The Procurement Process (MM)

Introduction The procurement process involves purchasing goods from vendors through an internal purchasing organization These goods might be used for resale in a manufacturing process as packaging Goods are received into inventory Invoices are verified

SAP Process Diagram

Materials Management Tasks Vendor management Purchasing Physical inventory Inventory management (quantities) Inventory valuation Invoice verification Materials management (MM) MRP Product catalogs

Vendors (Introduction) Vendors sell goods to us Some information is pertinent to the company Some applies only to a particular purchasing organization

Vendors (Configuration) Vendor information is divided into three categories General data (applicable to the client) Company code (accounting) data Purchasing data (applicable to the purchasing organization)

Vendor Data (Taxonomy) Client data (LFA1) Client / Account number keys Contains name and address information One-time account indicator Contains the account group (KT0KK) The vendor account group controls the transaction types possible with the vendor

Vendor Data (Taxonomy) Company code (LFB1) Client / Account number / Company code keys Reconciliation and bank account information (accounting segment) Co/Cd gives us the link to our G/L Link to GL recon account (AKONT)

Vendor Data (Taxonomy) Purchasing organization (LFM1) Client / Account number / Purchasing Organization keys Sales person name Currency of purchase order

Vendor (Account Group) Every vendor is assigned to an account group The account group defines which partner functions are allowed Partner functions for a vendor

Partner Functions (Illustration)

Organizational Structure (1) Purchasing Organization (PO) An organizational unit in logistics Manages the buying activities for a plant Procures services and materials A purchasing organization can be responsible for many plants Purchasing group Group of buyers within a PO responsible for certain activities

Organizational Structure (2) Purchasing can be centralized or decentralized Centralized (one purchasing organization for many plants) Decentralized (many purchasing organizations) Global bikes has a hybrid purchasing organization Global / US / DE

Purchasing Organizations (GBI)

Organizational Structure (Plants) In plants, we make things or store things A plant has a purchasing organization assigned to it There is a hierarchical relationship between the following A client has one or more plants (T001W) A plant has one or more storage locations T001L where goods are stored (logical or physical) A plant belongs to a valuation area (T001K) (where goods are valued) A plant belongs to a purchasing organization

Plant Table T001W Global Bike has 5 plants Each plant is assigned a purchasing organization

Storage Location Table T001L Global Bike uses logical storage locations

Valuation Table Plants belong to a valuation area A valuation area belongs to a company code So materials can be valued at the plant or company code level

GBI Organizational Structure

Materials Introduction Materials are the things we buy from vendors Supplies that we consume internally Trading goods that we buy and resell Raw materials that we use in production Semi-finished goods that we make from raw materials and use in the production of finished goods Finished goods that we make and sell using raw materials and semi-finished goods

Material Types SAP predefines several material types A material’s type dictates what can be done with the material

Material Types (Configuration) Material types are configured through the IMG (OMS2)

Material Types (Configuration) And stored in table T134T

Material Master Data Everything our company needs to know about the material Data is stored in functional segments called views Basic data Sales Materials Management Accounting MRP Etc.

Material Views

Material Master (Financial) Financial data is maintained about a material Valuation currency is the currency in which the unit is priced Valuation class – The inventory account associated with the material Price control Moving average price – the average price of materials in stock Standard price – material prices are updated periodically

Material Master (Financial)

Material Master (Purchasing) Purchasing group Goods receipt processing time Time to move goods into inventory Delivery tolerances

Material Master (Purchasing)

Material Master (Plant) Environmental requirements Special storage containers or handling Shelf life Weight

Material Master (Plant)

Purchasing Information We purchase materials from vendors Purchasing information defines the relationship between a vendor and a material This information is used to create purchases from Quotations Manually

Purchasing Information Record Determines which materials are supplied by which vendors Purchasing information Pricing Lead times Availability periods Order history

Purchasing Documents Purchase requisition Request for quotation Purchase order Goods receipt Vendor invoice processing

Common Purchasing Sequence

Purchase Requisition An internal rather than external document It instructs purchasing to request specific goods be purchased to arrive at a specific time A requisition gets created Manually Automatically through MRP, production orders, or sales orders

Requisition Sourcing Requisitions must be assigned a source of supply Internally Get goods from our own plant or centralized warehouse A list of sources Vendors who provide the particular material Outlined agreements Long-term purchasing agreements RFQ

Request for Quotation Use for very expensive goods or goods with no known source It’s an invitation for a vendor to bid Quotations from vendors are legally binding offers Price, materials, shipping details are all defined

Vendor Evaluation SAP allows you to evaluate vendors based on Price Quality Delivery You define scoring ranges You define detailed criteria

Purchase Order It’s really the acceptance contract for the vendor’s quotation A request to procure specific materials or services and the conditions of procurement

Types of Purchase Orders SAP supports different types of purchase orders Standard For services For consignment And others

Purchase Order Structure Remember the structure of a document Header information Vendor / payment terms Item overview Materials, quantities, item delivery dates Line items Item prices

Purchase Order Output All is not printed Purchase orders might be sent via E-mail EDI Fax XML

Goods Receipt Here is where we receive the goods from the vendor from our purchase order Tasks Determine whether order is correct Update purchase order history with receipt of goods Updates physical inventory Updates G/L account (Inventory)

Receipt of Goods (Events) Several events fire when goods are received Material document created Accounting documents created Inventory is updated Purchase order status is updated

Vendor Invoice Processing Invoices are validated against the corresponding purchase order Discrepancies might cause the invoice to be blocked When processed The accounts payable liability is created Payment process is initiated for financial accounting

Financial Accounting Processing Accounting pays the invoice Payment method Bank Items It’s possible to pay all or part of an invoice Medium Can be done manually or automatically

Financial Accounting (G/L) Transactions Invoice Receipt Payment Program Goods Receipt AP (Vendor) Dr Cr GR / IR $100 Bank Inventory

Material Movement (1) SAP tracks the movement of goods in, around, and out of a warehouse They are depicted using three digit codes 101 – goods receipt into warehouse 103 – goods receipt into GR blocked stock 122 – return delivery to vendor 231 – consumption for a sales order 561 – initial entry of stock

Material Movement (2) Goods can be placed into different destinations Into the warehouse Unrestricted use Blocked use Quality assurance