Keys to successful electronic procurement

Data verification

Before you and your trading partners can do business, both of you must verify that your vendor catalog numbers, units of measure, and pricing are correct. The price/sales catalog (EDI transaction set 832) contains catalog numbers, units of measure, and pricing information from your vendor that can be used to update your database. Lawson-Supported EDI transactions

Transaction timing

For successful electronic invoicing, transaction processing involving the purchasing, receiving, and accounts payable departments must be timed correctly. This means that all elements of the electronic invoicing process must occur at the correct time and in the correct order. First, a purchase order must be sent. Next, receiving must process the delivered goods and produce purchase order receipts. Then comes the final step, when the invoice is processed in the Accounts Payable system and the bill is paid.

Lawson suggests that companies adopt a timetable for their electronic procurement system. This timetable can be used to help the purchasing, receiving, and accounts payable departments recognize their role in the electronic procurement process. In addition, the timetable can prevent departments from processing their information before they are supposed to.

This is an example of a successful electronic purchasing, receiving, and invoicing timing scenario:

Monday A.M.

• A purchase order is transmitted using EDI.

• A purchase order acknowledgment is received and reviewed for discrepancies.

  Tuesday A.M.

• The goods ordered on Monday morning are delivered.

• The purchase order receiving information is processed.

• An electronic invoice for the goods is received and placed in a file waiting to be processed.

  Tuesday P.M.

• The electronic invoice is processed into the Lawson system for approval by accounts payable.

This timetable illustrates that goods must first be ordered, then received, processed, and paid for. To develop an effective electronic procurement system, companies must be committed to making sure that the purchasing process follows the order established in this time line. Orders cannot be paid for before they are delivered and processed. Before the Lawson system is even capable of paying invoices, these conditions must be met:

• A purchase order number must be assigned.

  Only invoices tied to a specific purchase order can be processed through Lawson's electronic invoicing programs. Any invoices that are not tied to a purchase order are rejected.

• Purchase order lines must have correct item data.

  All purchase order invoice line data are matched with the original purchase order line and receiving data. Only when the purchase order, receiving, and invoice line data match can the invoice be processed.

• Purchase order receipts must exist.

  Purchase order invoices and purchase order receipts must match. The Lawson EDI system is set up to prohibit purchase order invoicing if receipts are not present. Any invoice that does not have purchase order receipts cannot be released for payment. After being released in Accounts Payable, an invoice with no receipts will have a hold code applied to it. Only after the purchase order receiving is completed can the hold code be lifted and the invoice paid.

• Invoice tolerances must not be exceeded.

  Tolerances for dollar amounts and percentages can be set up at the line and invoice level for your company and your trading partner. These tolerances are used as grace amounts for your invoices. If your invoice tolerance is set at 10 percent, for example, you can have a mismatch of up to 10 percent in dollar amount or quantity between your invoice and the original purchase order.

  For example, imagine that you ordered 100 boxes of pens on a recent purchase order, but only received 95 boxes of pens from your supplier. Your original purchase order has an ordered quantity of 100 boxes, but the invoice received for that purchase order has a quantity of 95 boxes. If your invoice tolerances are set at 10 percent, your invoice for pens is approved, even though you have 95 boxes of pens listed on your invoice and 100 boxes listed on your purchase order. With an invoice tolerance of 10 percent, you have a 10 percent grace amount between your purchase order and invoice. You could have received anywhere between 90 and 110 boxes of pens without having a matching error.

Communication between departments

The electronic procurement process demands communication between company departments. The purchasing, receiving, and accounts payable departments must communicate with each other to share information on their respective parts in the purchasing process. For example, if receiving is running behind and has not created purchase order receipts for an order that has arrived, they should communicate this to the accounts payable department. Then the accounts payable department would know that the invoice for the order will have a hold code placed on it after release.