Importance Of Understanding Business Process
To run a business properly, one should understand the internal process of that business. The P2P (Procure to Pay) and O2C (Order to Cash) are the two most important processes which every manager should understand well. This will help them to align the operational transactions he deals within the business.
Manufacturing process begins from procuring raw materials to warehousing the final product which is saleable. Procurement Process itself has some internal procedures which are to be maintained properly, in order to ensure transparency and accountability. I will shortly explain the P2P (Procure to Pay) process at a high level (major functions), here. In the later article, I will try to depict the O2C (Order to Cash) process as usual. So, let us have a look on the first process- P2P, now:
- Making Requisitions: It is contemporary that whoever needs the materials or items in a company, submits a requisition slip approved by the designated authority, to a centralized purchasing department. It acts as a primary document for procurement of materials or items required for a department..
- Work Order/PO: Based on the approved requisitions approved by the authority, the procurement department opens a Purchase Order (PO) to a validated Supplier, mentioning the particulars (Quantity Required, Unit Price, Mode of Delivery, Specifications of Materials, Expected Time, Shipping Terms, etc.) of the required material or item.
- Guarantee of Payment: Based on the Purchase Order (PO) and other regulatory formalities (like import license, trade license, NOC, etc.), a bank opens an L/C in favor of the purchasing company, or the company guarantees the payment to the supplier in some other modes.
- GRN: Once the supplier gets the guarantee or payment, ships the materials or items to a designated location specified by the purchaser as per the terms of shipment. The purchaser then receives the goods or services and makes a Receiving Document (GRN) in the light of the Purchase Order (PO) raised.
- Inspection: Quality control department inspects the materials or items in the light of specifications already provided in the PO and Releases or Rejects the goods based on the requirements. Released materials are kept in the warehouse for the use in business operations while Insurance Claim or other means of settlements (i.e. refund, price adjustment, replacement, etc) are done in the cases of Rejects. Second Part