ZP Procure to Pay Process

ZP Procure to Pay Process
SAP University Alliances Version 3.6 Authors: Stefan Weidner Bret Wagner Anjali Ramburn ZP Procure to Pay Process Product SAP ERP 6.07 ESEFA curriculum Level Undergraduate Postgraduate Beginner Focus Procure to pay This unit focuses on the procure to pay process. The first part describes the organizational levels and master data which support the procure to pay process. In the subsequent sections, we focus on purchase requisitions, purchase orders, goods receipt and invoice verification.

ES Fundamentals for Business
Introduction to the course Introduction to Zambikes and its business processes Enterprise Systems Knowledge 1. The Zambikes Model Company Navigation Procure to Pay and Accounting Concepts Enterprise Systems Knowledge 2. The ERP Business Case Sales to Cash Inventory Management Summary and ES Fundamentals exam

Unit overview Organizational structure Master data
Procure to pay process Reporting

Learning objectives Identify the organizational structure required to support the procure to pay process Understand ZMC’s organizational structure for procurement Identify the master data required to support the procure to pay process Understand the procure to pay process Understand the structure of a purchase order Create a purchase order (workshop) Create a goods receipt for a purchase order Understand the effects of a good receipt Create an invoice receipt and post payment to the vendor Risks and controls Reporting

SAP organizational data elements

Organizational structure
Organizational levels represent the legal or organizational structures of an organization. Client: highest hierarchical unit in the SAP system Independent business entity, represents a corporate group Data specifications entered at this level apply to all organizational units Represented by a three-digit key in the SAP system Company code: independent unit with own balance sheet Can define a number of company codes in a client Represented by a four-digit alpha-numeric code: ZM00 In a SAP system, the organizational levels are structures that represent the legal or organizational views of an organization. This is a crucial step in your project and is a pre-requisite for all subsequent activities.

Plant: organizational unit within logistics Facility for manufacturing, distribution, storage, or rendering services Defined by a four-digit alpha-numeric key unique to client LU00 & MU00 Storage location: organizational unit that facilitates the differentiation of stock of materials in a plant Location where inventory is stored Defined by a four-digit alpha-numeric key unique to plant RM00, MI00

Our context Dallas GB Inc. US Miami San Diego Lusaka Global Bike Group
Zambikes Company Ltd. Lusaka Trading Goods Semi-finished Goods Finished Goods Miscellaneous Mungwi Raw Materials GB Germany GMbH Heidelberg Hamburg Client A self-contained unit in a SAP system, with its own set of tables. Company code Smallest organizational unit for which financial statements need to be prepared. Plant Within a company. Facility for manufacturing, distribution, storage, or rendering services. Storage location Allows for differentiation between the various stocks of a material in a plant. Storage locations Company codes Plants Client

Purchasing organization Organizational unit accountable for procuring services and materials Selects vendors, negotiates conditions and contracts, sets pricing conditions, strategic purchasing planning Differentiate between three different ways of assigning purchasing organization: Plant-specific purchasing organization Responsible for procurement for a single plant Cross-plant purchasing organization Responsible for procurement for all plants in a single company code Cross-company code purchasing organization Responsible for procurement for all plants and company codes within a client Contains one or more purchasing groups

Purchasing group Represents the buyer or a group of buyers that are responsible for certain purchasing activities Internally: responsible for execution of purchasing transactions Tasks: creating purchase requisitions, getting vendor quotes, creating purchase orders (POs), monitoring POs Externally: main point of contact with vendor

Lesson summary

Master data for procurement
Supports the everyday purchasing process by being used across systems and business processes. Categorised as Material master data (details on material to be purchased) Vendor master data (details on the supplier) Purchasing info record (combines the two above) Conditions (pricing and discounts) Master data is data that is shared across systems and business processes and is used repeatedly by and may be affected by several business processes.

Vendor master data Vendor master
Contains all the necessary information needed to do business with an external supplier Used and maintained primarily by the purchasing and accounting departments Every vendor MUST have a master record

Financial accounting (FI)
Vendor master views Client level Name & address Vendor number Preferred communication Currency Company code data Terms of payment Bank account Purchasing org. data Incoterms Salesperson’s name Basic data Accounting data Financial accounting (FI) Purchasing org. data Materials mgmt (MM) Data under vendor master data is grouped under three headings. Invoterms: Internation.ally recognised terms of delivery

Vendor master views Client XXX Company code US00 Purch.org. US00
Basic data relevant for the entire organization: Name & address Vendor number Client XXX Accounting information: Terms of payment Bank account Purchasing information: Incoterms Salesperson’s name Company code US00 Purch.org. US00 Company code ZM00 Purch.org. ZM00

Material master data Material master
Contains all the information a company needs pertaining to a material Descriptions of materials procured, produced and stocked It is used by most components within the SAP system Sales and Distribution Materials Management Production Plant Maintenance Accounting/Controlling Quality Management Material master data is stored in functional segments called Views The material master record is a company’s central source of material-specific data. The material master contains descriptions of all materials that an enterprise procures, produces, and keeps in stock. It is the central repository of information on materials (such as inventory levels) for the enterprise. Material master is used in all areas of logistics. All areas, such as purchasing, inventory management, materials planning, and invoice verification, can jointly use the stored data.

Storage location stock
Material master views Material master Purchase Order Text Basic data Purchasing data Import data Mat. Plan data Storage data Accounting data Costing Plant stock Storage location stock Since different user departments within a company work with one material, and each department stores different information relating to it, the data in a material master record is sub-divided according to specific views.

Material master views Client XXX Purch.org. ZM00 Company Code ZM00
Basic Data relevant for the entire organization: Name Weight Unit of measure Client XXX Accounting information: Moving Price Currency Purchasing information: Purchasing group Purch.org. ZM00 Company Code ZM00 General Plant/Storage 1: Stock qty Storage bin Plant MU00 Storage loc. RM00 4 views are needed for purchasing: Basic data, accounting, purchasing and general plant/storage..

Purchasing information record (PIR)
Framework for purchase order Contains the relationship between a vendor and a material Can be created Manually Automatically – quotations Automatically – purchase orders Purchasing information record Material master Vendor master

Purchasing information record
Details on which vendors supply a particular material Details on which materials can be procured from a particular vendor Allows buyers to quickly determine Which vendors have offered or supplied specific materials Info records contain Data on pricing and conditions Last purchase order Tolerance limits for deliveries Specific lead times Availability periods Vendor evaluation data Serves as default information for purchase orders

Master data in use Vendor master Material master Purchasing
information record Purchase order

Purchasing info record

Conditions Conditions are agreements with vendors about prices, surcharges and discounts. Conditions can be maintained when entering quotations, info records, outline agreements (contracts, scheduling agreements) and purchase orders. The following types of conditions are used in purchasing: Conditions in a contract apply to all contract release orders created with reference to this contract. Conditions in a purchasing info record apply to all purchase order items that contain the material and vendor in the purchasing info record. ‘General’ conditions: for example, if a vendor has a price reduction on all purchase orders as a two-month special offer. Enter general conditions in Purchasing under Master Data → Conditions.

Purchasing info record
Lesson summary Vendor master data Material master data Purchasing info record Condition master data

Procure to pay process Purchase selection requisition order Notify
Payment to vendor Notify vendor Vendor shipment Invoice receipt Goods order selection Price, quality, time Transaction, ME21N This is a standard view of the procure to pay process and the most common one. It may vary significantly based upon the company procedures, the products/services, purchases and other factors. SAP allows businesses to tailor it to their needs. A procurement process starts with a certain need in the organization. The needs can be satisfied by procuring certain goods. The cycle starts with a requisition or need that needs to be filled. This can come from Planning (MRP), manually. The purchase team invites your source of supply. Based on different criteria based on quality, price and time, a vendor is selected. The purchase order is the document to fill the need: usually includes the vendor name, cost/price, quantity, terms and other pertinent information. The selected vendor is notified. The goods are shipped and brought to the organization. The goods are received and then put away/stored. An invoice is received from the vendor. After the tolerances/verifications have been are met, a payment is made according to the terms agreed to on the purchase order. MIRO MIGO

Purchase requisition Internal document instructing the purchasing department to request specific goods or services within a specified time frame Requisitions can be created two ways: Directly – manually person creating determines: what, how much, and when Indirectly – automatically MRP, production orders, sales orders Requisitions can be created indirectly in the following ways: Via materials planning and control The component Consumption-Based Planning suggests materials that need to be ordered on the basis of past consumption or usage figures and existing stock levels. The order quantity and the delivery date are determined automatically. Via production orders (from the component PP Production Planning and Control).

Requisition sourcing Once the requisition has been assigned a source of supply it can be released for processing. There are a variety of ways that a purchasing department can process a requisition to determine the appropriate source of supply: Internal sourcing requirements Source list Outline agreement Request for quotation (RFQ). Purchase requisitions are internal documents used to ask your purchasing department to procure a particular quantity of a material or a service for a given time frame.

Internal sourcing The requisition of materials can be fulfilled by sourcing from within the company: It is possible that a plant within your firm represents a potential source of supply for the material needed (centralised warehouse). If an internal source is identified the requirement is covered by an internal procurement transaction (stock transport order).

Source list A source list is a record that specifies the allowed origins for procuring a material for a certain plant within a given time frame. If the list contains a sole source, the system will assign the vendor to the requisition. If several options exist, the system will display a list of vendors for you to choose from. If no source has been established, the system will revert to search information records and outline agreements.

Request for quotation (RFQ)
If nothing exists in the system, we may need to submit a request for quotation to our vendors. 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. Select a quotation. P.O. 45…12 Quote Vendor 1 Vendor 2 Vendor 3 Pur Req. RFQ Quote Eval. Generate Reject Letter Quote A quotation is legally binding on the vendor for a certain period. A quotation consists of line items which specify the total quantity, cost and delivery date of an offered material or service. Determining which vendors to send RFQs to is the first step. The system can help you to choose which vendors are to receive an RFQ if some or all of the information set out below is available: Info records Source list

Quotation from vendor The quotation received by your company is a legally binding offer for a predefined period of time, containing prices and conditions for the materials specified in the RFQ, should you decide to do business with the vendor. In SAP the RFQ and the quotation will be become a single document; you will enter the vendor’s response in the RFQ you created.

Vendor evaluation once identified
Vendor evaluation helps the purchasing department to evaluate vendors for sourcing whilst also enabling the company to monitor vendor relationships through performance scores and criteria that have been put in place by the company. Supports a maximum of 99 main criteria and 20 sub-criteria for each main criterion: Price Price level Price history Quality Goods receipt Quality audit Complaints/rejection level Delivery On-time delivery performance Quantity reliability Compliance with shipping instructions Confirmation date You then establish a scoring range (1–100) and determine the weight factors of scores for each. Price level This sub-criterion compares the relationship of a vendor's price to the market price. If the vendor's price is lower than the market price, the vendor receives a good score; if it is higher than the market price the vendor is assigned a poor score. Price history This sub-criterion compares the development of the vendor's price with the market price. Goods receipt This sub-criterion is used to evaluate the quality of the material that the vendor delivers. Quality inspection takes place at the time of goods receipt. Quality audit This sub-criterion is used to evaluate the quality assurance system used by a vendor/company in manufacturing products.

Purchase order (PO) A purchase order is a formal request to a vendor for a specific material or service under the stated conditions. Purchase orders can be created manually. Reference a purchase order Reference a purchase requisition Reference a RFQ/quotation Without reference Purchase orders can be created automatically. The purchase order can be used for a variety of procurement purposes. You can procure materials for direct consumption or for stock. You can also procure services. You can use purchase orders to cover your requirements using external sources (i.e. a vendor supplies a material or performs a service). You can also use a purchase order to procure a material that is needed in one of your plants from an internal source, i.e. from another plant.

Purchase order A purchase order can be used for a variety of purposes. The item category (procurement type) defined in the PO will dictate the use of the order and the process that the order will follow: Standard Stock or consumption Services Sub-contracting Third-party Consignment Header Vendor Date Doc. Number Currency Terms of Payment PO Price Item Overview Materials Price/UofM Quantities Delivery Date Line Item PO History Tolerances Line Price Delivery Schedule You can procure materials for direct consumption or for stock. A stock material is a material that is kept in stock. Such materials are placed in storage following a goods receipt. On goods receipt, materials for consumption count as having been consumed and do not affect the value and quantity of existing stock. You can also procure services. Furthermore, the special procurement types "subcontracting“ (the company provides the vendor with some or all the components for the production of the material), "third-party" (involving triangular business deals and direct-to-customer shipments) and "consignment" (the company stores the goods supplied by a vendor but a liability is only upon withdrawal of goods from storage) are possible. A purchase order has 3 main sections; the header, the item overview and line item. Header details are applicable to the whole PO. Item overview consists of the different materials, quantities to be procured from the vendor. Line item consists of material specific information. The line price, delivery schedule and tolerances are sourced from the PIR. Tolerance limits for overdeliveries or underdeliveries are read from the PIR.

Purchase order structure
Logistics ► Materials Management ► Purchasing ► Purchase Order ► Create ► Vendor/Supplying Plant Known (ME21N)

Purchase order output Once a purchase order has been created the vendor needs to be notified: Printed copy Electronic Data Interchange (EDI) Fax There are a variety of forms that aid in the purchasing process and are generated from the purchase order: Purchase order output Order acknowledgement forms Reminders Schedule agreements Purchase order output - Notification document sent to the vendor for acknowledgement Order acknowledgement forms – Order is acknowledged by the supplier through an acknowledgement form Reminders – Delivery reminders are sent to the supplier. Schedule agreements – Delivery documents are issued to the vendor, instructing the latter to effect deliveries of the relevant materials as per the agreed dates

Goods receipt Notify vendor Vendor Goods receipt Shipment Purchase
order Vendor Goods receipt Shipment

Goods receipt (GR) Goods movement in which we accept goods into our system If materials are delivered against a purchase order we will reference that order Determine if we got what we ordered System pre-populates data for us from the PO Material, quantity Purchase order history is updated with the receipt If a material is delivered for a purchase order, it is important for all of the departments involved that the goods receipt entry in the system references this purchase order, for the following reasons: - Goods receiving can check whether the delivery actually corresponds to the order. - The system can propose data from the purchase order during entry of the goods receipt (for example, the material ordered, its quantity, and so on). This simplifies both data entry and checking (over-deliveries and under-deliveries). - The delivery is marked in the purchase order history. This allows the purchasing department to monitor the purchase order history and initiate reminder procedures in the event of a late delivery.

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 103 – goods receipt into GR blocked stock 122 – return delivery to vendor 231 – consumption for a sales order 561 – initial entry of stock Destinations for receipt of goods Unrestricted use Quality inspection Blocked stock When you enter a goods movement into the system, you must enter a movement type to differentiate between the various goods movements. A movement type is a three-digit identification key for a goods movement. The movement type plays an important role in - updating quantity fields - updating stock and consumption accounts determining which fields are displayed during entry of a document in the system. Destination for goods receipt: Unrestricted use: Company's own inventory that is physically located in a plant, which is not subject to any kind of usage restrictions. Quality inspection: Company's inventory that is in quality inspection. Inventory in quality inspection does not count as unrestricted-use stock. Blocked stock: Company's inventory that should not be used. It is not for unrestricted use in inventory management.

Creating a goods receipt
Logistics ► Materials Management ► Purchasing ► Goods Movement ► Goods Receipt ► For Purchase Order ► GR for Purchase Order (MIGO)

Effects of a goods receipt
When a goods movement for the receipt of goods takes place a series of events occur: Material document is created. Accounting document is created. Stock quantities are updated in the material master. Moving average prices are updated in the material master. Purchase order history is updated. Output can be generated (GR slip / pallet label). When you enter a goods movement, you start the following chain of events in the system: A material document is generated, which is used as proof of the movement and as a source of information for any other applications involved. The stock quantities of the material are updated. If the movement is relevant for Financial Accounting, one or more accounting documents are generated and the stock values in the material master record are updated, as are the stock and consumption accounts. Depending on the movement type, additional updates are carried out in participating applications. All updates are based on the information contained in the material document and the financial accounting document.

Invoice processing Incoming invoices are referenced 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 will 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 - It is in Logistics Invoice Verification that incoming invoices are verified in terms of their content, prices and arithmetic. When the invoice is posted, invoice data are saved in the system. The system updates the data saved in the invoice documents in Materials Management and Financial Accounting. An invoice can be processed in Logistics Invoice Verification in various ways: Invoice verification online Invoice verification in the background Automatic settlements Invoices received via EDI. Invoice receipt - Actual price - Goods receipt - Actual quantity -

Invoice processing When an invoice is saved it applies the liability from the goods receipt of our purchase order to a vendor. Upon verification the: Purchase order history is updated. Material master is updated (moving average price). Accounting document is created. Once the invoice has been posted the verification process is completed and the payment process is initiated within the financial accounting department. Note: Moving average price is updated if there is a price difference.

Payment to vendor Can be done automatically or manually
Post outgoing payment 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

Procure to Pay risks General risks Purchasing Receiving
Inaccurate or invalid master data Unauthorised disclosure of sensitive information Loss or destruction of data Purchasing Purchasing items that are not needed Purchasing at inflated prices Purchasing goods of inferior quality Receiving Accepting items not ordered Mistakes in counting Accepting damaged goods

Procure to Pay risks Invoicing Cash disbursements
Errors in supplier invoices Mistakes in posting to accounts payable Cash disbursements Paying for items not received Duplicate payments

Controls General Purchasing Receiving
Integrity controls for data entry and processing Authorisation and access control Restricting access to master data Review master data changes Backup and disaster recovery procedures Purchasing Review and approval of purchase requisitions Competitive bidding Review of purchase orders Purchasing from approved suppliers Receiving Configuration of the ERP system to flag discrepancies between received and ordered quantities Audits

Controls Invoicing Verification of invoice accuracy
Reconciliation of accounts Match all supplier invoices to supporting documents Policy to pay only from original copies of supplier invoices

Reporting Lists (Operational Reports)
Used to display documents e.g. list of materials / purchase orders Used to allocate a specific status to documents e.g. open purchase orders Purchasing information system (Management Reports) Comprises information structures and cubes Used to generate summary reports and various analyses e.g. high volume orders Crystal/dashboard (Business Intelligence) External tools optimised to meet various reporting requirements e.g. large data volume, speed, visualisations To be covered in the workshops

Sample reports The reports below are briefly discussed.
Tactical Reports ZP Procurement Tactical Report 1 Strategic Report Zambikes Expenditure.html

ZP Procurement Tactical Report 1

ZP Strategic Report

Procure to pay blueprint
Recap Purchase order > Goods receipt > Invoice > Payment Document lists>Exception lists> Aggregated info cubes Reporting data Transactions / Documents Master data Org. data Vendors/Materials/PIR/Conditions Client > Company code > Plant > Storage location> Purchasing org., Purchasing group

The Procure to Pay workshop

Sample questions : Procure to pay process
1. A purchasing info record is derived from which of the following master records? There are two (2) correct answers. Conditions Output Vendor Material 2. In SAP ERP, warehouse personnel are entering a goods receipt referencing a purchasing order for stock material. What organizational levels in SAP ERP are required to successfully post the goods receipt? There are three (3) correct answers. Plant Business area Controlling area Storage location Company code

Sample questions : Procure to pay process
3. You are explaining the procurement process integration in SAP ERP to a colleague. Which procurement cycle business transaction in SAP ERP creates a financial accounting document? There are three (3) correct answers. Create a vendor master record. Post a goods receipt with change in material valuation. Create vendor payment Create a purchase requisition. Enter an invoice receipt.

Questions

ZP Procure to Pay Process

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