Category Archives: Procurement Innovation

A Hitchhiker’s Guide to e-Procurement: Invoices, Part II

Mostly Harmless, Part XI

Previous Post

In the last post, the invoice was defined as well as some of the associated data requirements. This post will address the associated challenges with invoice processing, some associated best practices, and the benefits that could be expected from an appropriate e-Procurement solution that was flexible and efficient in its processing of invoices.

Common Challenges

  • Purchase Order Partitioning

    The line items on the invoice can relate to one or more purchase orders … but which items go with which purchase orders? If an invoice is for a large shipment of hundreds of line items, this can be a challenge.

  • Billing Validation

    Were all of the items ordered? Were they received in acceptable condition? Are they at contracted or otherwise agreed to rates? Do any discounts apply? Are there early payment discounts to be taken advantage of?

  • Duplicate Detection

    Is this invoice unique? Is each line item a unique billing against received goods?

Best Practices

  • Automatic Acceptance / Import

    The system should be capable of automatically receiving invoices from suppliers and automatically accepting them (conditionally) if no reason for automatic rejection is found.

  • Automatic Uniqueness Validation

    The system should automatically match each line item of the invoice against the indicated and/or outstanding purchase orders and automatically reject the invoice if it, or any part of it, is determined to be a duplicate of an already submitted, and (conditionally) accepted, invoice. This notice should automatically be sent to the supplier, along with the reason for rejection.

  • Automatic m-Way Matching

    As soon as an invoice is received, it should be matched against any and all relevant goods receipts, purchase orders, and contracts to make sure that all goods were ordered, received, and billed at contracted rates. If unacceptable errors are found, the invoice should be automatically rejected. If only minor (billing) errors are found, the invoice should be accepted with modifications. If one or more items are under dispute, the invoice should be conditionally accepted and a note made that it can not be paid automatically until the dispute is resolved and that manual intervention will be required if this resolution does not occur before the due date. If one or more line items can’t be matched, the invoice needs to be flagged for manual review.

Potential Benefits

  • Reduced Overspending

    Automatic uniqueness validation insures that duplicate payments are not made, automatic m-way matching prevents overpayments, and automatic flagging of invoices under disputes prevents payments for unacceptable merchandise.

  • Faster Payments

    Invoices that are determined to be problem free can be queued for payments according to the payment terms. Automatic payments can prevent interest charges or reduced goodwill on the part of the supplier.

  • Greater Savings

    The prevention of duplicate payments, overpayments, and payments for goods not yet accepted, the ability to take advantage of early payment discounts, and increased supplier goodwill all contribute to greater savings.

Once the invoices are accepted, it is time for final reconciliation of (conditionally) accepted invoices and invoices that are marked for manual reconciliation (due to one or more problems that are not cause for automatic rejection), which is the subject of the next post.

Next Post: Reconciliation, Part I

Share This on Linked In

A Hitchhiker’s Guide to e-Procurement: Invoices, Part I

Mostly Harmless, Part X

Previous Post

A (sales) invoice is a commercial document issued by a seller to a buyer that indicates the products, quantities, and prices for products and services the seller has provided to the buyer. An invoice indicates that the buyer must pay the seller according to payment terms. While the purchase order is the most important document to the buyer, as it outlines what the buyer is willing to buy (and at what price), an invoice is the most important document to the seller, as it represents money due to the supplier for goods and services rendered.

An invoice is generally the result of a purchase order, but the relationship is not necessarily one-to-one. A supplier might fulfill an order with multiple shipments (especially if some items are not immediately available) and invoice after each shipment, indicating that there can be many invoices corresponding to one purchase order. In addition, a supplier might fulfill multiple purchase orders at once, if the orders were small (and the supplier is responsible for all shipping charges over an agreed amount), indicating that there can be many purchase orders corresponding to one invoice.

Like a purchase order, an invoice must contain a significant amount of information, including items delivered, associated SKUs, billing rates, adjusted rates, reasons for adjustments, corresponding purchase order(s), corresponding goods receipt(s) (if available), invoice date, delivery dates, unique identifiers, taxes, tax codes (state vs. federal vs. VAT etc.), descriptions, billing address, payment address, contacts (for disputes), and payment terms.

In addition, it must contain any information required for m-way matching, to insure that only the items that were ordered and delivered are paid for, and only at contracted rates, and adjusted rate calculations if line-item or global discounts apply (because a volume threshold was reached, because the buyer opted to pay early to take advantage of an early payment discount, or because the supplier agreed to a discount to resolve a dispute).

Furthermore, just like the goods receipt must be representable in a universal (e.g. XML) format that can be accepted by all of the systems that require it, so must the invoice, as the buyer may need to return the invoice to the supplier after adjustments (subject to contract terms and/or agreements that resulted from a dispute resolution) are made.

Thus, when a buyer is evaluating an e-Procurement system, extra attention must be paid to the invoicing capability as it not only has to support m-way matching (with contracts, purchase orders, and goods receipts), but support revisions and automated communications with the supplier. Some of these topics will be addressed in more detail in the next post.

Next Post: Invoices, Part I

Share This on Linked In

A Hitchhiker’s Guide to e-Procurement: Goods Receipts, Part II

Mostly Harmless, Part IX

Previous Post

In the last post, the goods receipt was defined and some of the complexity around the requirements thereof were discussed. This post will address some of the challenges associated with the goods receipt, some of the associated best practices, and some of the benefits that could be expected from an appropriate e-Procurement solution that effectively handled goods receipts.

Common Challenges

  • m-Way Matching

    The goods receipt needs to be matched back to the appropriate purchase orders and/or contracts and forward to the appropriate invoices. This can be very difficult without a good system.

  • Issue Tracking & Dispute Initiation

    As soon as a potential problem is detected, it has to be documented and reported as a supplier’s liability is often greatly minimized, if not released entirely, if an issue is not reported in a timely fashion.

  • Inventory Management

    If the goods are not appropriately logged and tracked, they could be lost in the system. Or, even worse, the inventory management system might think there is not enough stock when there is too much and automatically reorder more, causing inventory management nightmares (as well as huge write-offs down the line).

Best Practices

  • Line-Item Matching

    Since a single shipment can relate to multiple purchase orders, contracts, and / or invoices, matching should be done at the line-item level of the goods receipt.

  • Dispute Management Integration

    The goods receipt should be automatically sent to the dispute management system if any issues are noted and the e-Procurement system should be capable of importing any modifications output by the dispute management system, as a result of an agreement.

  • Inventory Management Integration

    The goods receipt should be automatically sent to the inventory management system, and the inventory management system should send back an error message if any of the SKUs are unrecognized (which would be captured by the e-Procurement system).

Potential Benefits

  • Faster Dispute Resolution

    If issues are immediately tracked and reported from the time the goods are received and the goods receipt issued, a formal dispute can be initiated faster — and solved faster since accurate information will be immediately available.

  • Faster Payment

    The issuance of a goods receipt that is free of disputes can trigger payment approval for an invoice (that is issue free), which is then more likely to be paid on time, or early if a(n attractive) discount is offered.

  • Significant Savings

    First of all, because no issue goes untracked, losses from damaged or spoiled merchandise are considerably reduced. Secondly, because shipments are automatically tracked and reconciled and because disputes are resolved faster, the buyer is more likely to be able to take advantage of any early payment discounts that may be offered to save even more.

Once the goods receipt is issued, an invoice can be expected in short order (if it is not issued upon shipment). This is the subject of the next post.

Next Post: Invoices, Part I

Share This on Linked In

A Hitchhiker’s Guide to e-Procurement: Goods Receipts, Part I

Mostly Harmless, Part VIII

Previous Post

A goods receipt is a written (or electronic) acknowledgement by a buyer that a specified set of products or services was received by the buyer in acceptable conditions. It’s primarily used for the receipt of goods by a buyer’s warehouse or distribution network. A goods receipt tells the supplier that the buyer has accepted the goods and that the supplier can expect to be paid subject to the terms of the associated purchase order(s) or contract(s).

A goods receipt is so simple in principle that one might believe that it hardly warrants its own post. However, a goods receipt is not so cut-and-dry in practice. There are many reasons for this, including:

  • The goods receipt has to be meaningful to the supplier.

    This means that it has to contain the product codes, or SKUs, used by the supplier, indicate the quantities, and reference the purchase order(s) given to the supplier.

  • The goods receipt has to be meaningful to the buyer.

    This means that it has to contain the product codes, or SKUs, used by the buyer for purchasing. It needs to reference the appropriate purchase order(s) and/or contract(s) and it needs to provide an ability to reference a forthcoming invoice.

  • The goods receipt has to be meaningful to inventory management.

    The goods receipt also has to contain the product codes, or SKUs, used in inventory and warehouse management, if they differ from the purchasing codes, and any auxiliary information required by inventory management and warehousing for storage and distribution.

  • The goods receipt has to account for irregularities that could form the basis of disputes.

    The supplier might require a receipt as soon as goods are delivered, but before they can be adequately inspected. Upon an initial inspection of a damaged box, it may or may not be possible to determine whether or not any, some, or all of the contained products are damaged. How can this information be captured so that there is a foundation for a dispute if damage is found upon future inspection?

  • The goods receipt has to be acceptable to multiple systems.

    Chances are the supplier uses one system for receiving goods receipts while Purchasing uses another for cutting purchase orders while inventory management uses yet another for managing inventory.

As a result, the goods receipt must be expressible in at least one universal format that is capable of supporting multiple product codes or SKUs, multiple references to related buyer and supplier documents, and multiple instances of such documents, as a supplier could ship goods relating to multiple purchase orders in a single shipment. (Also, a single purchase order could be related to many goods receipts if different goods on a large BOM are shipped in different shipments.) As a result, the requirements for the goods receipt cannot be overlooked in the selection of an e-Procurement system.

Next Post: Goods Receipts, Part II

Share This on Linked In

A Hitchhiker’s Guide to e-Procurement: Purchase Orders, Part II

Mostly Harmless, Part VII

Previous Post

In the last post, the purchase order was defined as well as some of the requirements for its generation. This post will address the challenges associated with purchase order generation, some associated best practices, and the benefits that could be expected from an appropriate e-Procurement solution.

Common Challenges

  • Requisition Partitioning

    A requisition contains requests for multiple goods or services, which are covered by multiple contracts at multiple rates depending on SKU, volume, or other terms. Which contract? Which rate? Which terms?

  • Forward Matching

    How will the purchase order be matched to incoming goods receipts and invoices?

  • Duplicate Detection

    How does one detect if multiple purchase orders contain a requisition for the same good or service? How does one detect if duplicate purchase orders were accidentally cut?

Best Practices

  • Automatic Generation

    The system should automatically generate the necessary purchase orders from approved requisitions.

  • Automatic Price Confirmation

    The system should automatically verify that contract or catalog prices are being adhered to.

  • Automatic Distribution

    An approved purchase order that sits on someone’s desk waiting to be sent can hold up the business or a production line if the parts or services are not delivered on time because the supplier(s) did not get the purchase order on time. Once a requisition is approved, the purchase order should be sent automatically

Potential Benefits

  • Reduced Lag Time

    An e-Procurement system can automatically create and distribute purchase orders as soon as the requisitions are approved.

  • Reduced Overspending

    The system can automatically grab and populate the purchase orders with contract pricing. Some categories, like office supplies or electronics, see a lot of overspending because buyers requisition at catalog, but not contracted, rates or don’t buy in the appropriate quantities (which can be flagged and corrected during the approval process).

  • Reduced Errors

    The system can automatically pull up the right codes, the right templates, and the right prices so that the supplier isn’t sending it back with a request for further explanation, which would only delay the process further.

Once the purchase orders are distributed, the next step is to wait for delivery and issue the goods receipt, which is the subject of the next post.

Next Post: Goods Receipts, Part I

Share This on Linked In