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106 CHAPTER 4 The Procurement Process

If it is, then the requisition can be converted into a purchase order without
additional steps (Path 1). In such cases the company selects a vendor from
a list of potential suppliers, called a source list. If the source list con-
tains only one source, then the system will automatically assign the vendor
to the requisition. However, if the source list identifies multiple sources,
then the system will display a list of vendors for the user to choose from.
Alternatively, the requisition can be satisfied through outline purchase
agreements, which are longer-term agreements between an organiza-
tion and a vendor regarding the supply of materials or the performance
of services within a specified period according to predefined terms and
conditions. Outline agreements are subdivided into contracts and sched-
uling agreements. During the contract validity period, certain quanti-
ties or services are released (called off) against the contract as and when
required through the issue of purchase orders. Such purchase orders
are thus termed contract release orders or simply release orders. In some
non-SAP systems, they are also referred to as call-off orders. In a schedul-
ing agreement, the delivery of the total quantity of material specified in the
agreement is spread over a certain period according to a delivery sched-
ule. The delivery schedule specifies the quantities with their corresponding
planned delivery dates.

Figure 4-15: Converting a purchase requisition to a purchase order

If a source of supply is not known, then the company must send a
request for quotations (RFQ) to several potential vendors, receive and
evaluate the quotations, and then make a fi nal selection. An RFQ is an
invitation to vendors by an organization to submit a quote for the supply of
the materials or services. A quotation is legally binding on the vendor for a
specifi ed period. It identifi es materials or services for which the total quan-
tities and delivery dates are specifi ed. In this case, the organization uses a
quotation to create a purchase order (Path 2). Finally, in certain cases the
RFQ is directly converted into a purchase order without a quotation (Path
3). This may be the case when a vendor provides a quotation verbally and
the company does not consider it necessary to enter the quotation data
into the system.
In our example, Spy Gear is the only supplier of t-shirts. This informa-
tion is ascertained from a source list maintained in the ERP system. Because
there is an established supplier, it is not necessary for GBI to request and eval-
uate quotes from potential vendors.

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