The Purchasing Process

The Doughnut Plant is a small organization that manufactures and sells gourmet doughnuts in New York City. The company specializes in bringing unique and original doughnut flavors to the market without compromising superior quality. By using only fresh ingredients, and making the doughnuts 100% vegetarian and organic, the company owner sought out to target the rising health conscious community in the progressive city of New York. Over time however, it became apparent that Doughnut Plant doughnuts appealed to every type of person, whether vegetarian, health conscious, or not. Having started in a small apartment building basement in the early 90's, the Doughnut Plant has made insurmountable progress due to the high demand of the unparalleled product. Although the company is relatively young, the superiority of the product has received recognition all over the world through the press and magazines, and thus turned the doughnut plant into a popular tourist attraction. This attention has lead the Doughnut Plant to where it is today, having six retail locations, hundreds of wholesale clients, and thousands of happy customers all over the world.

In making these wonderful doughnuts the company must pull together all the ingredients required to make such a wonderful product. This process involves two different departments, the bakery and the accounting department. With these two departments the process for purchasing ingredients needed starts with a request from the bakery for specific types of flour, sugar, etc. and ends with the accounting department making a payment to the vendors who supply the goods. The vendors allow the company to purchase items on credit and the terms of that credit vary depending on the relationship that has been established between the two companies. Purchasing items on credit creates an accounts payable on the books. Creating an accounts payable in the books is very important because it allows the company to keep track of how much the company owes to its vendors. According to Bagranoff, Simkim, and Norman, "The objective of accounts payable processing is to pay vendors at the optimal time. Companies want to take advantage of cash discounts offered, and also avoid finance charges for late payments." (2010, p. 230) The accounting department has a list of authorized vendors to ensure that the purchasing is done through authorized vendors who have a reputable track record of providing good quality goods and services at respectable prices. Having a good relationship with the vendors is important for our business because they work with us in adjusting their shipping and billing policies so that we can benefit through cash flow and they can benefit from resuming business with us.

The Purchasing Process

OBJECTIVES

Tracking purchases of good from vendors

Tracking amounts owed

Maintaining vendor records

Setting quarterly budgets

Making timely and accurate vendor payments

Forecasting purchases and cash outflows

Inputs (Source Documents) Outputs (Reports)

* Purchase Orders * Financial Statements

* Vendor Listing * Vendor Checks

* Debit/Credit * Check Register

* Bill of Lading * Discrepancy Report

* Packing Slip

* Invoices

Figure 1: Purchasing Process- Utilize inputs and outputs to attain specific objectives to increase the efficiency of the business

There are many events that take place when a purchase is made from a vendor on credit. It starts with the bakery manager putting in a request to the purchasing agent for ingredients. This is the first input in the purchasing process; the bakery department is in need of a specific item to continue creating doughnuts so they make the request or demand based on its urgency. From here the purchasing agent checks the list of verified vendors to see which vendors have been credible in the past and also to check the products that are offered by each vendor. This is done so that the correct products are bought from the correct vendor because the different vendors that the company works with usually sell the same material but there is a difference in the quality and price. Since having the best quality doughnut is part of the mission of Doughnut Plant, having high quality materials is an important aspect of the business. Thus, based on all these different factors the purchasing agent then has three options depending on the needs of the bakery department or the retail department. If the bakery department requires specific goods then the purchasing agent must call in the order and make note of the purchase in the accounting information system by creating a purchase order after they call it in because sometimes the supplier has run out of certain items. The purchasing agent must do this because the vendor does not have an electronic system in place to receive electronic purchases. One might say that we should use a different vendor but some of these vendors provide quality ingredients at the right price and that is what this company values in its product. The next option the purchasing agent has is to create a purchase order in the accounting information system and then email that directly to the vendor. Once the vendor receives the purchase order they usually write back notifying if the order is complete and/or if they are able to send all the products that we requested. The final option the purchasing agent has is to send an electronic purchase order based on the needs of the retail department. The retail department gets their supplies from vendors that have online purchasing systems put in place which make this style of making purchases the easiest of the three.

The next step is recording the receiving end of the ingredients. When goods are received the purchasing agent is given a bill of landing or an invoice depending on who is delivering the goods. Sometimes vendors ship their products through a third party shipping company. When vendors do this the company is given a bill of landing which is used as a proof of shipment for the company and also for proof on behalf of the shipping company to show that they have completed their contractual obligation