Supply Chain & P2P

Supply Chain - starts from Supplier end and ends at Customer end. It's an entire network of entities directly or indirectly involves in serving the end customer or consumers. Supply chain activities involve the procurement of raw materials, converting that raw material into the product and providing that product to the end customer.

There are various types of activities  / functions like Procurement / Operation/ Marketing / Logistics / Accounts plays it's role as per chain requirements. Commercial activities of whole Supply chain is being divided into two types of Cycle - 

P2P Cycle - Procurement to Pay Cycle: It involves all the activities of identifying the requirement of goods/services, procurement of the goods/ services, getting delivered the goods as desired and releasing the payment. 

O2C Cycle - Order to Cash Cycle: It involves all the activities of finding the prospective customer and providing the product from manufacture end to customer end.

Further, Money always flows from customer end to supplier end in supply chain & material flows from supplier end to customer end. 

People use the terms purchasing and procurement interchangeably, but despite their similarities, they do have different meanings. Both the terms mean to acquire something against money. However, there is some difference between them, specifically regarding the contexts in which they may be used. 

• Purchasing - The process of obtaining goods and services.
• Procurement - the combined functions of identifying needs, initiating a procurement project, selecting a vendor, contracting with a vendor, purchasing of the goods or services, managing the resulting contract.

The process of purchasing good and services is known as the ”Procure-To-Pay Cycle”

Steps involve in procurement to pay cycle - 

P2P Step 1 - Identifying the requirements

P2P Step 2,3 - Source Determination & Vendor Selection

P2P Step 4,5 - PO Processing & Order Monitoring

P2P Step 6 - Goods Receipt

P2P Step 7 - Invoice Verification

P2P Step 8 - Payment

Industrial Materials are further classified into two types - Direct Material & Indirect Materials. 

Indirect Material are those materials which are not directly being used to produce finished goods but required to get operate the plant and related services. Those items usually called MRO (Maintenance, Repair & operations) items. 

Direct Material are those materials which are directly being used to produce finished goods or we can also say that directly proportional to a unit of production. Those items usually called raw materials and process of procurement varies from industry to industry. 

Indirect Material P2P process are fairly similar across the industry. Whether you are in Cement, Steel, Chemical, aerospace, or any other industry, there tend to be many similarities in how you buy office supplies, computer systems, maintenance / upgradaion items, services/ AMC's, etc. 

Organizations buy many different goods and services as shown in below image. The challenge for purchasing is deciding on the supplier that offers the best opportunity for items an organization must purchase externally.