ERP and Procurement
Without procurement, all manufacturers’ operations come to a halt. No raw materials to use in manufacturing, no finished goods to sell. Despite this strong dependence, procurement is not often seen as a core function to be incorporated into ERP systems. However, including procurement in your ERP software can add to your organisation’s profitability through sourcing diversification which can lead to improved input costs and resultant increased cash flow through removing costs associated with holding large amounts of stock.
With increased globalisation, procurement has greater options and is in a better position to establish supplier agreements more in line with the organisation’s goals.
ERP comes into play in facilitating the gathering and sharing of information needed to facilitate the effective relationship between organisation and supplier. In addition, stock trend analysis, forecasting, and material requirements planning help to refine input requirements even further.
Below are eight features that should be included in an ERP system:
1. Purchase Orders
This document is at the centre of procurement. It is a request to deliver goods within a certain time constraint. Every purchase order is broken down to include a PO Line, each line refers to a single specific item and quantity to be purchased. Ideally, delivery dates and locations can be specified. Seamless conversion into a Supplier Delivery Note/Invoice is a must.
Often procurement is completed without a purchase order. Credit card payment is quick and easy and avoids the necessity of establishing credit between the parties for a single purchase. ERP can handle these transactions directly through financial processes where the general ledger account is posted without a purchase order receipt using a generic supplier. Some can even process the payment clearing through integrations with payment processors.
An ERP system should allow the organisation to choose which Supplier Invoices to set for payment – to facilitate cash flow – and create files for export to upload to the bank for automatic payment.
3. Contract Management
The importance of contract management within an ERP procurement module comes down to ERP’s role as the financial centre of the organisation. With Accounts Payable and Receivable integrated with contract management, contractual deadlines or milestones are more easily adhered to and other contractual agreements have taken advantage of, for example, ensuring prompt payments to take advantage of agreed settlement discounts.
The option to scan and store/link supplier contractual agreements to supplier accounts is important for the relevant employees to be able to access the information timeously.
4. Supplier Database
ERP should have the ability to record the suppliers and vendors from whom purchases of materials and services are procured. The databases will have names and addresses, the commodities the supplier can provide, tax identification and banking detail data, and related contacts.
5. Sourcing Queries
The databases mentioned above can be queried during sourcing. Sourcing may take place from an existing supplier or additional suppliers which have been added to the ERP. Some supplier records are added to ERP but are not necessarily ever used for procurement as another was selected. This is where strong database query and reporting functionality can help identify suppliers which effectively meet an organisation’s operational requirements.
6. Second Sourcing
Many businesses feel it is good practice to have more than one source for a product or service. Often this is simply insurance against the unexpected. Some feel the practice keeps the primary supplier “honest”. Other people feel an excellent relationship and full communication with a single supplier is a better option. ERP procurement modules should allow the assignment of alternative sources to each supplier.
The ability to be able to upload and view multiple supplier price lists on stock items is advantageous in that the buyer can check and select the most cost-effective price from a range of suppliers, at the point of order, based on their location. The ability to set or change the preferred supplier on stock items helps to speed up processing.
7. Supplier Audits
Procurement includes supplier audits. ERP should support quality assurance at the same time it supports procurement. Should quality assurance be used by the supplier, performance verification will ensure something is made or supplied in the way required by the organisation. An audit, generated by ERP, from purchasing, engineering, and quality personnel can verify expectations are met.
Should issues be identified, serial and batch number tracking on raw materials is very helpful in identifying and eliminating problematic items from the system.
8. Supplier Relationship Management (SRM)
Within ERP, this is the place communications between a supplier and the business and the person(s) involved are recorded. These communications can range from requests for quotes, purchase orders, requests for credit, and other forms of documentation and the follow-ups thereto and by whom and when they were actioned.
SRM will also provide a place to record audits and findings. If any corrective actions are the result of an audit, those are tracked within SRM.
Omni Accounting ERP system has many of the above features available as part of its Supplier/Procurement module. Contact our Sales Team to find out how this section of the ERP module can add value to your organisation.