CMP7177 – Enterprise Systems Assessment

Background

CoatXR is a large multinational company in the Netherlands that specialises in coatings and
paints. Their day-to-day operations involve handling many purchase orders for their various
subsidiaries. CoatXR management believes that the growing complexity of this process is
affecting the company's overall performance over time.

The Challenge

The purchase-to-pay (P2P) process is supported by their ERP system, which has been
recently implemented. Despite the benefits that came with the implementation of the ERP
system, by digitalising most of the process and enabling access to data in real-time, the overall
performance of the company has declined. Staff opposition to new technology is one of the
causes of this decline, as they believe it will be used to replace them. Therefore, they
frequently aim to undermine the technology by highlighting its shortcomings and opting for
manual methods to complete their tasks. Besides the fear of being replaced, most are used to

doing things in a certain way, so any changes introduced by technology are not readily
accepted. CoatXR is having trouble managing the daily workload of orders because the central
office still has the purchasing responsibilities for all the subsidiaries. You are asked to review
and optimise the process by understanding the current processes. More specifically, your task
is to analyse the handling of purchase orders related to 10 different vendors and to provide
insights into how the process is currently executed (developing the AS-IS diagram) and the
potential areas of concern in the process flows (bottleneck analysis).

Insights on the Current Process:

Interviews were conducted with the process owner to gather insights into CoatXR's P2P
process. The P2P process was explained in the following five stages when speaking to the
process owner.

Stage 1 – Milestone: Create Purchase Order.

The procurement process starts when there is a need for raw materials from other
departments to complete their company operations. For example, the company cannot fulfil a
production order (a step in the production process) until it purchases all the necessary
materials to satisfy the production order. In addition, the material planning process can also
signal the company to increase its inventory of certain materials. Regardless of the trigger, the
intention is to obtain any missing materials from external partners, i.e., vendors. In the initial
analysis, the procurement staff still use spreadsheets to process stock requirements
information, which is then used to feed the production order. The business-critical data
appears to be manually processed to create the purchase requisition document. The
procurement staff create a purchase requisition document (PRO), which essentially
explains in detail the product's description with regard to its name, product code, and the
quantity required for the product.

Once the PRO is created, a procurement staff analyses the material requirements to
determine the supply source. The procurement staff member would verify in the ERP system
if current vendors would provide the requested materials. The check involves searching the
materials directory by inputting the material code and producing a report on the material
required. The vendors are stored in the ERP system in a document called "Source List," which
includes the list of vendors that can supply a specific product. The procurement staff member

will examine the information to determine if current vendors can supply the material. In cases
where the vendors exist, i.e., a source list of available suppliers exists, the process follows
two different pathways depending on whether the supply source (vendor) is internal or
external.
If the source of supply is internal, i.e., the source of supply consists of other plants (branches
of the company), a request for these materials to be sent to the plant in need is made, i.e., a
stock transfer order (STO) is created.
Otherwise, if the source exists and it is external, the procurement staff member selects a
vendor from the source list. If there is only one source in the source list, the system
automatically assigns the vendor to the requisition. The system will display a list of vendors
for the procurement staff member to choose the correct one if the source list identifies multiple
sources. The procurement manager and financial controller may need to approve this. This
approval can take three working days at times. Alternatively, the requisition can be satisfied
through outline purchase agreements, which are longer-term agreements between an
organisation and a vendor regarding the supply of materials or the performance of services
within a specified period according to predefined terms and conditions. Regardless of the
chosen source, the purchase requisition document (PRO) is converted into a purchase order
(PO).
If there are no records of vendors in the source list, the procurement staff member would have
to consult with their procurement manager to get insights on the potential source of supply for
the requested material. The procurement manager will have to review his list of potential
vendors and ask one of the procurement staff members to research the vendors by conducting
telephone calls and investigating their reviews; this process takes around five days. Once the
source is specified, the master data for the source list is updated on the system, and the data
for the material in need is updated for further reference. Additionally, a request for quotation
(RFQ) is created to send to the potential vendors for the required materials. Note: An RFQ is
an invitation to vendors by an organisation to submit a quote for the supply of materials or
services. When the RFQ document is created, it is sent to the list of vendors identified in the
previous steps to receive a price for the requested materials. When the quotation is received
from all the vendors, the ERP system will automatically evaluate the quotes based on the price
and the quality ranking of the vendors our department specified. One of our procurement staff
will choose one of the vendors based on the recommendations given by the ERP system.
Finally, a purchase order is created based on the quotation document and the price given by
the chosen vendor.
The output of this sub-process is the PO, which the procurement staff member sends to the
vendor via email to confirm the order. The vendor emails back their acceptance or rejection of
the order to the procurement staff member. If the order is accepted, the vendor sends a
confirmation of receipt and may provide additional information, such as the expected shipment
date. The procurement staff member also uses the ERP messaging capabilities to send
reminders and request that deliveries be sped up one week before the shipment date. The
ERP system will automatically notify the relevant departments, e.g., the warehouse team, of
the expected shipment date and quantity of materials.

Stage 2 – Milestone: Record Goods Receipt

The warehouse team will receive the goods from another facility or vendor on the stated
shipment date. The materials are accompanied by a delivery document that identifies the
materials included in the delivery and the purchase order. The warehouse staff member uses
this document to manually verify that the correct materials have been delivered in the correct

quantities. Second, the warehouse staff member will log into the system and create a goods
receipt (GR) document by providing the purchase order number. The system will retrieve the
purchase order and automatically add the relevant data to the goods receipt document. The
warehouse staff member will then verify that the data are correct. That is, the materials and
quantities delivered match what the company ordered. However, one purchase order can
generate multiple deliveries. In such cases, the warehouse staff member will modify the data
to reflect the materials and quantities that the company received. When partial deliveries are
recorded, the purchase order can be used again when the rest of the materials are delivered.
The default option is to receive the complete materials ordered. The warehouse staff member
will designate this in the GR document, which causes the stock levels to be automatically
updated in the system. Otherwise, the materials can be designated as blocked stock if they
are unacceptable or not what the company ordered. Some reasons for not accepting the goods
are due to wrong items being delivered, either due to mistakes in measurement or estimates.
Sometimes, more things are shown as the vendor overestimates spillage or miscalculations.

Stage 3 and 4 – Milestone: Vendor Creates Invoice and Record Invoice Receipt

The next step in the process is invoice verification. When a company receives a vendor
invoice, it verifies that it is accurate before payment. The most common method of invoice
verification is a three-way match between the purchase order, the goods receipt or delivery
document, and the invoice. The objective is to ensure that the quantities and prices in all three
documents are consistent. To complete this step, the accounting staff member will provide the
data from the invoice (vendor, date, and amount) and the purchase order number. The system
will then retrieve all the needed data from the purchase order (vendor, materials, quantities,
and price). It will also retrieve the goods receipt data for the purchase order. The accounting
staff member will verify that the data are correct and, if they are, will approve the invoice.
Occasionally, there may be discrepancies among the three sets of data. For example, the
quantity delivered or price may vary somewhat. Whether these discrepancies are acceptable
will depend on the organisation's purchasing and accounting policies. If the discrepancies are
tolerable, the invoice is approved for payment. If not, the invoice will be blocked, and further
action from the accounting or purchasing department will be required before it can be released.

Stage 5 – Milestone: Clear Invoice

Processing payment involves several steps: selecting a payment method and a bank, deciding
which invoices are ready for payment, calculating payment amounts, posting the payment
documents, and printing the payment medium. When making payments manually, the
accounting staff member selects the payment method and the bank and provides the vendor
number and the payment amount. The system will then display a list of open invoices for that
vendor. The accounting staff member will next select the invoices that are to be paid. Any
applicable discounts based on payment terms are then applied. For example, if the payment
term is 2%/10 and payment is being made within the ten days specified in the terms, the
system will apply a 2% discount. Once the payment is posted, the actual payment can be sent.
If payment is made electronically, the system will automatically send the payment. The
accounting staff member will print and send it to the vendor if it is to be made via a printed
check.

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