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People who are familiar with ERP or Integrated Applications, experience this problem. In medium and large organizations, where such computerized systems are in use, general tendency is to add Vendors in the Master, and leave them there even if they are one time purchase orders, not likely to be repeated. Thus Vendors who were created 4 or 5 years ago may remain in the Master, even if no further Purchase Orders have been released on them. If the organization has operations at multiple locations, with Head Office as well as Branch locations releasing Purchase Orders, problem gets aggravated. Apart from this aspect another reason that can contribute to increase in Vendors is erroneous duplicate entries, when proper verification of Vendor Master is not done, every time a user finds the need for creating a Vendor in the Master. Similarly in the case of large Vendors who also have multi location presence, duplicate records can get created. Periodical cleanup is required, to keep Vendors Master within reasonable size. Otherwise with many redundant records in the Master, system can become inefficient. Even in Accounting, a Vendor balance can get distributed over multiple account codes and cause confusion.

The Case:

It was an organization with multi location operations and a centralized Purchase function, with an ERP in use for some years. Certain low value purchases are decentralized, for which “Locations” also add records in the Vendor Master. Over a period of time number of Vendors increased manifold due to Vendor Induction without proper scrutiny of existing Vendors. Variants could be due to Vendor’s name wrongly spelt or added with a different address. Number of line items in Vendor Master crossed 10,000. Another equally large organization with similar operations and Locations merged with this organization, doubling the line items in the Vendor Master, once both companies’ systems were integrated. Duplicate line items were many, because both companies dealt with same set of Vendors. Even Vendor Ledgers could show advance in one account code, and credit for supply against the same in another account. Apart from placing avoidable loads on the system, operational difficulties were many. Accounts Payable Manager of the combined entity spent one month, deleting duplicate Vendor records in the Master, and could manage a reduction of 5% in total, meaning Vendor Master records came down from 20,000 to 19,000, and realized that proceeding this way was not feasible.

Solution:

MIS Advisor came up with an interesting solution. He said, “pick up all Open Purchase Orders, meaning Orders against which supplies or services are to be received, and retain all Vendors pertaining to those Purchase Orders as active Vendors in the Master”. There were about 1500 such Purchase Orders, and Vendors pertaining to those orders were about 750. All those Vendors to whom or from monies were due in the financial records were added to these 750 Vendors. In all about 1300 Vendors were active in the updated Vendor Master. Information relating to other Vendors who were in the Master earlier remained intact, and such Vendors were classified as Inactive Vendors, who could be activated as and when required.

Thus Vendor Master with over 20,000 records was reduced to one with less than 1500 records!

How does this case help young budding CAs?

You need to focus on two kinds of knowledge, one is “functional” knowledge and the other is “process” knowledge. Anyway you get trained in the former, If you can apply your mind on the “process” every time you get an opportunity, you can be effective in any role you take up in your career.

Thank you for your attention. For more articles from me, please read my book “Translating Operations into Money – Cases in Business Management” available for online purchase at Amazon.in or Flipkart. You could also visit www.operationstomoney.com to know about my book and for a free download of a chapter.

Tulasi S Sastri
FCA., CISA.


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