From the course: Supply Chain and Operations Careers: Certification Tips and Tricks (2019)

Procure to pay

From the course: Supply Chain and Operations Careers: Certification Tips and Tricks (2019)

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Procure to pay

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- Have you ever wondered why it's so hard to buy anything for yourself when you work in a big company? Or why it takes big companies so long to pay their bills? Well, the reason is that these companies need to have a process in place to control how their money gets spent. The bigger the company the more money they spend and the more important it is to have well defined steps. Starting with sourcing or procuring an item and ending with paying with paying the bill. Supply chain folks have a name for all of the steps in this process. We call it the procure-to-pay or the source-to-pay cycle. So, let's walk through the seven steps in a typical procure-to-pay process. First, in order to buy anything you generally need to start with a requisition order or a req., for short. That req. means the company is giving you permission to make a purchase. Now you need to decide where to buy it. In other words, you need to select a vendor. The company may have pre-approved vendors who sell the thing you need but if not, they'll need to send out a request for proposals. Potential suppliers will then respond to your RFP with bids and you'll choose the one that provides the best value. Next, you'll issue a purchase order to the vendor you selected. The PO should match the information in the proposal that you received and it should specify details, like quantities, pricing, timing, and payment terms. When your vendor receives the PO they can complete your order and deliver it to you. Once it arrives you should do an inspection and log receipt of the order. Sometimes products are defective or they get damaged in transport so you need to have a process for inspection and handling problems that might come up. So that takes care of the procurement steps. Now let's talk about payment. Once the product has been shipped your supplier will send you an invoice. Receiving the invoice usually starts the clock for payment. Then, you need to reconcile everything by doing a three-way match between the PO, the receiving document, and the invoice. If there are any discrepancies, they need to be resolved. Otherwise, if all three contain the same information the invoice can move to the final step in the process where an invoice is approved for payment. Once it's approved it goes into the accounts payable queue. Doing the three-way match and getting an invoice approved can take a while but you want to make sure that invoices are paid within the time shown on the invoice. Otherwise, you could end up paying late charges and penalties to your suppliers. In order to manage your supply chain you need to control how your money's being spent and a good procure-to-pay process plays an important part in helping to manage your costs and your cash flow.

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