Overview of Procure to Pay Cycle
Procure to Pay cycle in Oracle is the cycle which is concerned with the cycle of procurement
of raw materials, parts and products which the the business needs to manufacture its end
products. Procure to Pay cycle is concerned with the procurement of the raw materials from
suppliers to prepare the finished goods to the step of payment to the supplier for the goods
purchased. The procure to Pay cycle like the Order to Cash one has certain steps involved.
1. Create Purchase Requisition
2. Create Purchase Order
3. Receive the PO
4. Enter Invoice
5. Pay
1. Purchase Requisition
The first step in initiating the purchase of goods is the creation of a purchase requisition. A
purchase requisition is a formal requisition to buy something. Purchase requisition represents
a demand for a good in the business
Purchase Requisition represents demand for materials either through Work in
Progress,Inventory , Materials requirement planning or Order Management.
A requisition might be internal or external
Internal Requisition : An internal requisition is generally prepared in case of inter
organization transfer
Purchase Requisition: A purchase requisition is generally created when the business needs
to procure materials from external sources ie its suppliers to fulfill the requirements raised by
Inventory,Work in Progress, Materials Requirement Planning or Order Management
In simple terms we can say that a requisition refers to a purchase request initiated by the
various department people when the business has certain material requirements
2. Purchase Order
After the purchase requisition has been created and approved , the next step is the creation
of purchase order.
The purchase order is the document having details of the materials which need to be
procured, supplier details, this document is shared with the supplier in order to procure the
required materials.
When a PO is created in the system the status of the PO is generally incomplete, before we
can progress with the PO the PO needs to be approved by the approvers setup in the system
so that it can be sent across to the suppliers and then received.
Depending on the business Requirements, a purchase order can be of different types:
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1] Standard: Create standard purchase orders for one-time purchases of
various items. You create standard purchase orders when you know the
details of the goods or services you require, estimated costs, quantities,
delivery schedules, and accounting distributions.
2] Blanket: Create blanket purchase agreements when you know the
detail of the goods or services you plan to buy from a specific supplier in a
period, but you do not yet know the detail of your delivery schedules.
3] Contract: Create contract purchase agreements with your suppliers to
agree on specific terms and conditions without indicating the goods and
services that you will be purchasing.
4] Planned: A planned purchase order is a long-term agreement
committing to buy items or services from a single source. You must
specify tentative delivery schedules and all details for goods or services
that you want to buy, including charge account, quantities, and estimated
cost.
3. Receiving
After the Purchase Order has been sent across to the supplier the supplier will deliver the
goods to the specified warehouse where the task of receiving has to be performed.
When the shipping details of the goods are received by the supplier receipts are created in the
system.
The receipt creation and the receiving mechanism can differ based on the Routing mechanism
set up in the system. We will discuss the Routing mechanism in the upcoming post.
After the receiving is performed , the onhand for the items are increased in the system and the
goods are available to fulfill the business demands.
4. Invoice
Once the goods have been received the business needs to pay for the procured goods.
Payables invoices are created in the system for the Purchase orders to pay off the outstanding
amount.
Invoices can be created either individually or through invoice batches
System can setup a recurring invoice creation faciltiy to create invoices at periodic
intervals
Invoices can be created electronically via EDI
After the Invoices are created the invoices need to be validated with the purchase order or the
the Purchase Receipt to match for the quantity and pricing. Invoices need to be validated
before they can be paid off.
5. Payment
Once the invoices have been validated they are eligible for payment. Payments for the
invoices can be done individually or payment batch can be created which pay off groups of
Invoices.
Invoices can be paid off by a variety of mechanisms including checks,
manual payments, wire transfers, EDI payments, bank drafts, and
electronic funds transfer.
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This is how a Procure to Pay ( P2P) cycle works in Oracle.We have not covered much of the
details but just given a brief overview of the cycle in Oracle.
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