materials management and accounting. It
authorizes payment of the invoice to the vendor, which is the next and final step in the
procurement process.

The Procurement Process


The figure below shows the elements of the final step in the procurement process
namely, paying the vendor. This step is triggered by the receipt and verification of an

Payments can be made manually or automatically via a payment program. Typically, an

organization will have a number of invoices to pay, and the most common method is to
execute a payment program periodically, such as daily or weekly. The program will
retrieve all authorized invoices over a specified timeframe and automatically create

The Procurement Process


Elements of the Payment step

Data from the invoice include the date, the vendor number, and the invoice
amount. In addition, payment terms, method, and address are obtained from
the vendor master. The dates of the invoices are compared with the payment
terms and the date of the next scheduled run of the payment program in order
to deter-mine which invoices are due for payment.
Processing payment involves several steps: selecting a payment method and a
bank, deciding which invoices are ready for payment, calculating payment
amounts, posting the payment documents, and printing the payment medium.
One obvious outcome of this step is payment to the vendor, either electronically
The Procurement
or via a check. Appropriate general
ledger accounts
are also updated, and a


The procurement process is highly integrated with several other processes within an
organization. Activities in materials planning, production, fulfilment, enterprise asset
management, and project management generate purchase requisitions that are processed
by the procurement process.

Objects in these processes, such as sales orders and production orders, are then charged
for the materials purchases. Finally, procurement involves materials movements and
quality inspections that are the domain of inventory and warehouse management.


The Procurement Process


Standard reporting tools in the transactional system are used to generate both online lists
based on selected master data and documents and work lists to identify pending work
associated with various process steps.
Online lists can be manipulated using the various functions of the list viewer or grid control.
Work lists display work that is to be completed.
Purchasing information system (IS) is one of the components of the logistics information
system. Purchasing IS provides both standard and flexible analysis capabilities. In standard
analysis, the characteristics are organizational levels and master data relevant to the
procurement process. In contrast to standard analysis, flexible analysis enables the user to
define the content and format of the analysis.

The Procurement Process