Procurement to Pay P2P

This cycle consists of following Steps. These steps are further divided into its sub steps.
1. Demand
2. Source
3. Order
4. Receive
5. Pay

Demand
Receive a Demand (Internal, MRP, Customer and Inventory): Receiving a Demand is
the First Step in Procure to Pay Lifecycle. This step enables you to receive the information of
various types of Requirement to fulfill the customer needs.
There are various sources where we gather the Material Requirements from i.e. Inventory,
WIP (Production), MRP, Sales Orders or Regular Purchasing Requirements.

Create Requisition: Based on the requirements gathered, we need to create the Requisition
There are two types of Requisitions
1. Internal Requisition – Basically used when there is a Requirement from One Inventory
Organization to the Other Inventory Organization (Inter- Organization Transfer)
2. Purchase Requisition – Basically used when there is a Requirement to be fulfilled by
External Sources i.e. Suppliers, Requirement from MRP, Requirement from WIP, Requirement
from Sales Order etc.

Approve Requisition: After Requisition is created it should get duly approved by the
Authorized Approver based on the Approval Hierarchy set for your Organization.
Once the Requisition is approved you then can create the Purchase Order for that Requisition.

Source
Define Suppliers: You can define your Suppliers / Vendors in the Suppliers Window. In this
form we enter all the related information about the supplier / Vendor i.e. Supplier
Information, Address, Sites, Contacts, Payment Terms, Payment Currency etc.

Receive Quotations: Then we receive Quotations from Suppliers / Vendors. And then
Negotiations take place to finalize the Price of the Goods we are going to purchase from the
supplier.
There may be One Supplier for single Item OR many Suppliers for Single Item. Based on the
quotations received and the requirements we finalize the prices for the suppliers and also
finalize the Share of Supplier in the requirement.

Enter Quotations: After finalizing the Prices with the Supplier / Vendor we enter Quotations
of that Supplier / Vendor in Enter Quotations Form. A quotation consists of the Information
of the supplier plus the information about the item and the price for that item

There are three types of Quotations:

1. Catalog Quotation: Used for high–volume items or items for which your supplier sends you
information regularly. A Catalog quotation or RFQ also includes price breaks at different
quantity levels.
2. Standard Quotation: Used for items you’ll need only once or not very often, but not
necessarily for a specific, fixed quantity, location, and date. For example, you could use a
Catalog quotation or RFQ for office supplies, but use a Standard quotation or RFQ for a special
type of pen you don’t order very often.
3. Bid Quotation: Used for a specific, fixed quantity, location, and date. For example, a Bid
would be used for a large or expensive piece of equipment that you’ve never ordered before,
or for an item that incurs transportation or other special costs. You cannot specify price breaks
for a Bid quotation or RFQ.

Define Sourcing Rules: After entering the Quotation we need to define Sourcing Rules.
Sourcing Rules are typically the Allocation percentage of the Supplier / Vendor OR
Organizations. Usually there is One Sourcing Rule for One Item.
Sourcing Rules plays a vital role in Automatic Creation of Purchase Order. It converts the
Requirement as per the Supplier’s Allocation Percentages defined in the Sourcing Rules Window
and creates the Purchase Order. Sourcing Rules have Effectivity Control on Date. If you want to
discontinue any of the Sourcing Rules then you need to put an End Date to that Sourcing Rule.

There are three options in the Sourcing Type.

Make At – This type is used when you are going to manufacture the item in your
Inventory Organization.
Buy From – This type is used when you are going to buy the item from External Source.
Transfer From – This type is used when you are going to transfer the item from one
Inventory Organization to another.

Assign Sourcing Rules: Once we define the Sourcing Rules we need to assign those souring
rules to particular items and/or organizations. These assignments are grouped together in
assignment sets. This is where our various sourcing strategies define a particular supply chain
network

Approved Supplier List (Optional Setup): After entering the Quotation, Sourcing Rules
and after assigning souring rules to the Category Set, we can enter the Approved Supplier List
(ASL).
This is required for the purchasing to understand that the Supplier is in the Approved Suppliers
List at the time of Purchase Order Creation.

Purchase Order

Create Purchase Order: Once you receive a Requisition and after setting your Supplier and /
or ASL (Approved Supplier List), we can then go for creating the Purchase Order.
Purchase Order is an authorized from the Organization to its Source Supplier / Vendor. There are
4 Types of Purchase Orders / Agreements.
• Purchase Agreement / Orders

Blanket Purchase Agreement— We normally create blanket purchase agreements

when we know the detail of the goods or services we plan to buy from a specific
supplier in a period, but we do not yet know the detail of the delivery schedules. We
can use blanket purchase agreements to specify negotiated prices for the items before
actually purchasing them.
Contract Purchase Agreement— We can create contract purchase agreements with
the suppliers to agree on specific terms and conditions without indicating the goods
and services that we will be purchasing from them. We can later issue standard
purchase orders referencing to our contracts.
Standard Purchase Order— We generally create standard purchase orders for
purchases of various items. We create standard purchase orders when we know the
details of the goods or services we require, estimated costs, quantities, delivery
schedules, and accounting distributions.
Planned Purchase Order— A planned purchase order is a long–term agreement
committing to buy items or services from a single source. We must specify tentative
delivery schedules and all details for goods or services that we want to buy, including
charge account, quantities, and estimated cost.

Purchase order is divided into 4 elements as follows:

1. Purchase Order Header: Purchase order header contains the Header information of the
Purchase Order i.e.
1.1. Details relating to the overall purchase order:
1.2. PO Number
1.3. PO Type
1.4. Creation date
1.5. Supplier & site
1.6. Buyer name
1.7. AP Terms
1.8. Preferences (line defaults) etc.
There is only one header per purchase order.

2. Purchase Order Lines: Lines section contains the information about the Goods or Services
you are purchasing i.e.
2.1. Goods or services
2.2. Details about those goods or services:
2.3. Identity
2.4. Description
2.5. Total quantity or amount
2.6. Pricing etc.
Purchase Order Lines Section can have multiple lines but must have at least one line per
purchase
order.

3. Purchase Order Shipments: Shipments section contains the further detailed information
about the Purchase Order Line i.e.
3.1. Delivery details of the Goods or Services
3.2. Ship-to location
3.3. Shipment quantity
3.4. Shipment date
3.5. Invoice Matching (Please refer Note below) etc.
Shipment Section can contain many shipments for each line but there must be at least one
shipment for each line.

4. Purchase Order Distributions: Distribution section contains the Accounting Information for
the specific shipment i.e.
4.1. Deliver to Location
4.2. Internal accounting distribution(s)
4.3. G/L Account (Charge, Accrual, Budget, Variance)
4.4. Requisition number
4.5. Project Details etc.

Invoice Matching Options:

Two–Way: Purchase order and invoice quantities must match within tolerance before the
corresponding invoice can be paid.
Three–Way: Purchase order, receipt, and invoice quantities must match within tolerance before
the corresponding invoice can be paid.
Four–Way: Purchase order, receipt, inspection, and invoice quantities must match within
tolerance before the corresponding invoice can be paid.

Approve Purchase Order (PO Approval Process + Approval Hierarchies)

The Purchase Order Approval Process:
Approve Document Window - Purchasing lets you approve requisitions, standard and planned
purchase orders, blanket and contract purchase agreements, and releases using a common
process. When you complete your documents and are ready to initiate the approval process,
select the Approve button in the document entry window to open the Approve Document window.
Receive the Goods
Receive the Goods: Receiving the goods is an important step in Procure-to-Pay cycle. This
creates a Receipt in the Receiving Organization based on the Purchase Order issued.
There are two methods by which we can receive the goods that have been shipped by Supplier /
Vendor.
1. Regular Receipt: This is the receipt which is being created without the ASN that is reason
this is called Regular Receipt. In the Receipts Window we enter the Purchase Order Number
against which the goods have been received.
2. Receipt through ASN (Advance Shipment Note)

ASN Process:
• A shipment authorization is made to the supplier in the form of a Purchase Order,
Planning Schedule, or Shipping Schedule.
• The supplier sends the ASN to the receiving organization at the time of shipment.
Supplier sends the ASN through the Web Portal provided to him. This Web Portal
communicates with the Purchasing in Oracle Applications and through an Interface the
data from ASN get reflected into the Oracle Applications. The information about the
incoming material / goods can be viewed in Manage Shipments Form.
• The ASN is verified in the Receiving Open Interface. Intransit and purchasing
supplies are updated for ASN lines that are successfully validated. For each accepted line
on the ASN, in transit supply is increased and purchasing supply is reduced. If the data
isn’t accepted or if there is an error or discrepancy in the data, an Application Advice,
containing the most likely cause of the error, is sent to the supplier. The supplier can then
send a corrected (New) ASN.
• The goods arrive. You can use the ASN in the Receipts window to create receipts.
• Shipment–Vs–receipt quantities are compared during the receipt transaction process.
(As an optional step, CUM quantities can be compared if Oracle Supplier Scheduling is
installed.) If discrepancies are detected in shipment–vs.–receipt or CUM quantity
comparisons, an Application Advice is sent to the supplier.

Supplier Performance: This is the feature Oracle has provided through which we are able to
evaluate the performance of our Suppliers / Vendors based on QCD (Quality, Cost and
Delivery). This feature helps us analyse the needs of Improvement at Supplier’s end as well as
at ours.
This feature gives us the listing of our Suppliers after detailed evaluation of each receipt from the
Supplier based on the following criteria
1. Quality: Quality of the incoming material. The total quantities shipped by Supplier and the
Rejection occurred.
2. Cost: The comparative costing for the Same Item with Different Supplier.
3. Delivery: The Delivery performance of the Supplier / Vendor against the Need-By-Date
mentioned on the Purchase Order.

Payment to Supplier
Create the Invoice for the Receipt: Payment on Receipt enables you to automatically
create standard, unapproved invoices for payment of goods based on receipt transactions.
Invoices are created using a combination of receipt and purchase order information that
eliminates duplicate and manual data entry and ensures accurate and timely data processing.
Payment on Receipt is also known as Evaluated Receipt Settlement (ERS).
Payment on Receipt automatically creates invoices with multiple items and distribution lines, and
includes sales tax.

Match the Invoice with Purchase Order OR Receipt

After creating the Invoice we need to match the Invoice with the Purchase Order based on the
setting we have done. There are two options for Matching
1. Matching with Receipts
2. Matching with Purchase Order

Approve the Invoice (Invoice Validation)

Invoice Matching:
2–Way: When you match to a purchase order, Payables automatically checks that the total of
PO_DISTRIBUTIONS.QUANTITY_ORDERED =
AP_INVOICE_DISTRIBUTIONS.QUANTITY_INVOICED
3–Way: Payables only checks QUANTITY_RECEIVED if the RECEIPT_REQUIRED_FLAG is set
to Y
4–Way: When you match to a purchase order, Payables automatically checks only checks
QUANTITY_ACCEPTED if the INSPECTION_REQUIRED_FLAG is set to Y.
Matching Holds
When you submit Invoice Validation, Payables places a matching hold on a matched invoice (by
inserting one or more rows in AP_HOLDS, one row for each type of hold for each invoice
distribution) if:
QTY ORD Hold: QUANTITY_BILLED > QUANTITY in PO_LINE_LOCATIONS
PRICE Hold: UNIT_PRICE in AP_INVOICE_DISTRIBUTIONS > PRICE_OVERRIDE in
PO_LINE_LOCATIONS
QTY REC Hold: QUANTITY_BILLED > QUANTITY_RECEIVED in PO_LINE_LOCATIONS
QUALITY Hold: QUANTITY_BILLED > QUANTITY_ACCEPTED in PO_LINE_LOCATIONS
TAX DIFFERENCE Hold: TAXABLE_FLAG = NO in PO_LINE_LOCATIONS, but there IS tax
recorded on the invoice
TAX DIFFERENCE Hold: TAX_NAME in PO_LINE_LOCATIONS is not equal to VAT_CODE in
AP_INVOICE_DISTRIBUTIONS
(Fig.

Select the Approved Invoices for Payment: After validating the Invoice and at the time of
making Payment to the Supplier / Vendor we should select the Approved / Validated Invoices
for payment.
At the time of releasing payment to the Supplier / Vendor, system will show the list of Approved /
Validated Invoices for the selected Supplier / Vendor. Based on the Due Date we can select the
Invoices from the list and issue the payment.

Pay directly to Supplier Or Bank: Once payment is done we can then transfer the payment
to the Supplier / Vendor OR its Bankers based on the need of the supplier.
We can print the Cheques for the Supplier or we can transfer the amount to Supplier’s Bank
through our Bank. If we have Electronic Fund Transfer then we can directly transfer the details of
the payment through the EDI Gateway to our bank, and our Bank will in turn transfer the amount
to Supplier’s Bank Electronically.