Processes systems and information an introduction to mis 2nd edition mckinney solutions manual

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Chapter 7 Supporting Procurement with SAP Chapter Objectives/Study Questions Q1.

Q2.

Q3.

Q4.

Q5.

Q6.

Q7.

Q8.

What are the fundamentals of a Procurement process?

How did the Procurement process at CBI work before SAP? What were the problems with the Procurement process before SAP? How does CBI implement SAP? How does the Procurement process work at CBI after SAP? How can SAP improve supply chain processes at CBI? How does the use of SAP change CBI? What new IS will affect the Procurement process in 2024?

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2 of 17 List of Key Terms

• • • • • • • • • •

• • • • • • • •

•

•

3D printing – also known as additive manufacturing, objects are manufactured through the deposition of successive layers of material.

Augmented reality – computer data or graphics overlaid onto the physical environment.

Bottleneck – event that occurs when a limited resource greatly reduces the output of an integrated series of activities or processes.

Bullwhip effect – occurs when companies order more supplies than are needed due to a sudden change in demand.

Buy-in – selling a product or system for less than its true price.

Finished goods inventory – completed products awaiting delivery to customers.

Internal control – control that systematically limits the actions and behaviors of employees, processes, and systems within the organization to safeguard assets and to achieve objectives.

Invoice – an itemized bill sent by the supplier.

Lead time – the time required for a supplier to deliver an order.

Procurement – the process of obtaining goods and services such as raw materials, machine spare parts, and cafeteria series. It is an operational process executed hundreds or thousands of times a day in a large organization. The three main procurement activities are Order, Receive, and Pay. Purchase order – a written document requesting delivery of a specified quantity of product or service in return for payment.

Purchase requisition (PR) – an internal company document that issues a request for a purchase.

Radio-frequency identification (RFID) – chips that broadcast data to receivers to display and record data that can be used to identify and track items in the supply chain.

Raw materials inventory – stores components like bicycle tires and other goods procured from suppliers.

Returns Management process – manages returns of a business’ faulty products.

Roll up – the accounting process to compile and summarize the accounting transactions into balance sheets and income statements.

Supplier evaluation process – process to determine the criteria for supplier selection that adds or removes suppliers from the list of approved suppliers.

Supplier Relationship Management (SRM) process – process that automates, simplifies, and accelerates a variety of supply chain processes. It helps companies reduce procurement costs, build collaborative supplier relationships, better manage supplier options, and improve time to market.

Supply chain management (SCM) – the design, planning, execution, and integration of all supply chain processes. It uses a collection of tools, techniques, and management activities to help businesses develop integrated supply chains that support organizational strategy.

Three-way match – the data on the invoice must match the purchase order and the goods receipt.

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3 of 17 MIS InClass 7

1. Describe the order pattern from the customers to the retailer every week.

The order pattern from the customers to the retailer was random from week to week.

One week demand would be six bikes, and 12 the next. The following week demand would be for only two bikes. Sometimes the demand would trend upward, steadily increasing over a period of weeks. At other times, demand would slowly fall over a period of time.

2. Why did the ordering pattern between the suppliers in the supply chain evolve the way it did?

Initially, the ordering pattern between the stations was very erratic. A bullwhip effect was created. As the game moved forward, product was able to work its way through the supply chain, so orders were able to be met. This created a pattern of overordering, which led to generally excessive inventory. As the randomness of the orders was realized, the orders through the supply chain moved up and down as well.

3. What are the objectives and measures for each team’s procurement process?

The objectives for each station are to have less inventory and less backorders. To measure this, stations use the total cost. The total cost is 0.5 (inventory) +1 (backorders).

4. Where is the IS? What would more data allow? What data are most needed?

There is not an IS present in the game. More data would allow materials planning within the supply chain. Customer demand is most needed. It takes a long time to get the customer data through the different stations. If the factory had a more direct view of customer demand, the backorder and inventory problems would not be as exaggerated downstream.

5. If you spent money on an IS, would it improve an activity, data flow, control, automation, or procedure?

It would improve the linkage between the retailer and each of the stations in the supply chain. Without an IS, each station can only know what the demand is one station away, and there is an inherent lag. This lag can be reduced when every station understands what the customer demand actually is.

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6. Create a BPMN diagram of your team’s weekly procurement process.

Procurement Process for Wholesaler Purchasing Manager

Warehouse Manager

Fulfillment Manager

Start

Receive Inventory and advance the shipping delay

Receive Incoming Orders and Advance the order delay

Update Inventory

Check Inventory

Record Back Log Enough Inventory

No

Enough inventory to fulfill

Inventory

Yes No

Place Order Update Inventory

Phase

Yes

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Fill the Order

End

5 of 17 Using Your Knowledge

7-1. Two supply chain processes introduced in this chapter are Returns Management and Supplier Evaluation. a. Create a BPMN diagram of each of these processes.

Returns Managment Retailer

Factory

Supplier

Start

Product Received by Retailer

Product Returned to Factory

Replacement Product issued to Customer

Product Received by Factory

Product Examined for Defect

Correct Supplier Charged for Defect

Supplier Charged

Phase

End

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Supplier Evaluation Purchasing Manager

Approved Supplier List

Start

Suppliers are nominated

Information Gathered

Supplier Approved

Yes

Update List

Approved Supplier DB

Phase

End

b. Specify efficiency and effectiveness objectives for each process and identify measures appropriate for CBI. Potential efficiency objective examples for: Returns Management: Fewer product returns.

Supplier Evaluation: Time to approve suppliers.

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Potential effectiveness objective examples for: Returns Management: Quality Controls.

Supplier Evaluation: Sufficient number of approved suppliers.

Potential efficiency measures for: Returns Management: Percentage of quality control tests passed and inspecting parts prior to assembly.

Supplier Evaluation: Inventory turnover.

Potential effectiveness measures for: Returns Management: Decrease in Product Returns account.

Supplier Evaluation: Decrease in the number of suppliers removed from the list of approved suppliers. c. What new information system technologies could be used by CBI to improve these processes, as specified by your measures in part b? Can AR, RFID, or 3D printing be used to improve these processes?

Yes, RFID could be used to track batches of parts that fail a quality control inspection, allowing CBI to find the parts before they are used to assemble other products. Augmented Reality could be used when inspecting a returned product.

The parts in the product could be linked directly to the supplier, allowing CBI to quickly charge the supplier for the defect to reduce its own Returns allowance and increase its accounts receivable.

7-2. Which of the four nonroutine cognitive skills identified in Chapter 1 (i.e., abstract reasoning, systems thinking, collaboration, and experimentation) did you use to answer the previous question?

Based on the example answer for question 1, the nonroutine cognitive skill of systems thinking was used to determine what available technologies could be used

by CBI to help improve its processes and how the technologies could be leveraged to help each other. Abstract reasoning was also utilized to determine in which step of the process the technology could be used.

7-3. Which of the four skills in Exercise 7-2 would be most important for Wally’s replacement?

Wally’s replacement will need to possess systems thinking in order to connect all of the inputs and outputs produced by CBI into one big system. The three remaining non-routine skills will also be important for Wally’s replacement. Technology moves quickly and to remain an effective manager, Wally’s replacement will need to move quickly as well. Over the course of ten or twenty years, the processes will also change, creating more opportunities for CBI to improve and become an even better business.

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7-4. The Procurement process in this chapter is an inbound logistics operational process. Name two other operational processes at CBI. Describe two inbound logistics managerial processes and two strategic processes.

Examples of two other operational processes are Accounts Payable and Conducting Sales. Examples of inbound logistics managerial processes include materials requirement planning and production assembly employee scheduling. Examples of strategic processes include budget planning and determining future warehouse space requirements.

7-5. If a warehouse worker opens a box and the contents are broken, those items will be returned to the supplier. Add this activity to the BPMN diagram of the Procurement process (Figure 7-14).

Updated BPMN for Figure 7-12 Purchasing Manager

Warehouse Manager

SAP Application

Accountant

End Start

Create Purchase Requisition

Create Purchase Order

Update DB

Pay Supplier

Yes SAP DB

Retrieve Three-Way Match Data

Consistent 3 Way Match

Update DB

Receive Invoice Receive Goods

Product in Acceptable Condition

Yes

No

Phase

Return Product to Supplier

7-6. For the Procurement process after SAP implementation, what are the triggers for each activity to start? For example, what action (trigger) initiates the Create PO activity?

To start, the raw material inventory for a given product must drop below a predetermined level. This will cause a purchase requisition to be created. Once a PR is created, the purchasing manager must approve it in order to create a purchase order. Once a PO is created and the materials are delivered, a goods receipt is Copyright © 2015 Pearson Education, Inc.

No

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created. Once the goods are added to the inventory, the goods receipt creates an entry in accounts payable. Once CBI receives the invoice for the PO, the receive invoice process is triggered. This allows the Pay supplier activity to begin. Before the post outgoing payment activity can be completed, the data from the PO, goods receipt, and invoice must all be correct (the three-way match).

7-7. What kinds of errors can Wally, Maria, and Ann make that are not captured

by SAP? One example is that Wally might count 20 bottles and 30 cages but mistakenly enter 20 cages and 30 bottles. Describe a particularly harmful mistake that each can make and how the process could be changed to prevent that error.

Wally could accidentally miss clicking OK for one of the products in the Goods Receipt Screen. Maria could select the wrong supplier for a particular material. Ann could select the wrong supplier to which to issue a payment. A particularly harmful mistake that Wally could make is to forget to create a good receipt altogether. To improve this process, augmented reality and RFID tags could be used to identify materials that have been shipped by the supplier but have yet to be entered into inventory at CBI. Maria could mistype a part number to be ordered. To prevent this, a check could be run to confirm that the part number ordered is below the minimum stock on hand. Ann could pay the wrong vendor. To prevent this, checks could be used to ensure that the vendor being paid has an unpaid invoice with CBI and that the amount of payment is less than or equal to the amount of the accounts payable for that particular vendor.

7-8. How does a pizza shop’s Procurement process differ from CBI’s? What do you believe is the corporate strategy of your favorite pizza franchise? What are the objectives and measures of its Procurement process to support this strategy?

A pizza shop’s procurement process would need to be more efficient than CBI’s.

Pizza shops carry perishable items on their inventory, which means inventory must be turned over quickly. Pizza shops also generally have narrow margins. This means that there is not as much room to carry excess inventory like CBI might be able to. Papa John’s, with over 3,500 locations, aims to provide better pizzas by using better ingredients. This can be particularly difficult due to the need for fresh vegetables. Because of this, the chain has local suppliers for each location. To support the strategy, Papa John’s should have relatively small amounts of raw materials on hand to make sure that the ingredients are fresh. This can be measured by the inventory turnover for each ingredient. Another measure is the response time by suppliers to provide the fresh ingredients. This can be measured by the order fulfillment time.

7-9. 3D printing has many benefits for businesses. Suggest three products that CBI might print instead of procure with traditional means and three that your university might print.

Suggested answers for CBI: • Any plastic parts for its bicycles, ranging from wheel reflector shells to handlebar plugs and from tire filler caps to water bottles and helmet shells.

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• •

Promotional materials such as key chains, custom signage for store display, etc.

With the right technology and printer cartridges, metal parts may be part of the process in the future. There are currently experiments with titanium printing that would allow the printing of high-end gears, derailleurs, etc.

Suggested answers for a university: • Athletic equipment (think football, hockey, etc.).

• Keys, most universities spend significant funds on key manufacture and control.

• Soft and hard goods with the university seal/logo for sale in the bookstore and at events.

Students will certainly have a plethora of suggestions.

Which procurement objectives does 3D printing support?

Procurement is primarily associated with inbound logistics. It is the process by which goods are ordered, received, stored, disseminated within the organization, and paid for. 3D printing affects ordering (to some extent), receipt, storage, and dissemination (depending upon where printing occurs relative to the ultimate user’s location).

7-10. Augmented reality will help employees find items in a warehouse, but this IS may also support many other processes. Name two and describe how AR will improve them. Use Google Glass as one example of using AR, and use another example of AR for your other process.

AR could assist with navigation though a large facility to locate an individual or functional location. AR could also be used to help a person during a presentation by presenting context sensitive information viewable only by the presenter regardless of the presenter’s proximity to a computer (think Google Glass). In a more traditional sense, AR could present 3D images of complex designs to assist in product repair, virtual design interaction, etc. If AR is tied to GPS, which is certainly a reality, your smartphone can present an AR view of your current location to give you information about your surroundings, or possibly suggest possibilities for a sales call close to you, for example.

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11 of 17 Collaboration Exercise 7

1. Figure 7-8 lists problems with the Procurement process at CBI. Which of these would apply to the university? Which would not? What are some procurement problems that might be unique to an athletics department?

In the Accounting role, three-way match discrepancies and the lack of real time accounting data would apply at university. Purchasing agents could be spread across many departments and colleges. Internal controls could also be weak in the Purchasing role. The problems with finished goods inventory and raw materials inventory would not apply to the university. The athletics department, on the other hand, may face issues with procurement due to the need for a very specialized piece of athletic equipment that is only offered by a limited number of suppliers. An athletics department might also face issues with increased procurement costs because of low order volumes. It might be difficult to obtain economies of scale when there are only 25 hockey players who need hockey skates ordered for the season.

2. Figure 7-12 lists objectives and measures that the managers at CBI determined for the Procurement process. What objectives and measures would you suggest for the university? What objectives and measures would you expect the athletics director to suggest (do not use the objectives and measures from Chapter 6)?

For the university, an objective should be to reduce inventory. Another objective could be to reduce costs. Measures for these objectives would be decreasing inventory costs from 25% of sales to 15% and to reduce product costs by 5%. The athletics department should use objectives like reduce cost and increase the volume of cross-selling. Measures could include reducing product costs by 10% and increasing cross-selling revenues by 25%.

3. Figure 7-28 lists the impacts of SAP on an organization. Which of these impacts would affect the athletics department?

Of the four items listed, new skills needed and process focus would affect the athletics department. The department will need to train employees to be proficient with the supply chain management system, and to utilize employees’ abstract reasoning and analytical skills. The athletics department will also need to focus on processes. The inputs and outputs into the system will provide more data for the department’s customers and suppliers.

4. Chapter 1 explained four nonroutine cognitive skills: abstract reasoning, systems thinking, collaboration, and experimentation. Explain how implementing the new Procurement process at CBI will require each of these skills from the members of the SAP implementation team.

Abstract reasoning is needed to create and manipulate the models for CBI’s processes. Ultimately, the process used by the employees and the process that the SAP software is designed to aid must be the same. It may require the human processes and computer processes to be tweaked in order to work together. Systems thinking will be needed in order to fully realize the benefits provided by SAP. The ERP system creates many inputs and outputs which can be used by the company to

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increase the efficiency of it processes and to increase its operating margins. It is up to the employees to realize how the data can be used. Collaboration is essential for a successful implementation. Employees from different areas of the company will need to work together toward a common goal for the investment in the system to be worthwhile. Experimentation is needed to pursue potential solutions to problems in the processes and to foster learning opportunities. Not every experiment will be successful; the opportunity comes in learning something from a failed experiment other than the knowledge that what was tried did not work.

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13 of 17 Active Case 7: SAP PROCUREMENT TUTORIAL

7-11. Describe your first impressions of SAP. SAP can seem very large and daunting at first glance. Users may have feelings of confusion and even intimidation. Many textboxes create many opportunities for user error. However, while SAP may seem a little overwhelming, the system has many controls in place. Some of these controls include data validation (selecting vendors or products from a pre-populated list), and auto-completed fields, which prevent user inputs from being incorrectly entered.| 7-12. What types of skills are necessary to use this system?

In order to use the SAP system, the user needs to possess analytical skills. The system produces many data points. SAP relies on the efficiency of underlying processes in order for businesses to gain the full benefit. The processes are designed and executed by those that use the system.

7-13. Create a screen capture of an SAP screen. Underneath the image, provide an answer to each of the following questions: The Post Outgoing Payments screen is used as an example.

a. In which of the activities does this screen occur?

The screen occurs in the Post Payment activity. b. What is the name of this screen?

This screen is called the Post Outgoing Payments Header screen.

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c. What is the name of the screen that precedes it? What screen comes after it?

The screen that precedes the Post Payment Header screen is the Outgoing Payment screen. The screen that follows the Post Payment Header screen is the Post Outgoing Payments process open items screen. d. What actor accomplishes this activity?

The actor that accomplishes this activity is Ann from accounting. e. Describe an error that this actor may do on this screen that SAP will prevent.

Without SAP, Ann could enter the wrong amount for payment. While SAP does not outright prevent this action, it does provide a check figure in the “Not assigned” box. If the value for the not assigned box is not zero, Ann will know that there is an error.

7-14. Make an informal diagram of the four main actors: Supplier (Composite Bikes), Purchasing (Maria), Warehouse (Wally), and Accounting (Ann). Draw arrows that show the data that flows among the actors during this process.

Number the arrows and include on each arrow what data are included in the message.

Case 7 Question 4 Supplier

Purchasing

Warehouse

Accounting

Start

Receive Purchase Request

1. Purchase Requisition Request

2. Required Material

Create Purchase Order

Fill Purchase Order

3. PO information

Create Goods Receipt

4. Product

7. Receipt Confirmation

Create Account Payable

5. Invoicing Information 8. AP Information

Send Invoice

Phase

Receive Payment

6. Invoice

Issue Payment

9. Payment Data

End

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7-15. Using the same four main actors as in question 7-14, this time show with the arrows how the material (the water bottles and cages) moves.

Case 7 Question 5 Supplier

Purchasing

Warehouse

1. Order Contents

Receive Order / Create Goods Receipt

Start

Receive PO / Ship Order

Phase

End

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Accounting

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7-16. One concern of a business is fraud. One fraud technique is to create suppliers who are not suppliers but are co-conspirators. The conspirator inside the business accepts invoices for nonexistent deliveries. For this fraud scheme to work, who at CBI has to take part? How can SAP processes decrease the chance of this type of fraud?

For this scheme to be used, Wally, Maria, and Ann would all need to take part.

Maria would play a central role as the purchasing manager because she would create both the fictitious vendor and the fraudulent purchase orders. Wally would also play a role in the warehouse by creating the goods receipt document. By creating the document, Wally would open up an account payable as well. In accounting, Ann would be CBI’s last line of defense. Ann would post the payment to the fictitious vendor, completing the fraud.

SAP processes can decrease this type of fraud by splitting the various processes up between functional departments and actors within those departments. Access can be restricted so that no single individual could complete each step necessary for the fraud. By requiring more actors to take part, the likelihood of a coworker noticing something is amiss increases. Another measure that can be taken is to utilize an approved supplier list. This would allow purchase orders to only be placed to vendors who meet certain requirements. One possible requirement is to undergo a site visit by members of CBI’s management.

7-17. Select any of the main activities or subactivities in the Procurement process.

The activity used in this example is Create Purchase Order. a. What event triggers this activity?

The activity is triggered by the purchasing manager approving a purchase requisition. The purchase requisition may have been automatically generated by the stock levels of a particular product dropping below a predetermined point.

The purchase requisition may have also been created for a product that CBI does not normally stock, but needs for a special order or even a new product line. b. What activity follows this activity?

Following the Create Purchase Order activity is the Create Goods Receipt activity. c. For one data entry item for this activity, describe what would happen in the rest of the process if that entry was erroneous.

One potential error would be ordering the wrong quantity of an item. This error can cause problems if not enough are ordered, creating a stock-out, or if too many are ordered, creating excess inventory. When the warehouse manager goes to create the goods receipt, the items will be added to the inventory. Once Ann receives the invoice for the order, a payment will be posted and CBI will not have the product quantity it needs.

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d. For one data entry item for this activity, describe what limits (controls) you would put in place on the data to prevent the type of error described in item c.

To prevent an error like the one described above, CBI could implement a reasonableness check for the create purchase order activity. For example, a maximum order quantity of 25 could be set for a common component like a popular road bike frame. On the other hand, the maximum order quantity might only be five for a less popular specialty product like a cyclocross bike frame. In the case of the road bike frame, this control would prevent 52 frames from being ordered. In the case of the cyclocross bike, the smaller maximum order quantity could prevent CBI from having a large quantity on-hand going into the off-peak season.

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