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Procurement processes
SAP Materials Management
INDEX
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INTRODUCTION
Materials Management covers all tasks within the supply chain, including consumption-
based planning, purchasing, vendor evaluation, and invoice verification. It also includes
inventory and warehouse management to manage stock until usage dictates the cycle
should begin again.
The purpose of the MM-Materials Management module is to provide detailed support for
the day-to-day activities of every type of business that entails the consumption of
material.
The Materials Management module of SAP R/3 consists of the following components:
• Purchasing.
• External Services Management.
• Vendor Evaluation.
• Inventory Management.
• Invoice Verification.
• Warehouse Management.
• Consumption Based Planning.
• Material Ledger
Source Determination -- The source of supply is determined for the needed item by the
purchasing department or the system
Goods receipt and inventory management -- The goods are received into the
warehouse via purchase order goods receipt
Payment -- Payment will be made based on payment terms and conditions defined
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Purchase Requisitions -- Includes the first three steps of the procurement process, i.e.
Requirements Determination, Source Determination and Vendor Selection.
Purchase Orders -- Includes the steps four and five of the procurement process, i.e.
Order processing, and Order Follow-Up
Goods Receipt Posting -- Includes step six of the inventory process, i.e. Goods
Receipt and Inventory Management
Invoice Processing -- Steps seven and eight of the procurement process, i.e. Invoice
Verification and Payment.
Organizational Elements
Client
The client represents the highest level of the organizational hierarchy. It represents the
corporate group level of an organization.
Company code
The company code represents an independent accounting unit within a client, i.e. a
business unit for which balance sheets and profit and loss statements, required by law,
are compiled.
Plant
A plant is an organizational unit within a company. A plant produces goods, renders
services, or makes goods available for distribution. Note that a plant can be a
manufacturing facility or a warehouse distribution center.
Storage location
A storage location is the actual physical location, within a plant, where the material
stocks are located.
Purchasing organization
A purchasing organization is an organizational unit responsible for procuring materials
and services for one or more plants and for negotiating prices and terms of delivery with
the vendor.
Purchasing group
The purchasing group is a special subdivision within a purchasing organization that
handles certain specific purchasing activities, namely the day-to-day buying. Please note
that a purchasing group can perform this function for several purchasing organizations.
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MATERIAL MASTER
General data
Plant data
Storage location data
Valuation data
Purchasing view
Engineering view
Accounting view
VENDOR MASTER
Vendor Master Records include general information such as name and address,
currency used for the vendor, terms of payment, contact information, etc. Vendor master
records comprise information for both the accounting and purchasing function as well as
general vendor data. General data is data that applies to all company codes within the
client. It includes such information as address, phone number, and the language spoken
by the vendor. Accounting data includes accounting specific information such as
payment transactions and reconciliation control account information. Purchasing data
includes items such as contact persons, terms of delivery, etc. Because Accounting and
Purchasing have different information needs, each is presented with a different view of
the vendor master file. In the Accounting view, the accountant has access to the general
and accounting data, and in the Purchasing view the purchasing agent has access to the
general data and the purchasing data.
General functions
• Terms of payment
• One time vendor
• Blocking vendors
• Maintaining business partners – vendor, order recipient, goods supplier, invoicing
party, payee
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PURCHASING MASTER
In addition to vendor and material master data, Purchasing is supported in its everyday
work by the following additional types of master data:
Info record is short for Information record. The info record contains concise information
about a vendor and a material that you already procure from that vendor. An info record
thus represents a material-vendor relationship. For example, the info record indicates
the units of measure in which materials are ordered from the vendor, and the applicable
reminder levels. It also shows price changes made by the vendor for the material. This
information can be useful in the process of evaluating quotations to determine the
successful bidder. Info records are created automatically when you order a material. You
can also create, change, and delete info records.
The purchasing info record (also referred to in abbreviated form as the "info record") is a
source of information for purchasing. It contains information on a specific material and a
vendor supplying the material. For example, the vendor's current pricing is stored in the
info record. The info record also allows buyers to quickly determine:
• Info records with a material master record (e.g. for stock material). This type of
info record represents the relationship between a material or service (for which a
master record exists) and a vendor.
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• Info records without a material master record (e.g. for consumable materials).
This type of info record represents the relationship between a material or service
for which no master record exists and a vendor.
• General data that is valid for each purchasing organization or each plant (for
example, origin data, reminder levels, and the order unit).
• Organizational data such as prices and pricing conditions that you can store for
the relevant purchasing organization or plant.
Source list
A source list specifies the possible sources of supply for a material over a given period
of time. It shows the time period in which a material may be ordered from a given vendor
or under a long-term agreement. The source list helps you determine which vendors or
internal suppliers supply a material at a given point in time. It is also used in the
automatic selection of vendors for a material.
Quota arrangement
Master conditions
Master conditions are conditions that are defined centrally and which determine the
value of purchase orders. They are used as the basis for calculating the effective price.
Vendor evaluation
Vendor evaluation is the process of analyzing and assessing the performance of your
suppliers. It also constitutes a basis for vendor selection. Vendors are awarded scores
for a number of different criteria. Vendors' overall scores can be used to determine
whether they are retained in or eliminated from your vendor base.
PURCHASING DOCUMENTS
• Purchase Requisitions
• Purchase Orders
• Goods Receipt posting - updates both stock and financial records
• Vendor Invoice posting
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Purchase Requisitions
A purchase requisition defines a need for a material or service. It has the following
characteristics:
A request for quotation (RFQ) is an invitation to a vendor to indicate his terms and
conditions (in particular, his price) for the supply of a material or the provision of a
service by submitting a quotation. As in the case of the purchase requisition, the RFQ
identifies the material, quantity, and delivery date. In addition, the RFQ contains
information about the vendor to whom the RFQ is sent (for example, the vendor's name
and address) and important dates for the RFQ (such as the closing date for applications,
or pre-qualification date, and bid submission deadlines).
Quotation
A quotation contains the vendor's pricing and conditions for providing the material or
service stated in the RFQ. In MM Purchasing, the RFQ and quotation are the same
document. You enter the vendor's pricing and conditions in the original RFQ. Then you
can:
• Use the price comparison list to help you determine the best quotation
• Send rejection letters to the appropriate vendors
• Store the pricing and terms of delivery for certain quotations in the info record for
future reference.
The purchase order represents the formal and final approval of a purchasing transaction
with the vendor. It identifies:
• The vendor
• The material or service to be ordered
• The quantity
• The price
• The delivery date and terms of delivery
• The terms of payment
In addition, the purchase order determines whether the ordered material is placed in
stock or consumed directly upon goods receipt.
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Contract
A contract is a longer-term agreement with a vendor (one of the two forms of "outline
agreement" in the SAP system) to supply a material or provide a service for a certain
period of time. A number of different terms may be used for this concept in purchasing
literature, including "blanket order", "blanket contract", "systems contract" and "period
contract". The contract does not contain specific delivery dates or the individual delivery
quantities. These are specified subsequently in release orders issued against the
contract.
Scheduling agreement
The scheduling agreement has similarities with a quantity contract: it states the target
quantity of a material to be ordered from a vendor over a period of time, and the price.
For each material to be procured, you create a scheduling agreement item. For each
scheduling agreement item, you subsequently set up a rolling delivery schedule by
creating a number of individual schedule lines. In vendor scheduling, vendors receive a
scheduling agreement release (comprising a header and a rolling delivery schedule
made up of individual schedule lines) rather than discrete purchase or release orders.
(Note that in addition to standing for a method of ordering materials or services - as
here, in the SAP System, the terms "release" and "releasing" may also be applied to an
internal purchasing document approval or clearance process.) The delivery schedule
specifies the quantities to be delivered, the delivery dates, and possibly also delivery
time-spots, and may contain data on previous goods receipts. A delivery schedule may
contain firm, semi-firm, or planned (forecast) delivery dates.
Purchasing documents are differentiated in the SAP system via the document type. This
determines, for example, which the relevant number range is and which fields are
offered for maintenance purposes. The relevant document type appears as a default
value when you create a purchasing document. Document types are defined for RFQs,
purchase orders, and contracts, for example. The standard SAP system includes certain
document types. However, your enterprise can also define its own.
Each document is assigned a unique number. (Note that the "number" may also be an
alphanumeric code: see below). This number can be assigned internally or externally,
depending on the policy of your enterprise. Internal number assignment means that the
system assigns the number. External number assignment means that the person
creating the document must supply it. Alphanumeric assignment is only possible in the
latter case.
Each purchasing document is subdivided into two main areas: the header and individual
items. Each document will contain a header and can contain several items. The header
contains information relevant to the whole document. The items specify the materials or
services to be procured. For example, information about the vendor is contained in the
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document header, and the material description and quantity to order is specified in each
item. The additional data includes additional information about the item, and has no
direct connection with the procurement data of the item. Additional data includes, for
example, account assignment data (such as cost center and G/L account) and the PO
history for an item, which contains information on already recorded goods and invoice
receipts relating to the item. Each item in a purchasing document represents a specific
planned procurement. Purchasing transactions (involving requisitioning, ordering and
monitoring) occur on an item-specific basis.
PURCHASING PROCESSING
Indirectly:
Directly:
Someone from the requesting department enters a purchase requisition manually. The
person creating the requisition determines what and how much to order, and the delivery
date. The creation indicator in the requisition shows whether the requisition was created
manually or through Materials Planning. It is displayed in analyses of requisitions and in
the statistics data of a requisition item. Materials Planning can stipulate that a requisition
be resubmitted to Purchasing if it is not processed within a predetermined period. Once
the source of supply is determined, the requisition may have a release strategy assigned
to it. This strategy requires specific authorization before a purchase order can be
created. When the requisition is released, the data from the requisition is copied into a
purchase order with the details from the purchase information record.
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1. Vendor known
Use this procedure if you know which vendor is to receive the order. This procedure is
described later in this section.
2. Vendor unknown
Use this procedure if you want the system to select possible vendors. These
suggestions are then made on the basis of sources of supply that have been predefined
in the system. (Note: the term "source" covers outline purchase agreements, info
records, and source lists).
3. Assigned requisitions
Use this procedure to list the requisitions for your purchasing group that have already
been assigned to a vendor (that is, those requisitions containing a vendor, outline
agreement, or info record as a procurement option). POs can be generated from these
requisitions automatically.
GOODS RECEIPT
Accounting documents
If the movement is relevant for Financial Accounting (that is, if it leads to an update of
the G/L accounts), an accounting document is created parallel to the material document.
In some cases, several accounting documents are created for a single material
document. This might be the case, for example, if you have two material document items
with different plants that belong to different company codes. The G/L accounts involved
in a goods movement are updated through an automatic account assignment.
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At goods receipt, the integration with FI (Financial Accounting) updates the General
Ledger to reflect the increase in the stock value.
• Stock Update. Which stocks are updated in the material master record depends
on the destination of the goods:
• Goods receipt into the warehouse. If the goods are destined for the warehouse,
the system increases total valuated stock and the stock type (for example, the
unrestricted-use stock) by the delivered quantity. The stock value is updated at
the same time.
• Goods receipt into consumption. If the goods are destined for consumption, only
the consumption statistics are updated in the material master record.
• Goods receipt into goods receipt blocked stock. If the goods receipt is posted into
goods receipt blocked stock (see the section Goods Receipts Into Goods Receipt
Blocked Stock), the stock remains unchanged. The goods are recorded only in
goods receipt blocked stock of the purchase order history.
• Goods receipt into a new storage location. If you book goods into a storage
location, which does not yet exist for this material, the storage location data will
automatically be created in the material master record when the goods receipt is
posted.
INVOICE PROCESSING
Invoice verification validates the invoice by matching the purchase order price and
purchase order receipt quantity to the invoice. This also updates the purchase order
history and creates a financial accounting document. The system supports the checking
and matching of invoices. The accounts payable clerk is notified of quantity and price
variances because the system has access to PO and goods receipt data. This speeds
the process of auditing and clearing invoices for payment. After a purchase order has
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been filed, a good receipt made, and a vendor invoice created, the invoice must be
verified before the invoice is posted to the following areas:
• G/L accounts
• Assets
• Cost Centers
• Projects
• Order
VENDOR PAYMENT
SAP's standard system contains the most common forms of payments. Each method
has been defined separately for each country. The payment program has been
developed for international transactions with vendors and customers, so you can carry
out both incoming and outgoing payments. The standard payment methods include:
Check
You can post the check payment manually or via the payment program.
Checks issued by hand need to be dealt with separately in order to create a link between
the check number and the payment document. It is advisable to reserve a separate
number range for manually created checks in order to keep the use and management of
such checks separate from that of automatically created checks.
Transfer
Immediately after receiving the closing invoice, you can carry out a transfer posting of
the clearable down payments. This transaction also supports the transfer posting of
partial amounts. After this transfer posting, the corresponding amount is no longer
displayed in the vendor account and in the General Ledger as a "down payment made",
but rather as a "payment made" in the payables account. This payment made is taken
into account when the invoice is paid, either manually or automatically.
You must carry out a transfer posting of down payments manually in the following cases:
1. You want to prepare your year-end closing. You have received the closing invoice for
a down payment and can no longer clear it with the payment program, since you will not
run the payment program until after you next prepare the balance sheet. In this case,
you clear the down payment with the closing invoice manually.
3. You want to clear a down payment partially. That is, a down payment is cleared with
several invoices, which are paid at different times. You must clear each down payment
amount manually.
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Bill of exchange
You can make payments to your vendor by bill of exchange using the payment program.
You can also post the bill of exchange payment manually.
2. Enter the header data and select the clearing procedure Outgoing payment. On the
bottom line, enter the posting key for posting a bill payable (39 in the standard system),
the number of the vendor account, and the special G/L indicator for the bill posting (B in
the standard system). Select ENTER. This accesses the screen for entering data on the
bill of exchange. The most important fields are:
Enter the due date of the bill of exchange. Your bank pays the bill of exchange on this
date.
3. If you want to post the bill liability to the bank sub-account and the corresponding
clearing account, you enter these two line items first. To do this, you must make the
corresponding G/L account posting on the bottom line of the screen. You can then
change to the screen for processing open items to clear the bill payable.
4. Select Process -> Choose open items. You reach the selection screen for open items.
The system suggests the required data, such as the vendor account number, the
account type, and the company code. You can further limit the items to be processed by
specifying selection criteria.
5. You then change to the screen for processing open items. All further steps for clearing
open items are described in Clearing Open Items.
6. Post the document: The system clears the open payables and posts a bill payable to
the vendor account and the special G/L account.
Once the invoices are posted, Accounts Payable reads and pays all invoices that are
due and are not blocked for payment. The payments are based on information (payment
terms) that is specified in either the purchase order or in the vendor master file. This
information can be changed manually on the invoice.
You specify the terms of payment in the vendor master record. When you place an order
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with the vendor, they automatically appear as default values; however, you can change
them as needed.
Terms of payment can also be entered in the vendor's invoice. These are then the ones
used by the payment program.
Blocking Invoices
When an invoice is blocked, Financial Accounting cannot pay the invoice. The invoice
must first be released in a separate step before it can be processed. An invoice can be
blocked for payment due to one of the following reasons:
Cash discount and blocked invoices: When an invoice is blocked, the period in which the
vendor grants a cash discount may end before the invoice is released. In this case,
blocking the invoice would be a disadvantage, since the payment program cannot
deduct the cash discount. To avoid this, you can update the baseline date for payment
when you release the invoice, so that the cash discount periods can be shifted forwards.
PURCHASING INTERGRATION
The R/3 System consists of various modules that are completely integrated with one
another. This integration allows various departments in a company to share and
maintain the same information. Purchasing is a component of the Materials Management
(MM) module. The MM module is fully integrated with other modules in the R/3 System.
It supports all phases of materials management: materials planning and control,
purchasing, goods receiving, inventory management, and invoice verification. Good
communication between all participants in the procurement process is necessary for
Purchasing to function smoothly. Purchasing communicates with other modules in the R/
3 System to ensure a constant flow of information. For example, it works side by side the
following modules:
Controlling (CO)
Orders for materials and services consumed directly illustrate the interface to the cost
accounting system (Controlling). This is because they can be assigned to a cost center
directly.
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This section provides an overview of materials planning and control and shows how the
latter affects purchasing activities in the SAP system.
Materials planning and control determines how much of which material, component,
goods etc. is needed and when. This activity is the responsibility of the materials planner
or controller.
Deterministic
Consumption-based
Note that in the SAP system both of the above may collectively be referred to as "MRP".
Consumption-based planning
The SAP component Consumption-Based Planning helps the responsible materials
planner (or materials or inventory controller) to determine the following:
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It bases its decisions on what to order on past consumption. The system can generate
requisitions automatically. These can be assigned to a purchasing group (buyer group)
or a materials planner/controller. The materials planner/controller or buyer can then
convert the requisition into a standard purchase order or a release order issued against
a contract.
The Consumption-Based Planning module identifies material shortages using one of the
following methods:
Whether requirements for a given material are determined by reference to the reorder
level or using a forecasting model is defined in the material master record.
Reorder level
Available stock = (stock in hand in the warehouse + current orders) - reserved stock
Releasing Requisitions
This section describes the release procedure for requisitions in Purchasing. (Note that in
this context, "release" means giving approval, or clearance, to go ahead with the
procurement of the materials or services set out in the requisition, and should not be
confused with the issuing of orders against longer-term purchase agreements, which
may also be referred to as "releasing" (US) or "calling off" (UK)).
It discusses how the release (approval) of purchase requisitions is controlled, how you
can determine who must release (approve) a purchase requisition, and how a purchase
requisition is actually released (approved).
Within Purchasing, there are two procedures for releasing purchase requisitions:
Release procedure 1
This procedure serves as a correction and approval procedure for purchase requisitions.
Its aim is to check the data on material, quantity, and dates for accuracy and ensure the
correctness of the specified account assignment and source of supply. Purchase
requisitions are released on an item by item basis.
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Release procedure 2
The aim of this procedure is to replace manual written authorization procedures using
signatures by an electronic one, while maintaining the dual control principle. The person
responsible processes the relevant document in the system, thereby marking it with an
"electronic signature" which can give the document legal force. A purchase order
contains an item relating to 1,000 pieces of Steel 1 for plant 2. The material belongs to
the material class Metal 05. The item has a value of 15,000 dollars. As soon as the item
has been entered, the system passes on the field contents from MM Purchasing to MM
Classification in a communication structure. Classification first selects the relevant
characteristics and then checks the characteristic values.
This procedure is available not only for purchase requisitions but for all other purchasing
documents as well.
Release on an item-by-item basis is only possible in the case of requisitions, not in the
case of the other purchasing documents. The reorder level can either be set manually by
the materials planner/controller or automatically by the system.
Manually
The planner/controller enters the reorder level in the material master record manually.
Automatically
The system regularly compares the reorder level with future requirements. If the reorder
level is too high or too low, it can be corrected using the formula:
Reorder Level
Forecasting Model
Forecasting models identify a pattern of demand for a given material. Their purpose is to
identify how much of a material is required at a given future date based on this pattern.
Constant
Demand values are scattered around an average value.
Trend
Demand either rises or falls steadily over a period of time.
Seasonal
Demand peaks at regular time intervals. These and other forecasting procedures are
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The actual order quantity takes the following data in the material master record into
account:
The lot sizing procedure is used to calculate the order quantity on the basis of the lot
size. The materials planner/controller defines the lot-sizing procedure used for a given
material in the material master record.
Tolerances
Certain tolerances in the material master record also affect the order quantity. The
minimum lot size and the maximum lot size, for example, limit the purchase order
quantity to a certain range. If the material has to be ordered in fixed packaging units, the
rounding value is used to round off the order quantity to the packaging unit size.
For materials procured externally, the system suggests delivery dates based on:
Release date
The release date of a purchase requisition is the date on which it is activated by the
materials planner/controller.
· planned delivery time (in calendar days) - either from the material master record or
from the purchasing info record
· GR processing time (in workdays) defined in the material master record
· purchasing department processing time (in workdays), which is defined for a given
plant
QUOTATIONS
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This section provides general information on how requests for quotation and quotations
are used in MM Purchasing.
A request for quotation (RFQ) is an invitation to a vendor to indicate his terms and
conditions (in particular, his price) for the supply of a material or the provision of a
service by submitting a quotation. As in the case of the purchase requisition, the RFQ
identifies the material, quantity, and delivery date. In addition, the RFQ contains
information about the vendor to whom the RFQ is sent (for example, the vendor's name
and address) and important dates for the RFQ (such as the closing date for applications,
or pre-qualification date, and bid submission deadlines). RFQs can be subject to a
release procedure.
Structure of an RFQ
The RFQ is organized as other purchasing documents. The header contains general
information about the RFQ, such as the vendor address. Each item identifies the
individual materials for which a price is required from the vendor. One main difference
between RFQs and other purchasing document types is the fact that you cannot enter
account assignments for RFQ items.
What is a quotation?
A quotation contains the vendor's pricing and conditions for providing the material or
service stated in the RFQ. In MM Purchasing, the RFQ and quotation are the same
document. You enter the vendor's pricing and conditions in the original RFQ. Then you
can:
· use the price comparison list to help you determine the best quotation
· send rejection letters to the appropriate vendors
· store the pricing and terms of delivery for certain quotations in the info record for future
reference
PURCHASE ORDER
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This section provides general information about purchase orders and how they are
processed with MM Purchasing.
The purchase order represents the formal and final approval of a purchasing transaction
with the vendor. It identifies
• The vendor
• The material or service to be ordered
• The quantity
• The price
• The delivery date and terms of delivery
• The terms of payment
In addition, the purchase order determines whether the ordered material is placed in
stock or consumed directly upon goods receipt. Purchase orders can be subject to a
release procedure.
· Header
It contains information specific to the entire PO. For example, the terms of
payment and the delivery terms are in the header.
· Items
It contains information specific to the material or service. For example:
- Material number or short description ("short text")
- Quantity
- Price
For each item, you can enter additional information such as time-spot schedule lines and
item-specific texts. The PO history menu enables you to monitor deliveries and invoices
received with regard to the item.
Item category
The following are the item categories defined in the standard system:
Standard
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Standard
Items with the item category "Standard" are orders for goods that are to be procured
externally. In this case, goods and invoice receipt are possible.
Consignment
Items with the item category "Consignment" are items relating to goods procured on a
consignment basis. Account assignments cannot be made for material ordered on
consignment. Consignment stocks are managed separately and are not valuated.
Subcontracting
Order items with the item category Subcontracting are used to order finished assemblies
from a subcontractor, for example. Any components the subcontractor requires to
assemble the final product are entered as "material to be provided."
The stock transport order is a mechanism facilitating the transfer of stock from one plant
to another (that is, a transfer involving transport over a longer distance). The stock
transport order is one of the special order types in Purchasing.
Third-party order
Part of a triangular business deal. A third-party order is an order placed with a vendor
instructing the latter to supply goods to or perform a service for a third party (for
example, one of your customers). The third-party order is specified in the item category
field of a requisition or purchase order. The third-party order is one of the special order
types in Purchasing.
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The item category requires an account assignment for materials that are consumed
directly (that is, materials that are not taken into stock). In the case of stock material, an
account assignment is possible, but not mandatory.
PO texts
You can enter text in a purchase order directly or change texts that are suggested by
system. There are two kinds of text:
You define which texts appear in which order on printouts in Customizing. You can enter
several header or item texts, which you can identify by your own codes.
OUTLINE AGREEMENT
Document header:
Items:
You can create your own texts from scratch in an agreement or change a text that has
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been suggested by the system. There are two kinds of agreement text: header text and
item text. The texts are further subdivided into text types, for example, shipping and
delivery instructions. The text type determines the print sequence on the document
printout.
CONTRACT
A contract is a longer-term agreement with a vendor (one of the two forms of "outline
agreement" in the SAP system) to supply a material or provide a service for a certain
period of time. A number of different terms may be used for this concept in purchasing
literature, including "blanket order", "blanket contract", "systems contract" and "period
contract". The contract does not contain specific delivery dates or the individual delivery
quantities. These are specified subsequently in release orders issued against the
contract.
Contract types
When creating a contract, you can choose between the following contract types:
Value
The contract is regarded as fulfilled when release orders totaling a given value have
been issued. Use this contract type when the total value of all release orders should not
exceed a certain amount.
Quantity
The contract is regarded as fulfilled when release orders totaling a given quantity have
been issued. Use this contract type when the total quantity to order over the duration of
the contract is known.
·You can also mix the two methods: you can create a contract by referencing an existing
one and then change or enter some items manually.
SCHEDULING AGREEMENT
The scheduling agreement has similarities with a quantity contract: it states the target
quantity of a material to be ordered from a vendor over a period of time, and the price.
For each material to be procured, you create a scheduling agreement item. For each
scheduling agreement item, you subsequently set up a rolling delivery schedule by
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If you are using scheduling agreements, you can work with or without release
documentation. Working with such documentation affords the advantage that you can
display the valid scheduling agreement releases transmitted to a vendor over a certain
period whenever necessary.
If you work with scheduling agreements without release documentation, the current
schedule is automatically outputted via the message (output) control program.
If you work with scheduling agreements with release documentation, internally you can
make as many changes to the individual schedule lines as you wish. As soon as the
schedule lines for a certain item have been finalized and the schedule is ready to be
transmitted to the vendor, you generate a scheduling agreement release. This triggers
the transmission of the relevant data to the vendor. The information is recorded in the
system, allowing you to verify at any time exactly when you sent which data to which
vendor.
· Streamlines paperwork, shortens processing times - one delivery schedule can replace
many purchase orders or contract release orders.
· Promotes low inventories - you can specify the exact time to deliver, allowing for
minimum stock levels and just-in-time (JIT) deliveries.
· Shorter vendor lead times - because the delivery schedule extends into the future, the
vendor has less need to backlog orders, thus reducing the lead time for a delivery.
· Automatic generation of delivery schedule lines via the MRP system (a precondition for
this is that Purchasing must assign a scheduling agreement as a unique source of
supply using the quota arrangement and source list mechanisms)
The purchasing info record (also referred to in abbreviated form as the "info record") is a
source of information for purchasing. It contains information on a specific material and a
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vendor supplying the material. For example, the vendor's current pricing is stored in the
info record.
The info record contains quotation and ordering data. The data in the info record (for
example, prices) is also used as default data for purchase orders. For example, you
can store the current and future quotation conditions (discounts, fixed costs etc.) in
the info record, in order to be able to copy them into Pos. You can also maintain the
vendor's conditions directly in the info record.
• Info records with a material master record (e.g. for stock material) this type of info
record represents the relationship between a material or service (for which a
master record exists) and a vendor.
• Info records without a material master record (e.g. for consumable materials) this
type of info record represents the relationship between a material or service for
which no master record exists and a vendor.
A subcontractor info record contains ordering information for subcontract orders. For
example, if you subcontract the assembly of a component, the subcontractor info record
would include the vendor's (subcontractor's) price for assembling the component.
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electricity through the mains). The info record contains the vendor's price for the
consumption of such commodities by the buyer ("pipeline withdrawals"). You can store
withdrawal/usage prices for different validity periods.
• General data
Data that is valid for each purchasing organization or each plant (for example, origin
data, reminder levels, and the order unit).
• Organizational data
Data such as prices and pricing conditions that you can store for the relevant purchasing
organization or plant
The info record contains the following text types: Info record memo; an internal note that
is adopted in the PO item. The info record memo is not printed out
This text serves to describe the order item and corresponds to the PO text in the
material master record. It is adopted in the PO item and included in the printout.
Short text
For material that has a material master record, the short text (short description) is copied
directly from the material master record into the PO or the outline purchase agreement.
For an info record linked to a material master record, you can specify for each
purchasing organization whether
Or
• Both the info record PO text and the material master record PO text are to be
displayed and printed in purchasing documents. Both texts are displayed and
printed if the indicator No m. text is not set.
SOURCES OF SUPPLY
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Source list records and quota arrangements are used in determining the effective source
of a material. Source determination is the process of assigning a particular source of
supply to a purchase requisition (or vice versa).
A source list specifies the allowed (and disallowed) sources of supply for a material
within a plant. It also indicates the period for which the source is valid. Each source is
defined in the source list by means of a source list record. The source list offers you the
following options:
MASTER CONDITIONS
Master conditions are conditions that determine the effective price in the purchase order.
They serve as a central repository of pricing for purchase orders. They are automatically
included in the price calculation in the purchase order if the PO references a contract or
an info record, or if it meets certain criteria defined in the extended conditions.
Extended conditions are more flexible than master conditions in info records or contracts
because you can define which criteria they must meet before they are applied to a
purchase order.
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The documentation on outline agreements and purchasing info records shows how the
conditions specified in outline agreements and purchasing info records, respectively,
influence the calculation of the effective price in the purchase order.
In this chapter, you will learn how to specify conditions that apply to the pricing of all
orders for any material with a vendor, not only for a specific material or material group as
is the case with outline agreements and info records.
Conditions technique
The conditions technique is used to define pricing across applications. For example, it is
used in the SD (Sales & Distribution) module as well as in the MM module. The goal of
the conditions technique is to calculate the effective price in a purchase order. Master
conditions are simply conditions defined with the conditions technique. While this section
is not essential to your understanding of master conditions in purchase orders, it does
provide useful background information on the mechanism for determining pricing in
Purchasing.
• Condition types
• Condition tables
• Access sequences
• Calculation schema (pricing procedure)
These concepts are important for understanding how the system determines pricing in
master conditions.
Condition type
Condition table
A condition table defines the combination of fields (the key) that identifies an individual
condition record. The system stores the condition data you enter in the form of a
condition record. For example, when you enter a vendor's pricing in a purchasing info
record with reference to a material master record, the key of the condition table includes
the vendor number and the material number.
The actual pricing information - such as the gross price and any discounts - is stored in a
condition record under this key.
Access sequence
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An access sequence is a search strategy that the system uses to find condition records
for a particular condition type. The access sequence determines the sequence in which
the system searches condition records for a valid price.
A calculation schema (also known as a pricing procedure, but the same mechanism can
also be used to calculate tax amounts, period-end rebates, or costs, for example) is a
group of condition types, defined in a particular sequence. It enables the system to
determine that a particular set of condition types, in a specified sequence, apply in given
circumstances. For example, the calculation schema determines which condition types
apply to the gross price. The calculation schema also determines that the condition
types for discounts are calculated in the effective price automatically.
With MM Customizing, you can define price calculation schemas for specific vendors
and/or purchasing organizations. The system searches for pricing data in condition
records. The criteria it uses in the search depend on the keys in the condition table. The
sequence of the search depends on the access sequence specified for the condition
type. Which condition types are used in the search are defined in the calculation
schema.
For example, suppose that you have just created an info record that specifies a 10%
discount from the gross price. This condition is then stored in a condition record under
the vendor and material number. When the material is ordered from the vendor in a PO,
the system searches for the discount using the access sequence.
The calculation schema ensures that the 10% discount is deducted from the gross price
instead of the net price during the price calculation process.
Prices
With this method, you can list or maintain the conditions that determine the net price in a
single info record or contract. You can enter the going market price for a material.
With this method, you can enter discounts or surcharges that apply to all info records or
contract meeting your purchasing criteria
If your company has defined its own condition types, access sequences, and condition
tables, you can define master conditions that use these pricing elements.
Price changes
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ESM Functionality
• A service master database, in which the descriptions of all services that are to be
procured can be stored.
• A separate set of service specifications can be created for each concrete
procurement project or proposed procurement in the purchasing document.
Sets of service specifications may include both items with services and items with
materials.
• When creating such specifications, the user does not have to list individual
services manually. Instead, the data is simply copied from the master data. Use
of this referencing technique means that data only has to be entered once. The
manual entry effort is reduced to a minimum.
• There are two ways of entering services:
o as planned services
o as unplanned services
Planned Services
By "planned services", we mean services whose precise nature and intended scope is
already known at the beginning of a procurement project. At the time they are requested,
they are either entered with the aid of a service master record, or set out in service
specifications as short or long texts. Prices and quantities are stipulated in both cases.
Unplanned Services
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Services may be performed up to a value not exceeding these limits. This allows you to
exercise a degree of cost control in such situations.
You can set a value limit at the uppermost level (for example, 5 million dollars for the
construction of the aforementioned office building). In addition, you can set limits for
individual contracts within the project (for example, 200,000 dollars for masonry works
and 250,000 dollars for electrical installations). The system checks adherence to both
these sub-limits and the overall limit. When the services have been performed, they are
recorded in entry sheets and then accepted. The accepted service entry sheet
constitutes the basis for subsequent invoice verification in the case of services.
Organizational Levels
The organizational level at which services are procured is the purchasing organization.
Depending on the size of the enterprise and the way Purchasing is set up, a purchasing
organization can assume responsibility for all procurement (central purchasing) or the
purchasing function can be split up among several purchasing organizations, each of
which procures the particular services that have been assigned to it. The individual
purchasing organizations can be subdivided into various purchasing groups (groups of
buyers), each with its own responsibilities.
Master Data
This section discusses the master data utilized by MM External Services Management:
Service master
The service master database (comprising all the individual service master records) is
used to store the descriptions of all services that have to be procured on an ongoing
basis. In addition to the description of the service, a service master record contains
information necessary for its procurement (for example, texts, units of measure, prices).
The service master serves as a source of default data provided by the system during the
subsequent creation of service specifications (in connection with a bid invitation
procedure, for example). Here you can also maintain services from general,
standardized sets of service specifications (known as standard service catalogs) such as
the one for the construction industry. The individual service master records can be
grouped according to different service types (for example, by sector or trade).
SAP supplies a user exit enabling you, for example, to check whether the service
number entered corresponds to the number in the standard service catalog.
Vendor master
The vendor master database (comprising all the individual vendor master records)
contains information on service providers. In addition to the name and address of the
service provider, an individual vendor master record contains data on
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As the vendor is also regarded as a creditor in Accounting, the vendor master record
also contains accounting data such as the control account. The vendor master record is
therefore maintained by both Purchasing and Accounting.
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Purchasing Documents
This section introduces the documents used in the procurement of services and
discusses the structure of these documents in the SAP System.
Purchase requisition
Quotation
The quotation (bid) contains a vendor's prices and conditions for the supply or
performance of the materials or services specified in the RFQ.
Contract
Service specifications are entered in the contract (in exactly the same way as in
the PO) at document item or sub-item level.
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The service entry sheet is used to record services as they are actually
performed by the vendor or subcontractor. In the case of planned services, the
services actually performed are recorded in the entry sheet with reference to
the specifications already entered in the PO. In the case of unplanned services
(defined only in the form of money limits in the PO), the service entry sheet
constitutes the document in which precise specifications are entered into the
system for the first time.
VENDOR EVALUATION
The Vendor Evaluation component has been completely integrated into MM Purchasing.
Information such as delivery dates, prices, and quantities can be taken from purchase
orders. Vendor Evaluation also uses data from Quality Management, such as the results
of incoming inspections or quality audits. It also accesses basic data in Materials
Management, such as goods receipt data from Inventory Management, and data from
the Logistics Information System (LIS).
The Vendor Evaluation System supports you in the optimization of your procurement
processes in the case of both materials and services.
Procurement of Materials
The system helps you select sources of supply and facilitate the continual monitoring of
existing supply relationships. It provides you with accurate information on prices, and
terms of payment and delivery. By evaluating vendors, you can improve your
enterprise's competitiveness. You can quickly determine and resolve any procurement
problems that may arise on the basis of detailed information and in collaboration with the
relevant vendors.
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Procurement of Services
You can check the reliability of the vendors from which you procure services on a plant-
by-plant basis. You can determine whether the vendors perform the services within the
specified timeframes and appraise the quality of the work carried out.
The SAP Standard System offers you a scoring range from 1 to 100 points, which is
used to measure the performance of your vendors on the basis of five main criteria. You
can determine and compare the performance of your vendors by reference to their
overall scores. The main criteria available in the standard system are:
·Price
·Quality
·Delivery
·General service/support
These four main criteria serve as a basis for the evaluation of vendors from whom you
procure materials.
You can also define other or further main criteria, as required. You can assign different
weights to the individual criteria. The vendor's overall score is computed taking into
account the weighted scores awarded for each of the main criteria. The Vendor
Evaluation System ensures that evaluation of vendors is objective, since all vendors are
assessed according to uniform criteria and the scores are computed automatically. In
this way, subjective impressions and judgments can be largely avoided. To create a
detailed evaluation, each main criterion can be divided into several sub criteria. The
standard system provides you with certain sub criteria, which suffice as a basis for
evaluation, but you can also define your own additional sub criteria.
The scores for the sub criteria are calculated in three different ways.
Automatic
Semi-automatic
You enter individual scores for important materials, or for the quality and
timeliness of a service performed yourself. The system then calculates the
higher-level score from these.
Manual
Analyses
The results of vendor evaluation are displayed in the form of analyses. For example, you
can generate ranking lists of the best vendors according to overall score or ranking lists
for specific materials. Changes to evaluations are recorded in logs, and you have the
option of printing out evaluation sheets.
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The organizational level for Vendor Evaluation is the purchasing organization: Each
purchasing organization evaluates the vendors that have been assigned to it. The
system does not support a comparison of Vendor Evaluations at the higher company
code level.
Overall Score
Main Criteria
Sub criteria
Scoring Range
Weighting of Scores
Overall Score
Main criteria
The main criteria form the basis for assessing the performance of a vendor. The system
calculates the overall score for a vendor from the main criteria scores. You can evaluate
vendors according to several main criteria, which you consider important. The scores for
the main criteria are a more accurate representation of the performance of a vendor than
the overall score.
Subcriteria
Subcriteria are the smallest units to which scores can be assigned in Vendor Evaluation.
The system calculates a score for the higher-level main criterion based on the scores a
vendor receives for the various subcriteria. There are three types of subcriteria:
• Manual
• Semi-automatic
• Automatic
They are named after the different methods of scoring. The individual scoring methods
fulfill different purposes and involve different kinds of maintenance.
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Scoring Range
Weighting of Scores
The scores a vendor is awarded for main criteria can be weighted differently to reflect
differences in the significance of the criteria.
Weighting Factor
By using weighting factors, you can increase or reduce the importance of certain criteria
when a score is calculated at the next highest level.
Suppose a vendor receives 80 points for the criterion Price and 80 points for the criterion
Service. Since the price of the material is more important to you than the service the
vendor provides, you assign the criterion Price a weighting factor of 3 and the criterion
Service a factor of 1. The 80 points for Price are then worth three times more than the 80
points for Service when the overall score is calculated.
Weighting Keys
A weighting key is an identifier under which the weighting factors for a number of main
criteria can be grouped together and saved. If you know that you will want to carry out an
evaluation repeatedly with certain main criteria and certain weighting factors, you can
save this combination under a weighting key. When you carry out the next vendor
evaluation, just enter the relevant weighting key instead of entering a weighting factor for
each individual criterion. The system then automatically sets all the weighting factors.
Evaluating Vendors
The evaluation of vendors is subject to certain preconditions. Before you begin, you
must consider the following:
Below are the steps you must carry out to evaluate a vendor:
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