Centralized procurement in ERP systems

Enterprises often carry out centralized procurement of materials: first, products arrive at the central warehouse, after which they are distributed among departments. In this case, a situation is possible when stocks remain in the main warehouse and it is impossible to understand who initiated the purchase of these materials. This work will consider the problem formulated above and possible ways to solve it.

The process of purchasing products is as follows: departments create documents of primary needs, reflecting in the ERP system data on materials, quantities, planned date of receipt, on the basis of which these products will be written off in the future. After the primary requirement documents are approved, they are sent to the MRP (materials requirements planning) functionality for processing. MRP analyzes the availability of material requirements, existing stocks in warehouses, as well as future receipts. As a result, MRP automatically generates purchase requisitions for the missing quantity. The created requisitions serve as the basis for purchasing from an external supplier. Moreover, a special type of requests can be generated that allows transfers from other warehouses of the company.

Fig.1. Purchasing to the central warehouse and distribution to departments

MRP operates across the entire enterprise and does not differentiate the entire required volume among individual departments. Therefore, there is no connection between the primary needs of the departments and the generated purchase requests. Consider the following example: There is a requirement for 10 pieces of material on the 5th of the next month. At the same time, there is already a stock of 3 pieces in stock. There are no other needs for this material. Let's say a planned receipt of material is expected on the 1st of the next month in the amount of 1 piece. The MRP functionality will generate a purchase request for a quantity equal to 6 pieces (10 – 3 – 1).

Fig.2. The relationship between primary requirements, MRP and the purchasing process

Due to the fact that procurement is not targeted, there may be an oversupply of inventory in central warehouses, since it is not clear which department originally ordered them. This can happen, for example, if an employee of the supply department mistakenly increased the quantity or ordered a different material, the supplier delivered a larger volume than was stated, the initial requirement document contains an incorrect number of the material on the basis of which the purchase has already been made and the arrival at the central warehouse is registered, which no one plans to take it.

Let's look at several methods to solve this problem. [1]:

comparison of primary needs and write-offs for each division for the period;
changes to the primary requirement declaration and procurement processes;
use of a special type of stock.

The method of comparing stated needs and actual write-offs is retrospective and can be used in conjunction with other methods. Analysis of the “demand-write-off” pair can be carried out for one or several department warehouses in the ERP system. If warehouses are not entered in all system requirements documents, then you should make this characteristic mandatory or define another characteristic that identifies the department, for example, a cost center. If a discrepancy is detected, a detailed analysis is carried out. Both a transactional ERP and an analytical BW (Business Warehouse) platform can be used as a comparison system.

Rice. 3. Illustration of comparison of declared and actually written off quantities

The second method involves changing the process “from demand to procurement” as a whole. For example, department employees create purchase requisition documents themselves. Next, the requests will be processed by specialists from the centralized procurement department. In this way, it will be possible to understand the initiator of the purchase of material. But there are nuances: department employees will need to independently find out the required quantity for purchase, taking into account existing inventories and future receipts, or, as an option, they will have to set up the operation of MRP in ERP according to the department’s planning areas, i.e. warehouses As a result, the centralized purchasing department will receive applications ready for work.

And finally, the third method is the purchase of materials for a special type of stock. To do this, in the ERP system you need to set a special type of stock and a label that will reflect the belonging to a specific department. Thus, in addition to the available data on the item number, quantity and batch, the stock in the warehouse will also be assigned a department indicator. Once one of the implementation methods has been selected, one should not forget about user permissions in the ERP system. Permissions represent actions that users are allowed to perform in a technical system…

Literary source:

Terentyev I.M. Problems of centralized procurement in ERP systems // Corporate information systems. – 2019. – No. 3(7). – pp. 53-62. – URL: https://corpinfosys.ru/archive/issue-7/83-2019-7-mrp.