Business Process Training

Procure to Pay

Presented by: Sameer Mittal

Date : December 16, 2011

Introduction
Table of Contents
Understanding Procurement to Pay
Process Overview
Overview of Key Activities
Detailed Description of Key Activities

Approach
Key Controls

Procurement to Payment: Process Overview

Purchase
Planning

Vendor
Management &
Buying

Receiving

Invoicing

Vendor Advances
& Reconciliations

Order Book (updated

with approved works
orders)

Vendor empanelment &

vendor list updated

Preparation of SRN
& updation of Stock
Register

Authorisation of
vendor invoice

Authorisation of
vendor advances

Authorisation of
Monthly Production
Plan

Quotations invited &

best quote selected

3-way match
between PO,SRN &
Invoice

Accounting of
Invoice

Review of vendor
ageing analysis*

Assessment of
monthly material
requirements

Authorisation of PO/
Service Contract

QC test performed

Reconciliatiom of
Accounting Records
with Excise Records

Vendor balance
confirmation *

Authorisation of PR for
procurement of
material / services

Amendments to PO
duly approved

Updation of Excise
Records

Authorisation of
payment voucher &
disbursement

Review of Annual
Vendor
reconciliations*

Vendor performance
appraisal

Monitoring of open
PRs & POs *

Procurement to Payment: Key Activities

Process Objective
Ensure timely availability of products
Coordinating material receipt with sales permit, to reduce material stock outs/ excesses
Optimize Inventory holding Levels
Monitoring Vendor Performance & availability of reliable, low cost vendor base
Identification and development of new vendor
Key Activities
1
2
3
4
5
6

Procurement planning
Vendor Selection
Order placing, tracking &Invoice
verification
Inventory Management
Receipt & Issue of Material
Vendor Evaluation

Major
Process

Procurement

Process
(Aggregation of activities)

Procurement Planning

Vendor Selection

Inventory Level Management

Order placing & tracking

Vendor Evaluation

Review Roles
Role
1

Timely and comprehensive

intimation to Corporate office
about existence of vendors
2 Vendor
selection & price
revision
3 Timely procurement in correct
quantities and as per desired
quality

Reviewer
Unit Head

Procurement
Committee
EVP Ops/ DGM
Ops/ Procurement
Controller

Sub Process
1) Proc. Plan on sales forecasting basis
2) Material requirement estimation &
Business Share Allocation

1) Vendor identification
2) Vendor assessment, premises visits &
approvals

Key Performance Indicator

KPIs
1 Rational selection of quality material vendor
2

Efficient procurement planning, which leads to

minimum inventory holding cost and with no stock
outs
3 Correctly calculated reorder and minimum stock
levels
4 Open /Pending PRs & POs
5 Vendor appraisal and feedback on a timely basis

Procurement to Payment: Key Activities

Process Objective
Ensure timely availability of products
Coordinating material receipt with sales permit, to reduce material stock outs/ excesses
Optimize Inventory holding Levels
Monitoring Vendor Performance & availability of reliable, low cost vendor base
Identification and development of new vendor
Key Activities
1
2
3
4
5
6

Procurement planning
Vendor Selection
Order placing, tracking &Invoice
verification
Inventory Management
Receipt & Issue of Material
Vendor Evaluation

Major
Process

Procurement

Process
(Aggregation of activities)

Procurement Planning

Vendor Selection

Inventory Level Management

Order placing & tracking

Vendor Evaluation

Review Roles
Role
1

Timely and comprehensive

intimation to Corporate office
about existence of vendors
2 Vendor
selection & price
revision
3 Timely procurement in correct
quantities and as per desired
quality

Reviewer
Unit Head

Procurement
Committee
EVP Ops/ DGM
Ops/ Procurement
Controller

Sub Process
1) Inventory Holding Levels
2) Analysis of the stock level
1) Raising of Purchase orders
2) Monitoring order execution
3) Gate Entry & Receipt of material
4) Quality Assurance
5) Updation of store records
6) Warehousing ,Tagging & Physical
verification process

Key Performance Indicator

KPIs
Rational
selection
of
quality
material vendor
1
2

Efficient procurement planning, which leads to

minimum inventory holding cost and with no stock
outs
3 Correctly calculated reorder and minimum stock
levels
4 Open /Pending PRs & POs
5 Vendor appraisal on a timely basis

Procurement to Payment: Key Activities

Process Objective
Ensure timely availability of products
Coordinating material receipt with sales permit, to reduce material stock outs/ excesses
Optimize Inventory holding Levels
Monitoring Vendor Performance & availability of reliable, low cost vendor base
Identification and development of new vendor
Key Activities
1
2
3
4
5
6

Procurement planning
Vendor Selection
Order placing, tracking &Invoice
verification
Inventory Management
Receipt & Issue of Material
Vendor Evaluation

Major
Process

Procurement

Process
(Aggregation of activities)

Procurement Planning

Vendor Selection

Inventory Level Management

Order placing & tracking

Vendor Evaluation

Review Roles
Role
1

Timely and comprehensive

intimation to Corporate office
about existence of vendors
2 Vendor
selection & price
revision
3 Timely procurement in correct
quantities and as per desired
quality

Reviewer
Unit Head

Procurement
Committee
EVP Ops/ DGM
Ops/ Procurement
Controller

Sub Process

1) Vendor Appraisal (Monthly & Annual)

Key Performance Indicator

KPIs
Rational
selection
of
quality
material vendor
1
2

Efficient procurement planning, which leads to

minimum inventory holding cost and with no stock
outs
3 Correctly calculated reorder and minimum stock
levels
4 Open /Pending PRs & POs
5 Vendor appraisal on a timely basis

:
Procurement
Planning
Process description
Start

Procurement Planning is a fundamental piece of work

which should be undertaken prior to commencing a
procurement. It consists of activities tailored to prepare
all the equipment specifications and associated detail for
each item to be procured.
Procurement planning as a process has two sub
processes under it these are :
Procurement Planning, basis sales forecasting
Material requirement estimation & business share
allocation
Procurement Planning, basis sales forecasting states the
basis of preparation of the production plans, which are
the sales numbers forecasted for the next two months
(one month firm and next month tentative).
Material requirement estimation states the factors and the
numbers which are considered while preparing the
procurement plan and the business share allocation
matrix.

Based on the procurement

Plan numbers . Business
Share among vendors is
allocated

Sales team at H.O. to

communicate sales forecast
to EVP Ops, DGM Ops,
Controller Procurement

Vendor
Selection

Sales forecast would be for

two months. Firm forecast
for the immediately
succeeding month and
tentative for the succeeding
month

Based on the sales forecast

the RM & PM Procurement
Plan would be chalked out 1

Closing stock position of the

unit is considered for arriving
at the final procurement
requirement of each material

Production Plan

Closing Stock & FG Report

Purchase Order

:
Vendor Selection
Process description
This process captures various sub process
undertaken for selecting the right set of
vendors
for
successful
handling
of
procurement process.

Start

Purchase committee
to periodically conduct
market surveys for
new vendors .

Samples of the
product/ material
evaluated

It has to be strategically handled and carefully

monitored if quality vendors have to be selected
for the job

Yes
samples & costing of
the product to be
checked in case of
new vendor/ new
product

Quality
approve
d?

No

10 4 5

Contract entered with

the vendor

VBF shared with the

Vendor to fill up
Vendor Background

Vendor short listed

Report of vendor
premises visit
prepared and shared
with purchase
committee

Inventory
Holding
Levels

5 6
7

Quality Team should

then visit vendor
premises for further
evaluation

A vendor has to work on three aspects, which

are as follows :
Quality of supplies
Delivery of supplies
Services delivery aspect

No further Enquiry

Vendor data updated

in the vendor master

Commercial run
quantity ordered to
the vendor
Unique vendor codes
should then be
assigned to the
vendor

8
Quality
approve
d?

Comparative Quotation Analysis

Vendor Price Approval form

Technical
specification approval

Vendor self Assessment

Vendor premises assessment

Report

Vendor Code Creation Form

10

Logic Note

Yes

No
A

: Level Management
Inventory
Process description
Inventory Holding levels are levels at which inventories of
raw material, packing material and finished product are
maintained to attain the following objectives :
Un-interrupted production
Least Capital Blockage
Maintenance of safety stocks to tackle unexpected or
uncontrollable factors (e.g. logistic bottlenecks )
Taking advantage of market conditions

Start

Take data from the stock register, Bin

cards and closing stock to calculate
consumption forecast, inventory
holding cost, lead time and ABC
classification

Establish inventory levels, in the ERP

or manually

Review inventory levels at a monthly

interval to incorporate the changes in
the stock levels

Order Placing &

Tracking

:
Order Placing
and Tracking
Start

Consolidation of new bottle

procurement requirement by the
Controller Procurement

Order Placement of raw material

and Packing material (Caps &
Mono carton)

Order Placement of material for

Labels, CC cartons

P.O to be raised at the H.O. by the

Controller Procurement

P.O. would be raised by the DGM

Operations/ EVP ops team

P.O. would be raised by the Unit

Head

Gate entry and receipt of material

Order placing and tracking encompasses

activities from the generation of a purchase order
to tracking the receipt of the stocks against the
purchase order. It is a essential step post which
the production activities initiate

Quality assurance Check

Updation of the stock records

Physical verification at month ends 12

of RA, PM and FG stocks

11

11 Inventory Stock Count sheets

12 PV Variance report

Vendor
Evaluation

Process description

Key Controls
S No Particulars
A

Procurement Planning

A1

Has the approved monthly production planning sheet been used for the
preparation of PR for raw material requirements ?

A2

Have all the PRs raised for procurement been serially numbered to facilitate
tracking of material procurement?

A3

Have the PRs for procurement of goods been reviewed and signed off by the
competent authority?

A4

Have all the requests for procurement of service been duly authorized and
documented ?

A5

Have the open PRs been reviewed on a periodic basis?

11

Yes No

Key Controls
S No Particulars
B

Buying

B1

Have the vendor selection forms been duly filled up for all vendors?

B2

Have the vendor selection forms been duly reviewed and authorized and
updated in the list of vendors ?

B3

Have the performances of the vendors been evaluated on a periodic basis and
the list of vendors been reviewed and updated by the authorized personnel ?

B4

Have written invitations been sent to the vendors (as per the approved vendor
list) for inviting quotations?

B5

Have certain minimum number of vendor quotations been obtained for

procurement & the best quote selected as per the predefined vendor selection
criteria ?

B6

Have all the best quote selected been approved by the authorized personnel as
per the DOA matrix?

B7

Have all the POs been raised on a preprinted, serially numbered standardized
formats as vetted by the legal team?

B8

Have the POs been raised against all valid PRs ?

12

Yes No

Key Controls
S No Particulars
B

Buying

B9

Have all the POs been duly authorized as per the DOA matrix?

B10

Have all the amendments to the POs raised been duly authorized as per the
DOA matrix ?

B11

Have the open POs been reviewed on a periodic basis?

B12

Have all the emergency purchases made been regularized?

B13

Have all service contracts been duly approved by the authorized personnel as
per the DOA matrix ?

B14

Has the validity of all the service contracts been duly reviewed on a periodic
basis ?

13

Yes No

Key Controls
S No Particulars
C

Receipt of Materials

C1

Have the serially numbered Stores Receipt Notes (SRN) been prepared for all
receipts ?

C2

Have all SRNs raised been duly updated in the Stock Register ?

C3

Have the stock records been duly updated on receipt of goods /materials on a
timely basis ?

C4

Has the 3-way match between the PO, SRN & the vendor invoice been performed
for all receipts ?

C5

Have the relevant QC tests been performed as per QC policy of the Company and
QC reports been duly authorized by the QC-Head ?

C6

Have the goods received been physically inspected (for quantity) after receipt of
the QC report & the Excise records updated on a timely basis ?

C7

Have all receipts in excess of PO quantity been regularized by the authorized

personnel as per DOA matrix ?

C8

Have all the updations to the Excise records been reviewed by an independent
authority other than the Excise- Executive ?

C9

Have all the updations to the Excise records been reviewed by an independent
authority other than the Excise- Executive ?

14

Yes

No

Key Controls
S No Particulars
D

Invoice processing

D1

Have all the Invoices been duly authorized by the Director- Operation & forwarded
to the DGM-Finance at HO for accounting ?

D2

Has the receipt register been duly signed by the DGM- Finance, as an
acknowledgement of the invoices and the manual vouchers received from the
factory ?

D3

Have all the purchase voucher parked in the Accounting system by the AccountsExecutive been duly reviewed and authorized for posting by the DGM- Finance ?

D4

Have services actually been rendered before invoice processing ?

D5

Have all the invoices posted in the system been defaced by the stamping the
invoices ?

D6

Have the necessary provisions been made in the books of accounts for SRNs
against which invoices have not been received ?

D7

Has a reconciliation between the CENVAT balance, as per books of accounts &
the balance as per Excise records been performed & reviewed on a monthly basis
?

15

Yes

No

Key Controls
S No Particulars
E

Disbursement

E1

Have all payment vouchers been reviewed and authorized by the DGM- Finance
before disbursement of cheques ?

E2

Have all cheques been for vendor payments been signed by the authorized
personnel as per the DOA matrix ?

E3

Has the receipt register been duly signed by the DGM- Finance, as an
acknowledgement of the manual payment vouchers and cheque payment list,
received from the factory ?

Vendors advances & reconciliations

F1

Have all the vendor advances been duly authorized as per DOA matrix ?

F2

Have all the vendor advance journals posted been reviewed by the DGMFinance ?

F3

Has vendor ageing analysis been performed and duly reviewed and documented
?

F4

Has balance confirmation for all the vendors been circulated, properly reconciled
and reviewed by appropriate personnel ?

16

Yes

No

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