ISYS6300 - Business Process

Fundamental
Week 6 – The Expenditure Cycle
 Chapter 10:
The Expenditure Cycle

Prepared by
Kent Wilson
University of South Australia
Expenditure Cycle Overview and
Key Objectives

 The expenditure cycle consists of all events that are

involved in the purchase of goods and services and
the payment for these goods and services

 A key consideration is the need to balance the

supply and demand for products with cash flow
considerations
 Strategic Implications of the
Expenditure Cycle
 A well controlled expenditure cycle can
provide a competitive advantage by providing
high quality products and services which in
turn translates to an opportunity for higher
product pricing

 Failure to correctly manage purchasing can

lead to systemic problems that impact on
revenue and production

 Poor payment practices can damage cash flow

and supplier relationships
 Source Documents

1. Purchase requisition

2. Purchase order

3. Vendor list

4. Purchase invoice
 Source Documents (Cont)

5. Goods packing slip

6. Receiving report

7. Remittance advice
Technologies Underpinning the
Expenditure Cycle

 ERP (Enterprise Resource Planning)

o Improves the integration of enterprise - wide data

 EDI (Electronic Data Interchange)

o Enables the exchange of data between two separate
computer systems
Technologies Underpinning the
Expenditure Cycle (Cont)

 RFID (Radio Frequency ID tags)

o A small tag attached to an item that can be scanned.
Expedites stock handling

 SCM (Supply Chain Management Software)

o Improves the planning and execution of orders through
supplier and customer integration
 Data and Decisions in the
Expenditure Cycle

Expenditure cycle activities require access to:

 Inventory
 Demand
 Availability

 Supplier data

 Purchase order data

 Accounts payable data

 Expenditure Cycle Business
Decisions
Strategic Level:
o Purchase consolidation
o How IT can improve
efficiency & accuracy
o Identifying where
inventories should be held
Operational Level:
o Determining optimal
inventory level
o Supplier selection (quality,
service & price)
o Cash flow considerations
Expenditure Cycle Documentation
Expenditure Cycle Context
Diagram
Expenditure Cycle Logical Data
Flows
 Expenditure Cycle Process
Activities

1.
• Determine demand for goods

2.
• Order Goods

3.
• Receive goods

4.
• Pay for goods
Determine Demand for Goods

 Key activities:
o Collect requests
o Create purchase requisition

 Table 10.3, p461 summarises these activities

Determine Demand for Goods
 Order Goods

 Key activities:
o Choose the supplier
o Create the purchase order

 Table 10.4, p466 summarises these activities

Order Goods
 Receive Goods

 Key activities:
o Accept the delivery
o Record goods received

 Table 10.5, p470 summarises these activities

Receive Goods
 Pay for Goods

 Key activities:
o Approve the payment
o Make the payment

 Table 10.6, p477 summarises these activities

Measuring Expenditure Cycle
Performance
 Overview of Chapter 10

 The objectives and strategic implications of

the expenditure cycle were established

 Technologies that underpin the

expenditure cycle activities were
identified

 Both strategic and operational business

decisions were outlined
Overview of Chapter 10 (Cont)

 The primary activities in the expenditure cycle

were identified and discussed

 Risks and ways of mitigating these risks were

considered

 The importance of establishing KPIs was

emphasised
 Key Terms

o Automatic reorder point o JIT

o Blind purchase order o Reconciliation
o EDI o RFID
o ERP o Settlement terms
o Exception report o Supply chain
Thank You