What is Procurement Cycle ?
Procurement cycle is the process of a company that covers all aspects from where the requirement of a material is Generated in the company till the bill/invoice of the material is made and Payment to the "Vendor" is done.
PS: !! SIMPLE ISN'T IT !!.. But trust me.. when all the department are consider together, then it become so complicated ,like there are tons of account postings to be made in almost every stage shown above. This above discussed process is just simplest, most basic and completely ideal procurement cycle.
But not to worry, its in future, right now lets not just focus on this.
- Lets Elaborate a little, we can understand a basic procurement cycle in 5 simple steps as below...
- Determination of Requirement :- Suppose if, in any company a requirement is generated, like requirement of raw material is generated in production, then that (production) department creates a document called "Purchase Requisition (PR)". This document contains every detail of the item for Purchase dept to procure from market/vendor.
(consider below diagram simultaneously with description)
- Determination of source of supply :- Now Purchase department send queries in the market, (if vendor is not decided already), to know who can supply the required material , this Query document is called "Request For Quotation (RFQ)".
- Vendor Selection :- And as answer to RFQ, different Vendors in the market, fill up the RFQ details and send back their filled up Quotation to the company.
- After considering various criteria like price , quantity, quality, delivery terms, etc etc.,, out of them one or more vendor is selected.
- PO processing :- After that a legal document "Purchase Order (PO)" , is sent to selected Vendor, which contains all the details of the materials their price, quantity, delivery terms,etc. and rejection letters are sent to other vendors.
- GR processing :- Once a PO is sent then vendor delivers the materials either completely or partially, whatever, according to it "Goods Receipt (GR)" document is created. This document shows which material is delivered , in what quantity, on which dates,etc.
- IR processing :- After complete materials are delivered our company makes an "Invoice Receipt (IR)" , it is made from either PO or GR . And according to Invoice payment is done to the Vendor.
(consider below diagram simultaneously with description)
- This complete cycle is called basic procurement cycle.
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| Basic Procurement Cycle |
PS: !! SIMPLE ISN'T IT !!.. But trust me.. when all the department are consider together, then it become so complicated ,like there are tons of account postings to be made in almost every stage shown above. This above discussed process is just simplest, most basic and completely ideal procurement cycle.
But not to worry, its in future, right now lets not just focus on this.
Good one...
ReplyDeleteYou said IR is made from either PO or GR..
ReplyDeleteMeans if GR is partial IR is made after getting the complete GR rite..?
And if the vendor doesn't have some materials then IR is created from the GR only..
So when is it created from PO..?
In SAP, IR are generally made with reference to PO only, unless you have ticked the option of GR based Invoice. If you have ticked the option of GR based IV while creating a PO then only it becomes necessary to post an Invoice with ref to GR or else PO is given ref.
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