Chapter 7 Supporting the Procurement Process with SAP

Chapter 7 Supporting the Procurement Process with SAP Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 -1

What are the fundamentals of a procurement process? • Three activities: Order; Receive; Pay • • • Individuals in the purchasing unit within the organization, notably the purchasing manager, can perform this function. The order for procurement is sent to the supplier who then delivers materials and/or services to the organization. Materials and/or services must be received by the organization to take ownership This step in the process is generally handled in the warehouse by the warehouse manager (usually only for materials, not services). Ownership of the materials and/or services results in a liability or an obligation to compensate the supplier with payment. The accounting department is responsible for settling this liability by sending payment to the supplier. Figure 7 -1 Main Procurement Process Activities and Roles Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 - 2

What are the fundamentals of a procurement process? • Supporting the Inbound Logistics Process in the Value Chain – Procurement of raw materials needed for production Figure 7 -2 Procurement Process within the Value Chain of CBI Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 - 3

What are the fundamentals of a procurement process? • Linking the fundamentals of the procurement process with Inbound Logistics in the Value Chain Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 - 4

4 Information Silos 2 People Do I pay the supplier right away? 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 - 5

Three-Way Match done by accounting after goods received before the invoice is paid 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 - 6

What were the problems with the Procurement process before SAP? Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 - 7

How does CBI implement SAP? • CBI had to reexamine and refocus their strategy • Involved three activities – Determine industry structure – Commit to a specific competitive strategy – Develop objectives and measures for processes Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 - 8

Five Forces Model – Evaluating Business Segments Product returns Lower market share Lost customers Increased costs Reduced quality Competition in price, distribution and service Electronic connections to more suppliers Reduced prices Lost market share 9 Decision support and business intelligence product redesign CAD Reduce prices Increase quality Value added services ERP reduce costs CRM CAD/CAM improve quality Better web presence Lower costs through ERP, supply chain, etc.

How does the Procurement process work at CBI after SAP? • Maintained same three major activities – Order; Receive; and Pay • Single shared database • Solutions to prior problems – Purchasing – Warehouse – Accounting Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 - 11

How many accountants does it take to … How many errors are eliminated? Where’s Wally when the system orders stuff? 8/22/2011 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 - 12

How does the Procurement process work at CBI after SAP? PO Screen in SAP for 20 Water Bottles and 30 Water Bottle Cages from Space Bike Composites • • New Purchasing Department centralized purchasing activities Data entered into a single, shared database Automated internal document: Purchase Requisition (PR) Easy conversion of PRs to Purchase Orders which reduce errors Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 - 13

How does the Procurement process work at CBI after SAP? Goods Receipt Screen in SAP Warehouse – Goods receipts entered into same database as PO’s – SAP verifies the goods received against the PO – Immediate update to inventory – Accounting impacts automatically updated in the same database – SAP documents this in the database Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 - 14

• How does the Procurement process work at CBI after SAP? Invoice Three-Way Match: Enter Incoming Invoice Screen in SAP Accounting – Three-way match completed by SAP • Less labor intensive • Incoming invoices are compared to PO and Goods Receipt for verification – Payment simplified – Accounting updated automatically in SAP – SAP documents these. Copyright in 2013 Pearson Education, Inc. steps © the database Publishing as Prentice Hall 7 - 15

How does the Procurement process work at CBI after SAP? FIGURE 7 -16 Post Outgoing Payments Screen in SAP Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 - 16

How does the Procurement process work at CBI after SAP? • Benefits of SAP for CBI’s procurement process – Single database – Shared information in real time – Reduction of errors – Improved financial controls – Increased responsiveness Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 - 17

How can SAP Improve the Integration of Supply Chain Processes at CBI? • Supply Chain Processes • Supply Chain Process Integration • Improving Supply Chain Process Integration by Sharing Data • Improving Supply Chain Process Integration by Increasing Process Synergy • Other IS That Improve Supply Chain Processes Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 - 18

How SAP Improves Integration of Supply Chain Processes at CBI? • Other IS That Improve Supply Chain Processes – Augmented reality • Uses computer graphics that are overlaid on a physical location to provide imagery of status as well as locations of products – RFID • Radio frequency identification (RFID) are chips that are attached to materials and pass through scanners to provide visibility into movements of materials in an operation – Sensors • Can also be used by applying them to vehicles to track shipping and transportation activities – Robotics • Used to automate various activities, particularly in the warehouse to more efficiently pick and store materials – 3 D printing • “Print” some raw materials in house instead of relying on suppliers Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 - 19

How does the Use of SAP Change CBI? • New skills are needed – Abstract reasoning – Analytical skills to look for patterns in the data which leads to more ways to improve process • Process focus – Examine inputs and outputs to connect with partner firms • More data sharing – On demand from suppliers and buyers • Outsourcing – Take advantage of firms who can do subassembly faster and cheaper • Bottom line: Change is inevitable – Jack Welch, former CEO of GE: IF change is happening faster outside the company than inside then the end of that company is in sight Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall 7 - 20