financial accounting

 

Case Study Purchase Order Tracking System (POTS) 1. Introduction XYZ Pvt. Ltd. Located in Mumbai is a turnkey construction company engaged in electrical, civil and mechanical construction projects. Currently, the organization has around 150 employees and a turnover of over 150 crores INR and is in the process of rapid expansion. The head office is located in Mumbai and the project sites (around 15) are located all over  India. The client currently has some PC’s and a LAN at their head office. Presently financial accounts are maintained through the package TALLY. PQR Ltd. has been retained to provide a comprehensive IT solution to computerize all the client’s operations.  operations.   Based on a study and a computerization plan prepared by PQR Ltd. All high priority departments will be computerized in the next one and a half years. The complete purchase order processing system will be operational in the next 12 months. In the meantime, the client wants a POTS purchase order tracking system, to overcome the immediate problems. This POTS purchase order tracking system will be replaced by fully integrated comprehensive computerized system at a later date. The “POTS” purchase order  tracking system, needs to be developed as a stop-gap solution. The system may be completely discarded when the integrated system is ready. 2. Overview of Application Projects executed by XYZ are located all over India. A Project Manager stationed at the project site manages the project. All items that need to be purchased for the project are known at the start of the project (in fact they are known when a bid is submitted to the client). Purchase orders for major items needed at various sites are placed by the Head Office. PO’s placed by the Head Office account for 90% of the values of items purchased for  various sites. Items are delivered to the sites by the suppliers. Supplier’s bills are received at the Head Office from where payments are released to the suppliers. At the Head Office, purchase orders are placed by different persons, depending on their field of expertise, the familiarity with the project and the authority levels. Project Managers at the various sites regularly collect payments from their clients and send the cheques / DD’s to the Head Office. XYZ wishes to monitor the “Cash Flow Health” of  each project, to ensure that the purchase order value does not exceed the collection by more than 20% of the project value. 3. Problems in the Current System a. Purchase Order numbering is not in control, since many persons are releasing purchase orders. In the past XYZ has tried to use pre-numbered purchase orders. This resulted in a large number of “Cancelled” PO numbers. Currently, XYZ has a manual “control register” where persons placing PO’s are supposed to enter the PO numbers. Of course, everyone is not disciplined enough.

 

b. Many of the PO’s become illegible since they are made by hand in triplicate. The original is given to the supplier; the second copy is set to the site. The third copy is sent to the  Accounts department department along with the bill and the fourth copy is kept in the file. The third and fourth copies are so faint that they are often unreadable. c. Copies of the PO’s are lost as persons remove them from the file for discussions / clarifications and do not replace them. d. The same items are ordered at widely different prices by different different persons in the organization. There is no master list of prices. e. Often, after the release of a PO, changes are communicated to the suppliers over the phone. These changes are recorded on bits of paper. It is often difficult to get a current consolidated picture of a PO. f. In the current system, bills in excess of the PO’s are often passed for payment. This is because it is difficult to know the current status of a PO and the bills against each PO. 4. Proposed Purchase Order Tracking System System (POTS)  As a temporary solution a POTS is proposed to be implemente implemented. d. The system is briefly described below: a. The system will use the site master from the BADLABOOK financial accounting system as the project master (sites and projects are synonymous, since one site has one project). siteentered master in willthe be POTS. maintained the BADLABOOK system.generated by the b.  All PO’s The will be The in PO number will be serially system. c. PO’s will be printed printed from the system d.  Amendmen  Amendments ts to PO’s (after the release of a PO) will be entered separatel separately y in the system. After the PO is released, it cannot be modified. Any changes to the PO will need to be entered as amendments. e. Summary details of supplier bills ag against ainst PO’s will be entered in the system.  system.   f. Collection of money by sites/ projects from the customers will be entered in the system. g. The system will be able to print a cumulative consolidated report detailing site wise PO’s (current amended value) and collections made. This can be used to see whether the sites are maintaining a healthy cash flow position. h. The system will print a detailed report on PO’s containing the released PO, the amendments and bills received against each PO. This can be used to ensure that excessive bills are not passed against each PO. The system will be able to bring most of the problems (except the problem of variation in prices) under control. The system can be implemented quickly since there is no need to set up codes and master files. Suppliers and items will not be codified. There will no master list of suppliers or items. The system will run on existing LAN (which is currently running the “BADLABOOK” system) without any augmentation of hardware. The system will have multiuser facilities. Since the volume per day is very low (approx. 5 PO’s, 5 bills, 2 amendments and 2 collections per day), response time is not a major criteria. However, during data entry, response time between screens should not exceed 5 seconds. Recovery will consist of facility to restore from the previous backup.

 

Since data entry will be done by Managers/ Executives and Engineers (and not dedicated data entry operators), attention will be paid to the design of screens and screen flows. Data entry assistance list boxes will be provided and data entry error messages will assist in quick correction. User Manual will be provided with the system. However, since the system is very small and is expected to have a very short life, no on-line textual help will be provided

Inputs 1. Purchase Orders consisting of: PO Main Details.  PO number (7 digits, system generated)  Site/Project (8 character, valid in list of projects)  PO Date  Supplier Name and Address (4 lines*30 characters – characters – Name, Address, City, State)  Delivery Address (4 lines*30 characters – characters – Name, Address, City, State)  Delivery Date Item Details (up to 99 items in a PO)  Item Name/Description (60 characters)  Unit of Measurement (15 character)  Rupees per unit (up to Rs. 99999.99, two decimal)  

Quantity (up to 999999.999, three decimal) Item value (up to 9999999999.99 Rupees, two decimal)

PO release information  Net PO value  Released by 2. PO Amendments, consisting of   PO number (7 digits, valid PO)  Amendment Date  Amendment Amount (+/- 9999999999.99 Rupees)  Released by 3. Collections, consisting of   Site/Project (8 character, valid in list of projects)  Date of collection  Amount collected (up to 999999999.99 Rupees, two decimal)  Reference of cheque / DD (60 character, descriptive) 4. Supplier Bill Summary Details, consisting of   PO number   Bill Number   Bill Date  Bill Amount

 

Outputs 1. Purchase Order Print Copy  All Details as as in input except  Site/Project not to be printed  Net PO value to be printed in words also

2. Site wise cash flow balances, containing: Site Name Description PO details  PO number   PO date  Original PO value  Total amendment value  Current PO value (original net value +/- amendments) Collections  Collection Date  Collection Amount The total balance value (total PO value less total collection amount) will be printed at the end of every site The report will be printed in the order of site and transaction date (PO/collection date)