Business Functional Areas 1. Pre-Sales (special thanks to Geoff Leese)

Business Functional Areas1. Pre-Sales

(special thanks to Geoff Leese)

Objectives

At the end of this lecture you should be able to…1. List the main functions of a Purchasing department2. Explain some of the problems associated with

purchasing.3. List the documents associated with purchasing4. Describe the information flow within a Purchasing

Department.5. Describe the role of IT within a Purchasing Department

These objectives relate to LO 1 – Concepts, theories and principles related to the use of computing in business, and Indicative content – Functional areas of business, marketing sales and production etc.

Making a Profit is easy….

• Make something for a LOW cost

• Sell it for a HIGH cost

• But is it that simple?

The Manufacturing Cycle

Raw Materials

Labour

Work in Progress

Finished Goods

Packaging

Storage Invoicing

Receive Payment !

Despatch

So - what is difficult about

that then?

Let’s think about Purchasing Raw Materials

What is the main role of a Purchasing Department ?

1. Make sure the raw materials needed by the production dept are always available

2. Get the right prices

3. Pay your suppliers

Is it that simple?

Let’s add a bit more detail…

1. Deal with Suppliers2. Collate Materials requests3. Produce Purchase Orders 4. Check what the supplier sends5. Record omissions, faults, errors6. Return goods and request credit7. Receive Invoices from suppliers8. Check paying for what was received9. Receive statements monthly10. Pay suppliers – usually after 30 days credit

Sounds like there may be

some paperwork involved!

Let’s add the documentation…

Deal with SuppliersCollate Materials requestsProduce Purchase Orders Check what the supplier sendsRecord omissions, faults, errorsReturn goods and request creditReceive Invoices from suppliersCheck paying for what was receivedReceive statements monthlyPay suppliers – usually after 30 days credit

Supplier database, Sales catalogues etc

Job requests, low stock listings etc

Purchase Orders (POs)Goods Received Notes

(GRNs)

Discrepancy Note

Goods Returned /Credit Request

Purchase Invoice (Unapproved)

(PIs)Purchase Invoices(approved for payment)

(POs)

Supplier Statements

Payment AuthorisationPayment +

Remittance Advice

Purchase order

• Used to order goods or services• Completed by the buyer of the goods or services• Sent to the seller• Contains

– A specific reference number– Product code– Quantity– Signature of person in charge of purchasing

Delivery note

• States what goods are being delivered• Completed by seller of goods• Sent to the buyer• Contains

– Numerical reference– Purchase order number– Details of goods supplied– Signature of person receiving goods

Goods received note

• Records what goods have been delivered

• Sent by the buyer of the goods

• Kept by the buyer

• Contains– Details of the goods received– Condition of the goods

Credit note

• A refund document that reduces the amount owed by the buyer

• Sent by the seller of the goods• Kept on file by the buyer• Contains

– Buyer details– Seller details– Amount of credit– Reason for credit

Statement of account

• Normally issued at the end of each month to inform buyer how much is owed

• Sent by the seller• Checked by the buyer against invoices and

credit notes• Contains

– Seller details– Buyer details– Invoice numbers– Credit note numbers

Remittance advice

• A document sent to the buyer stating that payment is being made

• Contains– The account number of the buyer– The invoice number– The credit note number– The payment amount

Check you know…Document produced

by?Sent to?

Purpose?

Supplier catalogues / price lists

Materials requests

Purchase Orders

Goods Received (added to Stock Records)

Discrepancy notes

Goods Returned

Credit notes

Purchase Invoices

Supplier Statements

Payment Authorisations

Remittance Advice

Stock issues (deleted from Stock Records)

A Typical Process Model….• First list your elements…

• Then assemble your model…

External Entity Process Data Flow Data Store

Collate + send orders

ProductionDept

Receive +Check Goods

Supplier

Handle returned goods

P. OrdersStock Records

Returns

P InvoicesCredit Notes

Statements

Receive Invoices

Credit NotesStatements

Supplier

Authorise Payments

GRNs

Payments

Issue stock?

The IT System

• Remember most of these data stores will be presented to the user in a combined form – the Purchase Ledger

What does the IT system do for the Production Dept?

• Holds stock records – produces routine re-order lists

• Holds copies of orders sent• Allows GRNs to be matched against orders• Automatically updates stock with GR• Hold records of all transactions on each

account – invoices, credit notes, payments etc. • Allows payments to be matched to account• Can produce management reports – routine

and ad-hoc.

Management Reports

• Lists purchases by time period, by supplier, by category, by production job, etc.

• Lists accounts for payment, in due date order

• Shows total value of stock held• Produces budget forecast – help with cash

flow planning

What IT CAN’T do

• Physically handle stock

• Check goods received for errors etc.

Think about….

• Where is the purchasing department in your organisation?

• What extra issues are there for a global company – like MacDonalds

• Tesco has a centralised purchasing function. Give 3 advantages and 3 disadvantages.

• What information would the purchasers need from the local store managers?

• What sort of computer system might support the Tesco Purchasing Dept?

Summary

At the end of this lecture you should be able to…1. List the main functions of a Purchasing department2. Explain some of the problems associated with

purchasing.3. List the documents associated with purchasing4. Describe the information flow within a Purchasing

Department.5. Describe the role of IT within a Purchasing Department

These objectives relate to LO 1 – Concepts, theories and principles related to the use of computing in business, and Indicative content – Functional areas of business, marketing sales and production etc.