The Acquisition Purchasing Cycle

1
The Acquisition (Purchasing) Cycle

• Consult with suppliers
• Process requisitions
• Develop agreements with suppliers to purchase
  good or services in the future
• Receive goods or services from suppliers
• Recognize claims for goods and services received
• Select invoices for payment
• Write checks

Chapter 9
Chapter 10
2
Overview of Purchasing and Receiving

• Documenting the (any) process
• Apply our toolkit

Identify events
Annotated narrative
Workflow table
Overview activity diagram
Detailed activity diagram
3
Purchasing/Receiving Events
Prepare requisition (E1)An employee (requestor)
recognizes a need and completes1 a purchase
requisition form for the item needed. The item
could be materials inventory, office supplies or
services. Approve requisition (E2) The employee
gives2 the requisition to the supervisor. The
supervisor reviews3 the requisition. If the
requisition is reasonable and budget is
available, the supervisor approves4 (or modifies
and then approves) the requisition.
4
Purchasing/Receiving Events
Record requisition (E3)The supervisor gives5 the
signed requisition to the secretary. The
secretary enters6 the information on the
requisition into the system. The information
includes the Employee of the employee who made
the request and the Employee of the supervisor.
The system checks7 the Employee table to verify
that both employees information is valid. The
computer checks8 to determine that the order is
to an approved supplier (supplier should be in
the Supplier table). If the odder is for
inventory, the system checks9 that an inventory
record for the item already exists in the
Inventory table. The system checks10 that the
information entered is complete. It then
records11 the information in the Requisition
table. Prepare purchase order (E4) The
purchasing officer reviews12 new purchase
requisitions in the Requisition table. The
officer might hold back a requisition if the
dollar amount is such that the order should go
out on bid or if the purchase involves a contract
and the contract has not been completed. The
purchasing officer also examines the requisition
to determine whether the items can be purchased
cheaper from one of the other suppliers with
which the company has a relationship.
5
Purchasing/Receiving Events
Prepare purchase order (E4) continued If the
requisition satisfactorily meets the
requirements, the purchasing officer records13
approval in the system. The information entered
for the purchase requisition is then used to
create14 a record in the Purchase_Order_Table.
The purchase order is printed15 and then either
faxed16 or mailed to the supplier. Receive goods
(E5) Usually, the supplier sends17 the goods to a
central receiving facility at ELERBE. The
receiving clerk receives18 the goods and
examines19 the packing slip for the
Purchase_Order. The Order is then entered20
into the system, and the receiver enters21 the
Quantity_Received. The computer creates22 a
record in the Receipt table. If the purchase is
of materials inventory, then the
Quantity_On_Handis updated23 in the Inventory
table. The items ordered are delivered24 to the
person who made the request. The requestor
signs25 a form indicating that the items have
been received from the receiving clerk.
6
Workflow Table
7
Overview Activity Diagram
R Requisition (in progress)
Prepare Requisition (E1)
Requestor
R Requisition (approved)
Approve Requisition (E2)
Supervisor
Secretary
Record Requisition (E3)
P Purchase Order
Purchasing Officer
Prepare Purchase Order (E4)
Receiving Clerk
Receive Goods (E5)
Computer
PO Purchase Order
E Employee
I Inventory
S Supplier
RQ Requisition
S Supplier
R Receipt
I Inventory
8
Detailed Activity Diagram E1, E2, E3
Prepare requisition1
Give2 req. to supervisor
Requestor
Review3 requisition
Approve4 requisition
Give5 req. to secretary
Supervisor
R Requisition (in progress)
Enter6 requisition
Secretary
R Requisition (approved)
Check7employee
Check8supplier
Computer
S Supplier
Check9inventory
Check10completeness
Record11requisition
E Employee
I Inventory
RQ Requisition
9
Overview of Purchasing and Receiving

• Documenting the (any) data/files
• Apply our toolkit

Events and tables used
UML class diagram
Record layouts
10
Events and Tables
11
UML Diagram
Goods/ Services
Agents
Events
Employee (requestor)
(m,1)
Employee (supervisor)
(E3) Requisition
(m,1)
(m,m)
(m,1)
Employee (purchasing officer)
(E4) Purchase Order
Inventory
(m,1)
(m,m)

• Could use a single employee table, but this
  high lights roles

(m,1)
Supplier
(E5)Receipt
(m,m)

• Simplified by showing a single table for each
  requisition, PO and receipt rather than two

(m,1)
Employee (receiving clerk)
(m,1)
12
Master Files
Supplier Table
Employee Table
Inventory Table
13
Transactions Files
Requisition Table (E3)
Requisition Detail Table (E3)
Purchase Order Table (E4)
Purch. Order Detail (E4)
Receipt Detail (E5)
Receipt Table (E5)
14
Risks in Purchasing Receiving

• Execution Risks
• Receipt of goods missed by supervisor
• Purchasing officer did not prepare order
• Shipment not received
• Delays in any event
• Duplicate requisitions
• Supplier sends wrong product
• Recording Risks
• Secretary enters wrong requisition information
• Original requisition for wrong product

15
Acquisition Workflow Controls

• Segregation of duties
• Requestor of products does not authorize
• Use of information from prior events
• Purchase officer reviews requisition prior to
  creating PO
• Required sequence of events
• Two checks of requisition, one pre-secretary, one
  post-secretary
• Follow-up on events
• Could look at Quantity_Received to find open
  orders and follow up

16
Acquisition Workflow Controls

• Sequence of prenumbered documents
• Purchase orders
• Recording of internal agent(s) accountable for
  event
• Requestor and Supervisor are stored in tables
• Limitation of access to assets and information
• Requestor, Supervisor and Secretary can only read
  PO details whereas Purchase Officer and write
• Reconciliation of records with physical evidence
  of assets
• Compare actual and recorded Quantity_on_Hand

17
Menu for Purchasing and Receiving
Chapter 9
Order
18
Supplier Table Maintenance

• Execution Risks
• Supplier table is a list of approved suppliers
• and can reduce risk of using wrong supplier,
  ordering unauthorized goods/services, and getting
  inferior products
• Record Entry and Recording Risks
• Reduce risk of recording wrong supplier (e.g. use
  in list)
• Controls
• Supplier table used as a control for recording
  risks so its important to get it right!
• Limit access for ability to perform maintenance
• Establish standards for being a valid supplier
  and monitor
• Have data entered twice to try to catch entry
  errors

19
Inventory Table Maintenance

• Execution Risks
• Wrong product or quality, quantity or price
• Create unique item and maintain quantities on
  hand, ordered, etc.
• Record Entry and Recording Risks
• Reduce risk of recording wrong product or price
  (e.g. use in list)
• Controls
• Inventory table used as a control for recording
  risks so its important to get it right!
• Limit access to ability to perform maintenance
• Requires skill to know re-order point and which
  G/L accounts to use
• Have data entered twice to try to catch entry
  errors

20
Record Requisition (E3, B1)

• Record Entry and Recording Risks
• Use workflow controls to prevent recording a
  requisition that never occurred (e.g. sequence of
  events requires approvals)
• Use workflow controls to prevent missing a
  requisition, late recording, or duplication (e.g.
  sequence of events requires notification by
  secretary when requisition complete)
• Additional Controls
• Secretary should make sure that requisition is
  approved before entering data
• Use inventory status reports to monitor inventory
  levels
• Execution Risks
• Using information from prior events to control
  future events, e.g. approval and assignment of
  Requisition

21
Record Requisition (E3) Input Controls

• Requistion Generated by computer
• Employee (all types) Drop down list of
  employees and referential integrity display name
  when entered
• Department Set up table and use drop down for
  entry with referential integrity
• Requisition date Default to today and check
  format and value
• Supplier and Item Drop down list,
  referential integrity and request confirmation
• Quantity and Price check numeric value and use
  validation rules default price from Inventory
  table

22
Prepare Purchase Order (E4, B2)

• Record Entry and Recording Risks
• Use workflow controls to prevent recording a PO
  that never should have occurred (e.g. require
  approvals, segregate duties, record agent)
• Notify purchase officer as new requisitions come
  in and follow up on open requests
• Execution Risks
• Review open POs to monitor status and avoid late
  or non- deliveries of goods/services

23
Prepare POs (E3) Input Controls

• Requistion confirm existence
• PO generated by computer
• PO_date Default to today and check format and
  value
• Employee Drop down list of employees and
  referential integrity display name when
  entered
• Shipping_Method - dropdown
• Supplier and Item Drop down list,
  referential integrity and request confirmation
• Supplier_Product Could use record checking if
  we keep this data in Supplier table
• Quantity and Price check numeric value and use
  validation rules default price from Inventory
  table

24
Receive Goods (E5, B3)

• Execution Risks
• Ensure that shipment is right quantity, quality
  and price
• Speed execution via quick data entry, e.g.
  scanner
• Limit access to goods
• Input controls
• Main control is to carry over information from
  previous events
• PO and Item
• Automated data entry (scanning)
• Show quantity? Perhaps we want the receiver
  count the items?