Procure to Pay Process

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

2

Procurement to Payment: Process Overview

3

Receiving

Vendor

Management &

Buying

Purchase

Planning

Authorisation of

Monthly Production

Plan

Quotations invited &

best quote selected

Assessment of

monthly material

requirements

Monitoring of open

PRs & POs *

Preparation of SRN

& updation of Stock

Register

3-way match

between PO,SRN &

Invoice

QC test performed

Updation of Excise

Records

Invoicing

Authorisation of

vendor invoice

Authorisation of

payment voucher &

disbursement

Reconciliatiom of

Accounting Records

with Excise Records

Authorisation of PO/

Service Contract

Amendments to PO

duly approved

Vendor Advances

& Reconciliations

Authorisation of

vendor advances

Review of vendor

ageing analysis*

Review of Annual

Vendor

reconciliations*

Order Book (updated

with approved works

orders)

Authorisation of PR for

procurement of

material / services

Vendor performance

appraisal

Accounting of

Invoice

Vendor balance

confirmation *

Vendor empanelment &

vendor list updated

Procurement to Payment: Key Activities

4

Process Objective

Key Activities

Review Roles Role Reviewer

Key Performance Indicator

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

1

Vendor Selection 2

Inventory Management

1 Timely and comprehensive intimation to Corporate office about existence of vendors

Unit Head

Pro

cure

ment

Major

Process

Process

(Aggregation of activities)

Procurement Planning A

Sub Process

Receipt & Issue of Material 5

6

4

Vendor Evaluation

EVP –Ops/ DGM

Ops/ Procurement

Controller

3 Timely procurement in correct

quantities and as per desired

quality

KPIs

Vendor Selection B

Inventory Level Management C

Order placing & tracking D

Vendor Evaluation E

3 Order placing, tracking &Invoice

verification

Procurement planning

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 PR’s & PO’s 5 Vendor appraisal and feedback on a timely basis

Procurement

Committee 2 Vendor selection & price

revision

2) Material requirement estimation &

Business Share Allocation

1) Proc. Plan on sales forecasting basis

2) Vendor assessment, premises visits &

approvals

1) Vendor identification


5

Process Objective

Key Activities








1

Vendor Selection 2



Unit Head

Pro

cu

rem

en

t

Major

Process

Process

(Aggregation of activities) Sub Process

2) Analysis of the stock level


6

4

Vendor Evaluation

1) Inventory Holding Levels

EVP –Ops/ DGM

Ops/ Procurement

Controller



quality

KPIs



Vendor Evaluation E


verification






levels 4 Open /Pending PR’s & PO’s 5 Vendor appraisal on a timely basis

Procurement


revision


Vendor Selection B 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


6

Process Objective

Key Activities








1

Vendor Selection 2



Unit Head

Pro

cure

ment

Major

Process

Process

(Aggregation of activities) Sub Process


6

4

Vendor Evaluation

EVP –Ops/ DGM

Ops/ Procurement

Controller



quality

KPIs



Vendor Evaluation E


verification






levels 4 Open /Pending PR’s & PO’s 5 Vendor appraisal on a timely basis

Procurement


revision


Vendor Selection B

1) Vendor Appraisal (Monthly & Annual)

Procurement Planning

7

Process description

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.

:

Start

Sales team at H.O. to communicate sales forecast

to EVP Ops, DGM Ops, Controller Procurement

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

Closing stock position of the unit is considered for arriving

at the final procurement requirement of each material

Based on the procurement Plan numbers . Business Share among vendors is

allocated

Vendor

Selection

Production Plan 1

Closing Stock & FG Report 2

Purchase Order 3

1

2

3

Vendor Selection

Process description

This process captures various sub process

undertaken for selecting the right set of

vendors for successful handling of

procurement process.

It has to be strategically handled and carefully

monitored if quality vendors have to be selected

for the job

A vendor has to work on three aspects, which

are as follows :

• Quality of supplies

• Delivery of supplies

• Services delivery aspect

:

Start

Purchase committee to periodically conduct

market surveys for new vendors .

Quality approve

d?

VBF shared with the Vendor to fill up

Vendor Background

Quality Team should then visit vendor

premises for further evaluation

Samples of the product/ material

evaluated

Vendor short listed

Contract entered with the vendor

Unique vendor codes should then be assigned to the

vendor

Yes

No

samples & costing of the product to be

checked in case of new vendor/ new

product

Report of vendor premises visit

prepared and shared with purchase

committee

Commercial run quantity ordered to

the vendor

Quality approve

d?

Vendor data updated in the vendor master

Inventory

Holding

Levels

A

A

No further Enquiry No

Yes

4

7 Vendor self Assessment

Vendor premises assessment

Report

8

Vendor Code Creation Form 9

5 Vendor Price Approval form

6 Technical

specification approval

4

7

8

6

5

5

9

10

Logic Note 10

Comparative Quotation Analysis

Inventory Level Management

9

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

Process description

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

:

Physical verification at month ends of RA, PM and FG stocks

Start

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

Gate entry and receipt of material

Vendor

Evaluation

Inventory Stock Count sheets 11

Consolidation of new bottle procurement requirement by the

Controller Procurement

PV Variance report 12

11

Order Placement of material for Labels, CC cartons

Quality assurance Check

Updation of the stock records

12

Order Placement of raw material and Packing material (Caps &

Mono carton)

P.O. would be raised by the DGM Operations/ EVP ops team

P.O. would be raised by the Unit Head

Key Controls

S No Particulars Yes No

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

Key Controls


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

Key Controls


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

Key Controls


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

Key Controls


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 Accounts-

Executive 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

Key Controls


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 ?

F 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 DGM-

Finance ?

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

This material contains general information on a particular subject or subjects and is not an exhaustive treatment of such subject(s). Accordingly, the information in this material is not intended to constitute accounting, tax, legal, investment, consulting, or other professional advice or services. The information is not intended to be relied upon as the sole basis for any decision which may affect you or your business. Before making any decision or taking any action that might affect your personal finances or business, you should consult a qualified professional adviser. None of Vox and Vive Consultancy Services Private Limited, its member firms, or its and their respective affiliates shall be responsible for any loss whatsoever sustained by any person who relies on this material and the information contained herein.

Procure to Pay Process

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