This article was featured in the December, 2007 issue of the Technology First Magazine.

Dayton, OH
December 17, 2007

By Mikhail Roytman, Partner, Ellipse Solutions LLC

Walk into any manufacturing plant or a distribution facility, and which department will you characteristically find to be the most hectic and frantic? If you said Purchasing, your answer would be in line with many organizations. Buyers play an important role in the supply chain equation. They take a lot of internal pressure and … love to pass the challenge to their clients: service vendors and component suppliers. Purchased items and operations represent the vital link between a Sales Order and a Production process. This brings us to part 4 of the ERP Implementation Series based on the example of the Microsoft Dynamics AX application with Procurement solutions being the topic of the day.

Most early systems offered a very limited contribution to the purchasing process – it was typically restricted to vendor and item management as well as simple purchase orders maintenance. Over the years, ERP applications have advanced significantly on both functional and technical levels. During the solution selection process, make sure to pre-screen your options for a comprehensive approach to the management and organization of procurement methodologies. The key to a successful system is its ability to make the day-to-day maintenance and reporting tools easy to control and execute, yet also handle the most complex situations and deviates from standard procedures.

Vendors Come In All Shapes and Sizes …

One would expect any seasoned ERP package to provide options for both repetitive and one-time suppliers, and methods to maintain vendor-specific information (such as Vendor’s item numbers, prices, units of measure, etc.). Some of the more advanced applications go a step further. MS Dynamics AX, for example, allows maintenance of language-specific descriptions, multi-currency, trade agreements, as well as a wide-ranging pricing management schemes.

Many businesses with multiple locations run a separate process of executing Transfer Orders when a component manufactured at one facility is used in production at another or passed through directly to the customers. Other companies prefer to keep their internal “purchasing” procedures in line with external suppliers. In MS Dynamics AX, a very useful tool allows a Purchase Order in one corporate division to effortlessly become a Sales Order in another as a part of the Intercompany functionality. I have seen so many organizations either creating custom systems to accomplish such tasks or using manual processes to manage these situations offline. MS Dynamics AX not only provides an uncomplicated way of maintaining so-called “intercompany vendors” and all of the related internal purchases, it is specifically designed to procedurally integrate with other familiar functions – a huge help in user training and process flows.

But Can You Handle MY ORDER?

The sign of a good ERP package is its ability to handle 90% of standard situations in any given process. The sign of an excellent ERP system is its ability to manage the other 10% or at least having the tools to modify the application with ease to cover that special 10%.

In the world of Purchasing, this means the functional capacity to handle a variety of Purchase Orders. Let’s first consider standard business operations, which exist in almost all of the businesses with a formal Purchasing Department (these are the above mentioned 90%):
- Standard purchases of stocked components (the most fundamental purchasing concept).
- Blanket orders utilized to obtain materials based on a pre-defined Vendor Agreement (the most typical method of handling procurement of large volume items).
- Returned items (credit notes) enabling management of goods returned to suppliers.
- Purchasing of configured items for made-to-order customer demand (for some companies every Sales Order is a custom order).
- Management of non-inventoried items (how are we going to buy the computers that run our ERP system).
- Quotations used as drafts during the vendor negotiations prior to signing a formal agreement.

“What else is left to cover?” – an inquiring mind would ask. And now to the other 10%, the Special Cases carried out by the most comprehensive packages, such as MS Dynamics AX. Please, remember, that for some organizations these situations are not so special, but rather a modus operandi (“standard mode of operations” for my non-Latin friends):
- Management of supplemental items (in case, of MS Dynamics AX, such items are added to the order on the fly as the initial Purchase Order is being entered).
- Purchasing of kits or bundles maintained as a unique item OR as independent components.
- Buying services as a part of the production router (such as outside operations linked to the internal Manufacturing Order).
- Maintenance of subscriptions and vendor controlled items (easing the administration of repeated purchases).
- Ability to track purchasing activities as related to a specific Project (imagine an item automatically reserved to a Project once it is scanned at the Receiving dock).

Purchasing Field Of Dreams

This is only a bird’s-eye view of the standard Purchasing functionality. There are countless other critical qualifications an ERP system can offer to accelerate and simplify the Purchasing process. We would expect it to manage drop shipments, purchasing forecast, ability to effortlessly delay and expedite orders, maintain multiple ship-to addresses on the same Purchase Order, track vendor performance, auto-PO generation, and many, many, many other options. It is an integral component of the Trade & Logistics schema. As has been mentioned in the previous articles, one of the top advantages of MS Dynamics AX is in its development tools and utilities allowing easy modifications to quickly satisfy even the most unique requirements.

Until next time, your friendly ERP correspondent …

Mikhail Roytman is a Partner with Ellipse Solutions LLC, a global Microsoft Business Partner headquartered in Dayton, Ohio. Ellipse Solutions is a division of Roytman Information Services, Inc., a provider of Career Placement and Consulting solutions in Information Technology, Management and Engineering. For additional information please visit http://www.EllipseSolutions.com and http://www.roytmanIS.com