What should you do?

Topic 3, Adventure Works Cycles

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Background

Adventure Works Cycles builds stock and custom mountain bikes and is headquartered in San Diego.

It has the following assembly and warehouse locations:

– Denver, Colorado, United States

– San Diego, California, United States

– Budapest, Hungary

Most manufacturing is outsourced, with each facility only assembling the bikes. Parts are stocked at all facilities and may be transferred between warehouses or legal entities. All of the parts are at standard cost.

Current environment. Organizational structure

The following diagram shows the structure of Adventure Works Cycles.

– Each of the physical locations in the United States (US) is a warehouse.

– Hungary assembles and distributes products to the rest of the European Union (EU).

– The EU legal entity is expected to add additional warehouse locations.

– All legal entities roll up to a financial consolidation company.

Current environment. Purchasing

– Higher quality tires that are used in new orders have become popular. Due to the volume of orders, the company wants to negotiate pricing with VendorC. The vendor agrees to a discounted price for 500 tires purchased within the next six months. Once the 500 tires have been purchased, the discount will be re-evaluated based on demand.

– Once a purchase is approved, for audit purposes it cannot be changed.

– Whenever possible, parts are purchased from vendors also within the EU. A purchase order was placed for a bike seat manufacturer in Italy.

– Parts for custom orders may not always be kept in stock and will need to be procured.

Current environment. Purchasing requisitions

The following flow chart depicts the purchase requisition process:

Requirements. Purchasing

– Items for purchase requisitions are governed by each country. Each of the country-specific products will be grouped together for selection.

– Purchase orders must follow the requisition process.

– All existing purchase orders for brakes must account for the change to VendorB.

Requirements. Inventory

– Standard costs are based on purchase fluctuations within a single month.

– Tires use floating zones due to limited warehouse space.

Requirements. Operations

Due to recent brake failures, Adventure Works Cycles plans to purchase brakes from VendorB instead of VendorA. Although the brakes from Vendor B will continue to use the same item number as the brakes from VendorA, the price is slightly higher from VendorB. Adventure Works Cycles will pay list price from VendorB. The order for VendorB needs approval and the usual approver for purchase requisitions is on vacation.

All brakes from VendorA that are in stock must be tested. The process for brake testing must be implemented for all inbound orders. Quality orders must be automatically created upon receipt of the first shipment against a purchase order only.

UserC needs to consolidate brake inventory after it has been cleared for sale.

Ordering of the new brakes order will incur an additional cost because it is a rush order.

Requirements. Custom orders

– Custom orders are placed for items that do not exist in the item master.

– Hungary does not process custom orders.

– The United States does process custom paint orders. Most custom paint colors are special order and require purchase requisitions.

– Quotes must be obtained from a minimum of two suppliers per company policy and compared for the shipping, costs, and other variables. Quotes will not be selected based on lowest price only.

Issues

– A special order for 26 high-end tires is received. This item is no longer in stock from the current vendor.

– Goods have been received in stock, but the matching invoice has not yet been received at the time of month close.

– UserA needs to set up pricing for the items purchased from VendorC and ensure that accounting validates the receipt and invoice against the agreement.

– UserB needs to send out a request for quotation (RFQ) for custom paint. The vendor will be selected based on pricing, volume discounts, and lead time.

You need to set up the procurement category hierarchy in accordance with company policy.

What should you do?

A. Add four nodes to the category hierarchy, one for US, one for Hungary, one for California, and one for Colorado.

B. Create category hierarchy nodes per each country underneath the consolidated legal entity.

C. Add three nodes to the category hierarchy, one for Hungary, one for California, and one for Colorado.

D. Create a procurement category hierarchy and assign purchase policy per legal entity only.

View Answer

Answer: D