The Procurement Process

Objectives

- Describe the basic business process of procuring stock materials

in an ERP System. - Discuss the integration points in procurement to Financial Accounting and Inventory Management. - Discuss the reporting and analysis tools used by R/3 in the procurement cycle.

Hierarchical Enterprise Structure

Client
highest hierarchy level, e. g. group with its daughter companies Settings made will affect all company codes
S
18.000 3.283 137 12.248 12121323

H
18.000 3.283 12.137 1.248 12121212

S
18.000 3.283 137 12.248 12121323

H
18.000 3.283 12.137 1.248 12121212

Company Code (FI)

Org. Unit can present a balance sheet according to the legal provisions legally independent enterprise Settings made will only affect the respective company code

Purchasing organization
procures material or services for the assigned plants negotiates on terms & conditions with vendors make contracts is responsible for all the purchase processes operative purchasing is done by purchasing groups

Plant
Operational facility within a company code (e.g. factory, store, ...) has its own requirements planning and inventory management

Storage location
a space for logical inventory management

Purchasing organization
material group

purchasing organization

purchasing group MG 0, 3

purchasing group MG 1, 4
purchasing group MG 2, 5 purchasing group MG 6 plant purchasing group MG 7, 8, 9

Inventory Management with a Warehouse Management System

client
company code 0001 ABC inc. 0001 Jones inc. 0001 0002 0003 0002 0004 0002 Model Ltd. 0003 0001

purchasing organization plant distrib.center 0001 0001

MM
factory

storage location

0002

0003

0004

warehouse number

001

storage type storage bin (physical stock)

001 05-04-03

002 05-04-04

WM

The Module MM Main Functions

Maintenance of the material master record (different views) Material requirements planning Material procurement: handling of the documents for - purchase requisition - request, quotation - vendor selection - purchase order, outline agreement - vendor master record Inventory management - goods movement, material valuation Invoice verification referring purchase orders, goods received documents, delivery notes etc.

MM interdependencies to other modules

Logistics
PP production planning MM material master purchasing requirements plan. SD sales and distrib.

QM quality management

inventory mgmt. invoice verification

PM plant maintenance

FI financial acc.

CO controlling

AM fixed assets mgmt.

Basic Data

Master records - include information about

1. vendors 2. material and services to be procured 3. the relation between 1. and 2. (purchasing info record) e.g. prices / terms and conditions

bills of material for - production planning - purchasing - sales and distribution - withdrawal of Material

Structure of the Vendor Master Record

sections

utilization

area of validity

General data name address control data

purchasing terms and cond. partner functions currency

client wide

request for quotation quotation processing purch. order handling

for each purchasing organization

accounting data bank account acc. maintenance payment

invoice entry invoice verification payment handling

client wide or for each company code

Views on the Material Master Record

each view is maintained by a certain user department of the firm

accounting: valuation- and calculation-specific information requirements planning: information about material requirements
planning (e. g. reorder point) purchasing: e. g. responsible purchasing group, order unit engineering: technical information storage: information about warehousing, material movements, ... forecast: information about the forecasting of the material requirements S & D: informationen about sales orders and price determination

purchasing info record

info record prices terms & cond. PO statistics

tolerance levels

date quotation order outline agreement

Procurement

The primary SAP R/3 application modules that support the Procurement process are:

Sales & Distribution

Financial Accounting

Materials Mgmt.

Controlling

- Materials Management

Purchasing Goods Receipts Invoice Verification Purchase Requirements

Production Planning

R/3
Quality Mgmt. Plant Maintenance

Fixed Assets Mgmt.

Client / Server ABAP/4

Workflow

Project System

- Production Planning

- Financial Accounting

Human Resources

Industry Solutions

Payment Processing Materials Valuation

Purchasing Process

PO

? =

invoice
X X X X X

invoice verification

determination: requirements vendor

X X X X X

outline agreem.

determination: source of supply

MM
goods received & inventory mgmt.
vendor 2 vendor 1

PO PO

vendor selection

PO

PO monitoring purchase order processing

Procurement Cycle

The procurement cycle may consist of eight processes:

Purchase Order Purchase Order

8. Payment

1. Requirements determination 2. Source determination

7. Invoice verification

Purchase Order Purchase Order

6. Goods receipt and inventory management

3. Requisition assigned to a Vendor

5. Order follow-up

4. Order processing

Business Process Flow for Procurement

The main documents and transactions in the Procurement process are:

Purchase
Requisition

Purchase Order

Goods Receipt

Invoice Posting

Planning, Reporting, and Analysis

- Note: Payments to vendors are usually made at specified

times (e.g. at the end of the month). - Payment amounts are determined according to the open invoices posted on the system.

Purchase Requisition Processing

or

Material Resource Planning

Direct Entry
Purchase Order Purchase Order Purchase Order

Purchase requisition

Release strategy

Purchase order

Determine source of supply

Purchase Orders

A purchase order is a formal request to a vendor to provide certain materials or services under specific conditions (quantity, price, delivery date, etc.)

Purchase
Requisition

Purchase Order

Goods Receipt

Invoice Posting

Planning, Reporting, and Analysis

Create Purchase Order (PO)

vendor 2

1 vendor known

purch. order

terms & cond.

2 vendor not known

outline agrement info record

source list

purch. order

vendor
vendor 2

purch. req.

purch. order

assigned purchase requisition exists (from user department)

Purchase Order Processing

Purchase Purchase Order Order Direct Entry or Purchase Requisition

Purchase Order Purchase Order Purchase Req.

Standard Standard Sub Subcontract contract Consignment Consignment Third-party Third-party

Statistics Order History

Stock material Consumable material Service

Account assignment
(cost center, asset, project)

Goods Receipt

When goods are received from a purchase order, the item data is copied from the purchase order into the goods receipt document.

Purchase
Requisition

Purchase Order

Goods Receipt

Invoice Posting

Planning, Reporting, and Analysis

Goods Receipt for Stock Material

Entering the goods receipt increases the inventory level of a material that is procured for stock.
Purchasing documents
Items 1. 2. 3.

Goods Receipt

Warehouse / stores

Vendor

Inventory Management (MM module) controls and records all goods movement, form purchase order receipt through the plant, to consumption

Results of a Goods Receipt Posting

Transaction documents are created both for materials management and finance.
Accounting document G/L accounts: Consumption account GR/IR account Material document Stock quantity Consumption statistics

Goods Receipt Posting

Point of consumption Cost center Order

Goods receipt slip Purchasing data: Order item, Order history

Transfer Order

Posting an Order Entry (Goods Receipt)

Logistics
PP production planning MM purchasing req. planning goods receipt inventory mgmt.
goods issue.
transfer posting

SD sales and distrib.

QM quality management

inventory controlling

invoice verification

PM plant maintenance

FI financial acc.

CO controlling

AM fixed assets mgmt.

Invoice Processing

This last step in the procurement process includes invoice verification and updating accounts payable in the FI module.

Purchase
Requisition

Purchase Order

Goods Receipt

Invoice Posting

Planning, Reporting, and Analysis

- Payment will then be made later based upon the open

invoices posted on the system

Invoice Verification
input information output information

invoice verification actions: enter invoice verify invoice post invoice update relevant data (re-edit invoice)

orders goods receipt

master data: material vendors accounts

terms & cond.

financial accounting asset management cost accounting

Invoice Verification Environment

Invoice verification accesses data from purchasing, inventory management, material master, and vendor master files.
G/L accounts Assets
Purchase Order Purchase Order

Purchase Order

Cost centers
Vendor Invoice

Projects Invoice verification Orders

Goods Receipt Material master Vendor master

Posting Postingan aninvoice invoicein inthe theR/3 R/3System System updates updatespurchasing purchasingand andaccounting accountingdata data

Vendor Payment

Accounts payable reads the invoice file and pays all posted invoices due. (Payment runs can be automated to occur at specific times.)
Vendor Bank Payment Payment program program
1000 1000

Financial Accounting

Motor Sports International

1234 Main Street New York, NY 10181

1449
Date _______________

Pay to: ________________________________________ ________________________________________________________ _______________ _________________ 12930 39040 2020 20202 10923 1449

Released Invoice

Procurement Integration
MM

Purchase Order

PP
Purchase Order

FI

FI

Goods Receipt

Invoice Verification

Invoice

Reporting and Analysis

Standard Reporting provides List Displays (pre-defined programs) by: - Vendor - Material - Account assignment - Material group - Purchase order number - Tracking number General Analysis Order Value Analysis Inventory Transaction Analyses

Logistics Information System (LIS)

The Logistics Information System (LIS) contains several information systems such as: - Purchasing Information System - Inventory Controlling - Sales Information System - Shop Floor Information System LIS extracts its data from the operative applications; it offers many different views on this information.

Logistics Information System (LIS)

The LIS exists for the entire logistics system in R/3 The LIS contains several information systems such as: - Inventory Controlling - Sales Information System - Shop Floor Info System - Purchasing Information System The LIS extracts data from the operative applications; offering it in many different views, the depth of which Logistics is determined by the user.
Logistics Information Library
Purchasing Information System Shop Floor Information System Maintenance Information System

Information Systems
Quality Mgmt Information System

Sales Information System

Inventory Controlling

R/3
Sales and Distribution (SD) Materials Management (MM) Production Planning (PP) Plant Maintenance (PM) Quality Management (QM)

Logistics Processing Systems

In Summary (important)

The basic procurement process includes: - Goods receipt - Purchase requisition - Invoice processing - Purchase order Procurement master data includes the vendor and material master files. At various times during the Procurement process, integration occurs between the PP, MM and FI modules. The two reporting tools used in the procurement environment are: - Standard Reporting

List Displays

General Analysis

Inventory Analysis

- Logistics Information System

Purchasing Information System

Inventory Controlling System