Presentation on Procure to pay Process for better understanding of the process,key controls and gaps.

1. Business Process Training
Procure to Pay
Presented by: Sameer Mittal
Date : December 16, 2011

2. Introduction
Table of Contents
Understanding Procurement to Pay
 Process Overview
 Overview of Key Activities
 Detailed Description of Key Activities
Approach
 Key Controls
2

3. 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

4. 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 Selection2
Inventory Management
1 Timely and comprehensive
intimation to Corporate office
about existence of vendors
Unit Head
Procurement
Major
Process
Process
(Aggregation of activities)
Procurement PlanningA
Sub Process
Receipt & Issue of Material5
6
4
Vendor Evaluation
EVP –Ops/ DGM
Ops/ Procurement
Controller
3 Timely procurement in correct
quantities and as per desired
quality
KPIs
Vendor SelectionB
Inventory Level ManagementC
Order placing & trackingD
Vendor EvaluationE
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. Procurement to Payment: Key Activities
5
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 Selection2
Inventory Management
1 Timely and comprehensive
intimation to Corporate office
about existence of vendors
Unit Head
Procurement
Major
Process
Process
(Aggregation of activities)
Sub Process
2) Analysis of the stock level
Receipt & Issue of Material5
6
4
Vendor Evaluation
1) Inventory Holding Levels
EVP –Ops/ DGM
Ops/ Procurement
Controller
3 Timely procurement in correct
quantities and as per desired
quality
KPIs
Inventory Level ManagementC
Order placing & trackingD
Vendor EvaluationE
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 on a timely basis
Procurement
Committee
2 Vendor selection & price
revision
Procurement PlanningA
Vendor SelectionB 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. Procurement to Payment: Key Activities
6
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 Selection2
Inventory Management
1 Timely and comprehensive
intimation to Corporate office
about existence of vendors
Unit Head
Procurement
Major
Process
Process
(Aggregation of activities)
Sub Process
Receipt & Issue of Material5
6
4
Vendor Evaluation
EVP –Ops/ DGM
Ops/ Procurement
Controller
3 Timely procurement in correct
quantities and as per desired
quality
KPIs
Inventory Level ManagementC
Order placing & trackingD
Vendor EvaluationE
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 on a timely basis
Procurement
Committee
2 Vendor selection & price
revision
Procurement PlanningA
Vendor SelectionB
1) Vendor Appraisal (Monthly & Annual)

7. 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 Plan1
Closing Stock & FG Report2
Purchase Order3
1
2
3

8. 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 Form9
5 Vendor Price Approval form
6 Technical
specification approval
4
7
8
6
5
5
9
10
Logic Note10
Comparative Quotation Analysis

9. 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

10. 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 sheets11
Consolidation of new bottle
procurement requirement by the
Controller Procurement
PV Variance report12
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

11. 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

12. Key Controls
S No Particulars Yes No
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

13. Key Controls
S No Particulars Yes No
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

14. Key Controls
S No Particulars Yes No
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

15. Key Controls
S No Particulars Yes No
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

16. Key Controls
S No Particulars Yes No
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 ?
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