What is ERP Purchasing Module? Functions, Characteristics, Benefits

What is ERP Purchasing Module?

The ERP (Enterprise Resource Planning) purchasing module is a software component within an ERP system that is designed to manage the procurement process for an organization. This module typically includes features such as supplier management, purchase order creation, receipt of goods, invoice processing, and inventory management.

Purchasing is a vital function of an organisation as it is directly related to the timely execution of projects. For example, a manufacturing organisation needs to purchase raw materials to start production, while a retail store has to purchase finished products in order to meet the demands of end users. Organisations need to purchase materials in right quantities and of right quality.

Purchasing is a systematic process that involves a number of steps. These steps are as follows:

1. Firstly, requirements of materials to be purchased are identified.
   
   
2. After identifying the requirements, the availability of funds to purchase the required materials is determined.
   
   
3. Lastly, an appropriate supplier to obtain the required materials within the organisation’s budget is selected.

Therefore, it can be said that purchasing is a comprehensive task for any organisation. In order to successfully manage their entire purchasing process, most organisations use an ERP system with purchasing functionality.

The purchase module of an ERP system supports the overall purchasing function of an organisation right from purchase requisition to the final payment of raw materials.

The module also helps in streamlining the procurement of required raw materials, packaging material, sub-assemblies, etc. In addition, it automates various processes, such as supplier selection, supplier quote evaluation, purchase order and billing.

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Characteristics of Purchase Module

The ERP purchase module helps to improve the entire purchase function of an organisation by automating various activities, such as vendor evaluation, order placing and tracking, invoicing, purchase requisition, material receipt and inspection, recordkeeping and report generation.

Some of the major characteristics of this module are as follows:

• Database management
  
• Flexibility
  
• Integrated approach
  
• Automation

Database management

The purchase module collects, stores and manages all data related to material purchasing. Further, the module also enables organisations to modify data and retrieve it whenever needed.

Flexibility

This module can easily adapt to changes taking place in the business environment. For example, in case of changes in production schedules, the purchase module suggests built-in lead times so that purchasing needs can be met on time.

Integrated approach

The purchase module can be integrated with various other modules like production, finance, inventory management, etc. Such integration facilitates a smooth flow of information and better coordination across an organisation.

Automation

The purchase module automates the generation, modification and cancellation of purchase orders on the basis of the production plan and schedule. This saves time, cost and efforts of the purchasing department of an organisation.

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Functioning of ERP Purchase System

The ERP purchase module helps an organisation in acquiring products in accordance with organisational needs. To purchase efficiently, various steps are followed in the ERP purchase module. Some of the common steps involved in the ERP purchase module are discussed as follows:

• Purchase requisition
  
• Purchase requisition review
  
• Order placement
  
• Material receipt and inspection
  
• Order acceptance/return
  
• Invoicing
  
• Recordkeeping and report generation

Purchase requisition

It is a document prepared to notify the purchasing department about the items required. In other words, this document informs the purchasing department about what is to be ordered, in which quantities and what is the time period to acquire the items.

Purchase requisition review

After the requisition is created, it is forwarded to the purchase department for approval. The purchase module enables the purchase department to verify the purchase requisition by comparing the identified material requirements with the total materials present in the organisation.

Order placement

After the purchase requisition is approved, the purchase department gets involved in the search of a suitable supplier so that the order can be placed. The ERP purchase module allows the purchase department to identify the right supplier by providing relevant information, such as the market image and financial position of the supplier. Further, it helps in generating new orders or modifying the previous ones.

Material receipt and inspection

The purchase module ensures a smooth flow of the materials acquisition process by automating activities such as order tracking, material inspection and recordkeeping. After the order is received, the purchase module enables the purchasing department to verify whether the received order is as per the requirements.

Order acceptance/return

After the inspection of the materials received, the order may be accepted or returned back to the supplier, in case of any mismatch between what was required and what is received. It is important to note that the materials can only be returned before invoicing.

Invoicing

If the order is accepted, the invoice is generated for the related purchase order. The purchase module helps in this process by matching the cost, quality and quantity of materials accepted and ordered.

Recordkeeping and report generation

The purchase module stores purchasing data that can be easily retrieved whenever needed. With the help of this data, the module generates reports that enable managers to take purchasing decisions easily.

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Benefits of ERP Purchase Module

From the discussion so far, it can be said that the ERP purchase module automates the entire purchase process of an organisation.

Apart from this, the following are the major benefits of the ERP purchase module:

• It helps to reduce paperwork and manual operations.
• It reduces inventory levels; thereby lowering overall inventory cost.
• It prevents production delays by keeping track on the available inventory.
• The module helps to determine the performance of current vendors and identify prospective vendors.
• The module also maintains and updates data associated with purchasing activities.
• It helps to generate invoices and receipts.