Procure to Pay

[Former Member]

Dear Seniors,

What is Procure to Pay ? Kindly explain me Procure to Pay concept please.

Regards,

Jana

[Former Member · Accepted solution]

Hi,

1. Processes in procure to pay cycle may differ from company to company but the process more or less remains the same. Here I provide the exhaustive list of various steps involved in Procure to Pay cycle

Identification of requirement: At this stage the team member of user department (Maintenance, Production, Sales and distribution, administration etc) identifies the requirement and raises the Purchase requisition /Purchase request (PR). This document normally contains description of material, quantity, approx cost, material requirement date, preferred or Standard vendor etc

Authorisation of Purchase Request/ Purchase Requisition : If the purchasing value of the PR is higher than that of approval limit of originator then this document is sent to the next higher level (normally immediate supervisor of the originator) for approval. At this stage, the supervisor may return the PR to the originator for modification or can approve it.

Final Approval of PR/Role of Inventory Controller: Once the PR has been authorised by user department then it is available to the inventory controller. Inventory controller shall review the PR and shall check the Open Purchase orders (PO), any other scheduled or planned delivery for the material. If there is any planned delivery or any existing open PO then Inventory controller can return the PR or request the user department to revise the quantity of the material. After the approval of Inventory controller, the approved PR is available to the Procurement department

Procurement: After final authorization of PR, it is available to Buyer. Buyer shall check for any existing Annual Rate Contract or any other contract for the material. If any contract exists then a Call-Off shall be generated and shall be sent to the supplier. In case no contract exists then the Buyer shall initiate supplier search and floating enquiries.

**Identification of Suppliers: Buyer shall interact with the user for the possible suppliers, search on the Internet, use referrals, search data base, etc. to identify the suppliers for the material.

Floating of Enquiries: Once the suppliers are identified, Buyer shall send the Request For Quotations/Proposal ( RFQ/RFP) to the supplies. RFQ normally contains Description, Technical Specifications of the material, quantity of the material, term and conditions, delivery date of the material, date of submission of the RFQ,Quality standards, Validity of the suppliers offer, etc.

Receipt of Technical Quotations: After sending the RFQ/RFP to vendors , the buyer shall receive the quotations from the suppliers. Normally, vendors are instructed to send their quotation in a sealed envelope, mentioning only RFQ reference no on it. Quotations are normally opened and signed by 2 or more persons of the department.

Technical Evaluation of Quotations : Quotations are sent to technical department for technical evaluations of the quotations. Here, technical department shall shortlist the quotationsa based on the technical specifications

Receipt of Commercial Quotations: Once the Technical Evaluation is over, the buyer shall send the advice to shortlisted suppliers for commercial quotations, After receiving the commercial quotations, these shall be opened by two people. Quotation comparison statement is prepared by the buyer to compare all the quotations of the supplies and suppliers are short listed for negotiations.

Negotiation: Short listed suppliers are invited for negotiations. In negotiation buyer can negotiate with the supplier for :

Reduction in the prices of the materials

Year on year reduction in prices

Quantity and Price breaks

Delivery Terms and conditions

Year on year improvement in the quality

Quality i.e. reduction in the nos of defects per lot etc

Freight charges

Insurance charges

Payment termsu2014for extended payment terms

Etc.

Selection of the Vendor: After negotiations with all the selected vendors revised quotations are prepared and vendor is finalized for award of contract based on the weightage to the commecial, technical parameters, previous performance of the vendor, delivery dates of the material, etc.

Award of Contract : After the vendor is finalized LOI can be sent to him and he may be asked to deposit security or bank guaranty before signing the agreement. Agreement can be of Fixed or Blanket (the same can be mentioned in the RFQ)

Purchase Order : The buyer shall raise the call offs against contracts (Fixed or Blanket). If the value of the PO is more than that of his approval limit he shall forward it to his supervisor for approval else he shall approve and send the purchase order to the supplier.

PO acknowledgement: After receiving the PO the supplier send the acknowledgement to buyer and buyer records the acknowledgement. If any ERP is being used for procurement functions then supplier can remotely download purchase orders and can acknowledge the PO

Advance Shipment Note : The supplier sends the Advance Shipment to buyer as soon as he ships the material to the buying organization. This note normally contains Ship Date, Transporteru2019s name , Airway Bill No, No of packages, weight of the packages, receiving location address, PO No, description of goods, etc

Goods Receipt : When the goods are received at the warehouse of buyer organization, the receiving staff checks the delivery note, PO no etc and acknowledges the receipt of material. After the material is received the same is checked for quantity in case of discrepancy the same is reported to the vendor.

After the quantity verification the material is kept at inspection locations and material inspector is called for inspection of material. If material is rejected by the inspector the same is sent back to the vendor or the vendor is asked for the rectification at the site. The sound material is moved to respective warehouse locations.

If the buying organization is using ERP then stock account gets debited and liability account gets credited.

Invoice Recording : Vendor send the invoice to accounts department of buying organization for claiming payment. This invoice is entered in to the system, After the entry of invoice in the system, supplier account gets credited and liability account gets debited.

Payment to Supplier : After the supplier account gets credited the payment is released to the vendor

2. In short : Procure to Pay is the process of obtaining and managing all raw materials needed for manufacturing. This cycle starts with the source selection, auditing followed by procurement of goods and services. The contracts with the suppliers are managed and can also include supplier managed inventories or direct inventory visibility. It also comprises direct procurement requirements through conversion from demands to purchase orders and confirmation of goods receipt. The incoming materials are then inspected and posted into inventory as part of managing the warehouse. The last activity in this cycle is payment of the suppliers which consists of receiving, entering and checking vendor's invoice for correctness.

for more details refer below link :

[Procure to Pay|http://knowscm.blogspot.com/2008/02/processes-in-procure-to-pay-cycle-may.html]

Regards

[Former Member]

Hi Jana

Procure to pay is called as Procurement cycle in MM.

Below are the steps

1) Determination of Requirments ( From user dept purch dept will get the PR or u can generate via MRP)

2) Determination of source of supply ( nothing but vendor identification thru RFQ process in case of new vendor selection)

3) Vendor selection ( RFQ,Quotation, Price comparison)

4) Purchase order & Order monitoring

5) Goods Receipt

6) Invoice verification

7) Pass on the information to FI to pay the vendor.

Hope it helps

Thanks / karthik

[former_member212745]

Procurement to Payment is a standard which includes following steps.

Procurement in Materials Management

Purpose

External procurement in the MM System centers around a general cycle of activities.

Process Flow

The typical procurement cycle for a service or material consists of the following phases:

1. Determination of Requirements

Materials requirements are identified either in the user departments or via materials

planning and control. (This can cover both MRP proper and the demand-based approach

to inventory control. The regular checking of stock levels of materials defined by master

records, use of the order-point method, and forecasting on the basis of past usage are

important aspects of the latter.) You can enter purchase requisitions yourself, or they can

be generated automatically by the materials planning and control system.

2. Source Determination

The Purchasing component helps you identify potential sources of supply based on past

orders and existing longer-term purchase agreements. This speeds the process of

creating requests for quotation (RFQs), which can be sent to vendors electronically via

SAP EDI, if desired.

3. Vendor Selection and Comparison of Quotations

The system is capable of simulating pricing scenarios, allowing you to compare a

number of different quotations. Rejection letters can be sent automatically.

4. Purchase Order Processing

The Purchasing system adopts information from the requisition and the quotation to help

you create a purchase order. As with purchase requisitions, you can generate POs

yourself or have the system generate them automatically. Vendor scheduling

agreements and contracts (in the SAP System, types of longer-term purchase

agreement) are also supported.

5. Purchase Order Follow-Up

The system checks the reminder periods you have specified and - if necessary -

automatically prints reminders or expediters at the predefined intervals. It also provides

you with an up-to-date status of all purchase requisitions, quotations, and purchase

orders.

6. Goods Receiving and Inventory Management

Goods Receiving personnel can confirm the receipt of goods simply by entering the PO

number. By specifying permissible tolerances, buyers can limit over- and underdeliveries

of ordered goods.

7. Invoice Verification

The system supports the checking and matching of invoices. The accounts payable clerk

is notified of quantity and price variances because the system has access to PO and

goods receipt data. This speeds the process of auditing and clearing invoices for

payment.

Hope this will help you.