ERP Internals/Modules/Purchasing

A Purchase Order authorizes a supplier to ship products to or perform services for the enterprise and invoice them for it. In some enterprises, the purchasing cycle starts with a purchase requisition, which is a request to Purchasing to locate a supplier and issue a purchase order. It is similar to a purchase order except that it does not stipulate a supplier although it can recommend one. It is Purchasing’s job to find a suitable supplier. For large enterprises, this is the start of the Procure To Pay process. Purchasing is the first step in the supply chain, Accounts Payable is the last.

Since a purchase order is a promise to pay, issuing one creates an encumbrance, which becomes a liability when the supplier’s invoice is received.

In manufacturing enterprises, Purchase Orders can be created automatically as part of Advanced Planning and Scheduling. For new goods or services or in the case of a competitive requote, RFQs or RFPs are sent to potential suppliers. When the goods are received, they are processed through Receiving which matches them against the original Purchase Order and records missing or partially shipped items. When the invoice is received, it is matched against the Purchase Order to find any discrepancies in prices. Purchasing interacts with Inventory (increases on-order quantities), Accounts Payable (verify pricing), Receiving (verify quality and quantity), and Shop Floor Control (create planned Purchase Orders).

The two main Purchasing objectives are to: 1) obtain the best price from suppliers for goods or services of acceptable quality and 2) expedite the delivery of goods so that shipments to customers are not delayed.

Purchase analysis analyzes purchases of goods and services by category, supplier, product ID, buyer, department, date, etc. and combinations thereof. The Analysis function selects, sorts, and summarizes these transactions and presents them in numeric and graphic forms. It supports both pre-defined and ad hoc queries using a separate, read-only database that is optimized for quick access. Each record in the database represents a line on a purchase order.

There have to be both Purchase Analysis and Inventory Analysis since some enterprises do not maintain inventory and most enterprises buy additional goods or services that do not enter inventory. Every ERP package has a Purchasing module.



Purchase Orders can be delivered electronically through EDI or XML. (I will get back to explaining this)



Purchasing shares the Supplier group of tables with Accounts Payable. The second group consists of the Purchase Order table which contains one record for every purchase order and the Purchase Order Detail table which contains one record for every line on the purchase order. There is at least one detail record for every purchase order and there can be many.

Data Exchange


Purchasing sends data to Inventory and transactions to General Ledger.



Different types of transactions in Purchasing are 1) Purchase order creation and approval 2) Communication of Purchase order to Supplier 3) Changes to Purchase Order 4) Shipping of goods by Supplier 5) Receipt of goods 6) Quality check / Returns to Supplier