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Procurement Processes EGN 5620 Enterprise Systems Configuration Spring, 2012 Procurement Processes EGN 5620 Enterprise Systems Configuration Spring, 2012.

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Presentation on theme: "Procurement Processes EGN 5620 Enterprise Systems Configuration Spring, 2012 Procurement Processes EGN 5620 Enterprise Systems Configuration Spring, 2012."— Presentation transcript:

1 Procurement Processes EGN 5620 Enterprise Systems Configuration Spring, 2012 Procurement Processes EGN 5620 Enterprise Systems Configuration Spring, 2012

2 Procurement Process Concepts & Theories Procurement Process Concepts & Theories

3 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.3 Procurement Process 1. Requirements Determination – Requisition request 2. Request for Quotation (RFQ) 3. Vendor Selection 4. Order Processing - Purchase Order 5. Order Tracking 6. Goods Receipt and Inventory Management 7. Invoice Receipt and Verification 8. Payment

4 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.4 Purchase Requisition (Request) Is an internal document Requests a certain quantity of certain material (or service) on a certain date Is generated: ◦Manually ◦MRP (automatically), or ◦Sales orders, etc. With an optional request approval (or release) procedure

5 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.5 Purchase Requisition Sources Non-inventory items: manually specified by the user department for: ◦Office supplies, ◦Project-specific materials, and ◦Prototype materials Inventory items: automatically created by a MRP/MPS planning mechanism for: ◦Plant Maintenance ◦Production Orders ◦Sales Orders

6 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.6 Purchase Requisition Data Default data for line items (from the material master, vendor info record, & user preferences) ◦Delivery dates, ◦Plants, storage location ◦Purchasing groups, etc. Individual line item data ◦Material, ◦Quantity, ◦Delivery date Account assignment (if required) ◦Cost center, ◦General Ledger accounts, ◦Project number, etc. Check data

7 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.7 Quotation Process 1. Request for Quotation (RFQ) 2. Maintaining a Quotation 3. Comparison of Prices 4. Creating a Contract 5. Creating a Release Order

8 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.8 Request for Quotation (RFQ) Is an invitation to a vendor to indicate their terms and conditions (in particular, their price) for the supply of a material (or service) by submitting a quotation Identifies the required material, quantity, and delivery dates

9 Request for Quotation An RFQ is an invitation to a vendor by a Purchasing Organization to submit a bid for the supply of materials or services ◦The accepted quotations will generate Purchasing Information Records ◦Perform Quotation Price Comparisons ◦Finally Select a Quotation Pur Req. generate RFQ Vendor 1 Vendor 2 Vendor 3 Quote P.O. 45…12 Reject Letter Eval.

10 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.10 Maintaining a Quotation 1. Enter each vendor's quotation in the associated Request for Quotation (RFQ) 2. Compare prices using the price comparison list 3. Store the best quote in an info record 4. Optionally, send rejection letters to the losing bidders

11 Vendor Evaluation Evaluate vendors (for sourcing) with respect to: Price ◦ Price Level ◦ Price History Quality ◦ Goods Receipt ◦ Quality Audit ◦ Complaints/Rejection level Delivery performance ◦ On-time delivery ◦ Quantity reliability ◦ Compliance with shipping instructions ◦ Confirmation Date A scoring range (1 -100) may be used with weight factors to score each identified/qualified vendor.

12 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.12 Comparison of Prices Compares the prices from all quotations from the competitive bidding process using a price comparison list Ranks the quotations in the comparison list by item from the lowest to highest price

13 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.13 Creating a Release Order Release order is a purchase order that references a contract; it specifies: ◦Number of the contract ◦Quantity to be released ◦Delivery date When a release order is created, release order documentation is automatically updated against the contract (including open quantity, quantity released to date, total value)

14 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.14 Creating a Release Order (2) The vendor data, price data, and the delivery terms and conditions are copied directly to the release order Release orders can be created from a proposed purchase requisition generated off a MRP run (net requirements) ◦Automatically ◦Manually ◦

15 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.15 Purchase Orders Purchase Orders are: ◦a formal request to a vendor to provide materials or services ◦An internal planning and tracking tool Purchase Orders specify: ◦Vendor ◦Material and/or service ◦Quantity and price ◦Delivery dates ◦Terms of payment A purchase order can be for variety of purposes: ◦Standard Stock or Consumption ◦Services ◦Subcontracting ◦Consignment

16 Procurement Processes SAP Implementation Procurement Processes SAP Implementation

17 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.17 Business Process Integration FI MM SD Org Data Rules FI MM SD Master Data FI MM SD FISD MM

18 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.18 Business Process Integration Purchase Process

19 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.19 Rules (review) Rules define the parameters for Master Data and Transactions Rules determine functionality for Master Data and Transactions Rules are relatively fixed Rules change, when corporate policy changes

20 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.20 Rules (review) Material Management Fiscal Periods Account Groups Material Types Plant Parameters Purc./Rec./Inv. Tolerances Automatic Account Assignment Reservations Material Group Loading Group

21 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.21 Transaction Data (review) Transaction data are application data; each transaction is dynamic and unique, unlike master data and organization data which do not change very often. Transaction data use (is comprised of) organization data, master data, and rules Transaction data includes internal and external exchanges that describe business activities

22 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.22 Purchasing in SAP R/3 (review) The purchasing process resides in the Materials Management (MM) module of SAP R/3 as well as the Finance (FI) module Master data for the purchasing process exists in the (MM) and (FI) modules The purchasing process may interface with the modules below: ◦Production Planning (to plan for production), ◦Quality Management (to check quality at receipt), and ◦Warehouse Management (to put away)

23 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.23 Procurement Process (Procure-to-Pay) Purchase Requisition Payment to Vendor Notify Vendor Shipment Invoice Receipt Goods Receipt Purchase Order 3-Way Match

24 Create & Save Purchase Order

25 Purchase Order in SAP Three sections in a purchase order: ◦Header ◦Item overview ◦Line item

26 Purchase Order Structure Purchase Order Header VendorCompany Purch. Org.Date Purch. Org. groupPO Price Item Overview MaterialsPrice/UofM QuantitiesCurrency Delivery DatePlant Line Item PO HistoryTolerances Line PriceStorage Delivery Schedule

27 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.27 Purchase Order Structure: Header Header - information specific to the entire purchase order ◦Vendor ◦Purchase organization data ◦Condition (total purchase price) ◦Partner ◦Payment process ◦Status

28 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.28 Purchase Order Structure: Line Items Line item – purchasing information required for the item ◦Item category ◦Material ID and description ◦Material or service quantity ◦Delivery date ◦Net price ◦Currency ◦Plant ◦Storage location ◦Measurement unit

29 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.29 Purchase Order Structure: Item Details ◦Material data for the item ◦Quantity/weight ◦Delivery schedule ◦Invoice ◦Conditions (Purchasing price for the item) ◦Delivery address ◦Confirmation ◦Condition control ◦Subcontracting

30 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.30 Purchase Order: Output Format Printed and mailed Electronic Data Interchange (EDI) Faxed (hardcopy or electronic) eXtensible Markup Language (XML)

31 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.31 Search Purchase Orders You can search for the purchase order number with ◦Material number, ◦Vendor number, etc.

32 MM: Goods Receipt Purchase Order Vendor Notify Vendor Shipment Receipt

33 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.33 Goods Receipt – Movement Types Movement types - stock transactions ◦Goods receipt (from a vendor or production) ◦Goods issue (to customer or production/use) ◦Stock transfer (from one SL to another) Movement type determines which ◦Quantity fields are updated ◦Stock types are updated ◦General Ledger (G/L) stock or consumption accounts are updated ◦Fields are displayed during document entry

34 Material Movements When a goods movement takes place it is represented by a Movement Type Movement types are three-digit keys used to represent a movement of goods 101 – goods receipt into warehouse reversal of goods receipt for purchase order into warehouse/stores 103 – goods receipt into GR blocked stock 122 – return delivery to vendor receipt w/o purchase order into unrestricted-use stock

35 Goods Receipt Goods receipt is a goods movement activity in which we accept goods into our system. If materials are delivered against a purchase order we will reference that order and SAP can: ◦retrieve data from the PO for us to verify: material, quantity, and so on ◦Update inventory G/L account automatically ◦Update purchase order history with the receipt ◦Update physical inventory

36 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.36 Goods Receipt – Destinations Goods receipt into (destined for) the warehouse ◦SAP increases total valuated stock by the delivered quantity. ◦SAP updates the stock value at the same time. Goods receipt into consumption ◦SAP only updates the consumption statistics in the material master record ◦SAP does not update the consumption statistics if the goods movement posting uses the special stock types: sales order stock type and project stock. Goods receipt posted into blocked stock ◦SAP maintains the same stock level. ◦SAP only records it in good receipt block stock of the purchase order history. Note: ◦If goods receipt is being posted into a storage location where data does not yet exist for the material, SAP automatically creates a storage location data in the material master record.

37 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.37 Goods Receipt – Effects Purchase Order (PO) history and Purchase Order (PO) updated Material Master - stock and value updated Notification of goods receipt issued (optional) Transfer request to the Warehouse Management module (if active)

38 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.38 Goods Receipt – Effects (continued) Material and financial documents created and/or updated Stock and consumption accounts updated Inspection notification in the Quality Management (QM) module - if active

39 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.39 Goods Receipt – Account Postings Inventory account is debited at standard price Goods Receipt/Inventory Receipt (GR/IR) clearing account is credited at purchase order price Price difference account is debited (credited) with difference between standard price and purchase order price

40 Goods Receipt – Account posting Purchase requisition Purchase order Materials Management (MM) and Financial Accounting (FI) via automatic account assignment Goods receipt No impact on Financial Accounting (FI) Dr Cr Inventory (account) $100 Dr Cr GR / IR $100

41 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.41 Invoice Receipt Process Tasks: Engage in 3-way match to validate the invoice. Enter PO number to retrieve the PO and view (verify) ◦Open dollar amount. ◦Quantity, ◦Price, ◦receiving date, ◦Vendor name Enter the invoice number and the dollar amount to be paid Simulate invoice posting Post the invoice in SAP

42 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.42 3-Way Match for Payment Purchase Order Goods Receipt Invoice Receipt Debit Credit Payment Program Verification

43 Invoice Processing - 3-Way Match Incoming Invoices are reference against a Purchase Order to verify their content, prices, and arithmetic. If discrepancies arise between the purchase order or goods receipt and the invoice the system with generate a warning or an error ◦Depending on system configuration the difference could cause the system to Block the Invoice Purchase order - Target quantity - - Target price - Goods receipt - Actual quantity - Invoice receipt - Actual price -

44 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.44 Invoice Verification - 3-way match Matches the vendor’s invoice to the purchase order and the goods receipt (3rd part of 3-way match) Matches price and quantity Updates the purchase order and its history Updates accounting information

45 Financial effects of Invoice Posting When an invoice is posted, SAP shifts the liability ◦From the Goods Receipt/Invoice Receipt account (for the purchase order) ◦To the vendor account Upon posting, SAP: ◦Updates the Purchase Order ◦Updates the Material Master ◦Creates an Accounting Document ◦Initiates the payment process within Financial Accounting

46 Invoice Receipt Reconciliation Account Amount owed is assigned and transferred to vendor account payable Invoice receipt Dr Cr Vendor $100 Dr Cr GR / IR $100 Dr Cr A/P $100 automatic posting

47 Accounts Payable Reconciliation Account January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.47 Accounts Payable (AP) Reconciliation Vendor Vendor Vendor Vendor

48 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.48 Invoice Payment Selects invoices for payment based on the payment terms in the vendor master or purchase order Generates payment for released invoices Updates accounting information

49 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.49 Accounts Payable Settlement Process Determines: ◦Which open items to be paid ◦When they will be paid ◦Which bank to make payment ◦Payment medium ◦Who will get paid Payment process creates a financial accounting document to record the transaction

50 Payment to Vendor Can be done automatically or manually ◦Post Outgoing Payment vs. Payment Program Elements of the Payment Transaction: ◦Payment Method ◦Bank from which they get paid ◦Items to be Paid ◦Calculate Payment Amount ◦Print Payment Medium Process will create a financial accounting document to record the transaction

51 Vendor Payment Amount owed is paid to vendor and account payable is reduced Bank Dr Cr A/P $100 Dr Cr Bank’s $100 Vendor’s Dr Cr $100 automatic posting

52 (FI – MM) Integration Points Invoice Receipt Payment Program Goods Receipt Vendor Dr Cr GR / IR $100 Bank Dr Cr Inventory $100 Dr Cr $100 AP Dr Cr $100 automatic posting

53 PEN, Inc. PEN, Inc. Procurement Processe s

54 3 600 Cxxx xxx Pxxx xxx

55 Check PO History (ME23) January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.55

56 Check PO History (continued) January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.56

57 Check Inventory January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.57

58 Exercises: 100. Create a Purchase order for Slick Pens 101. Create a purchase order for premier pens 102. Create a purchase order for Promotions Ltd Create receipts for the purchase orders 104. Create an invoice receipts from vendors 105. Post payments to vendors 106. Display vendor line items 107. Create purchase outline agreement (contract) for Stock item


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