Procurement

1.
2.
3.
4.
5.
6.
7.
8.

Procurement Process Cycle Overview

Types of Purchasing Documents
Set Tolerance Limits for Price Variance
Maintain source list
Create Purchase Requisition (PR)
Create Request for Quotation (RFQ)
Maintain Quotations
Create Purchase Order for stock materials

Page 1 of 17

1. Procurement Process Cycle | Procure to Pay process

Procurement Process (Procure to Pay process): Every organisation that operates a
business has to purchase materials such as raw materials, services etc. The procurement
process has become part of todays efficient business operation. The Company can procure
those materials as in-house production or external procurement.

Download P2P Tutorials

Procurement Process Cycle
Procure to pay Process consists the following processes.
1.
2.
3.
4.
5.
6.
7.
8.
9.

Material requirement planning

Vendor Selection
Request for Quotation
Purchase Requisition
Purchase Order
Goods Receipt
Goods Receipt Invoice
Invoice Verification
Payment to Vendors

1. Material requirement planning (MRP) :Materials requirements planning (MRP)

refers to the technique of using a projected manufacturing production schedule to figure out
what supplied materials you will need, and when you will need them. Materials requirements
planning (MRP) type controls the MRP procedure, pricing, material valuation. Material
requirement planning carried out by MRP controller in production department.
2. Vendor selection :Vendor selection is one of the important step in procurement process. With the help of
obtained quotations from sources and by comparing them, vendors are selected
3. Request for Quotation :Requesting potential vendors to submit a quotation for a material or services. Quatation
contains the vendors terms and conditions and constitutes the basis for vendor selection

Page 2 of 17

4. Purchase Requisition :A purchase requisition is an internal request to purchasing. You ask the buyer to provide a
certain quantity of a material or service on a certain date.A purchase requisition can be
created automatically by Material Requirement Planning (MRP) or manually created. PR
converts to RFQ, PO or outline agreement. Purchase Requisition forms include the following
information

Material Qty, description of goods & service and total value.

Department Account number.
Signature by an Authorized Department.
Attached Quote from the vendor.
Delivery instructions.
Attach Quote from the suggested vendor.

5. Purchase Order :Purchase Order (PO) is a formal request to a vendor to supply certain materials or services
under the certain conditions. A Purchase Order (PO) can be created with reference, or without
reference to a purchase requisition, a request for quotation, or another purchase order.
POs usually specify terms of payment, incoterms, delivery date, specifications, material qty,
price and reference or part numbers.
Types of purchase orders in procurement process:- Standard PO, Planned PO, Contract PO.
6. Goods Receipt :Goods Receipts (GR) is created to reflect the Goods Receipts for the specified material
ordered from a vendor using Purchase Order process. After receiving the goods the company
can record the following information, this information can be used for accounting, stock
check and rotation, to return any goods if there is a problem

What goods were delivered,

Which vendor delivered the goods.
Who, how, when goods were delivered and received the goods.

7. Goods Receipt Invoice (GRIN) :Goods receipt Invoice process is one of the important process in procurement process
cycle. It is matching the goods that a company receives with the company PO (purchase
order). It involves checking the goods are not damaged and fit for use, verifying the price,
quantity, payment terms. Goods movement are entered in to the system with reference of
Purchase order and goods receipt material documents are posted, automatically appropriate
general ledgers are posted and stock accounts are updated.
8. Invoice Verification :-

Page 3 of 17

After GRIN process, next process of procurement to pay is invoice verification. It plays an
important role in procurement process and Materials Management Module which performs
the following tasks

A Vendor Invoice can be created with reference to a Purchase Order, a Goods

Receipt, a Delivery Note..
Invoice is verified in-terms of prices, quantity,
Necessary approvals by project managers

After verifying all the data, the invoice is posted and the data is saved in the system. The
system updates the invoice data in Materials Management and Financial Accounting.
9. Payment to Vendors:The last step in procurement process cycle is payment to vendors and it is also known
procure to pay process. Vendors are get paid as per payment terms. In this fast technology
world, comanies can pay through many methods to vendors. For example through Net
banking,Check payment etc

2. Types of Purchase Documents

Page 4 of 17

3. Set Tolerance Limits for Price Variance in SAP

Tolerance Limits for Price Variance
The following tutorials guides you to maintain tolerance limits for price variances in SAP.
SAP R/3 IMG Path: SPRO -> IMG -> Materials Management -> Purchasing -> Purchase
Order -> Set Tolerance Limits for Price Variance

One the change view tolerance limits overview screen, Select new entries

Standard SAP provides tow tolerance keys PE (price variance purchasing and SE
(Maximum cash disc. deduction, (purchasing))
Select tolerance key
Enter your company code
Update tolerance limit percentage

After updating the data, choose save button to save the data.
Page 5 of 17

4. Maintain source list in SAP

Maintain source list
The following step guides how to maintain source list in SAP.
Step 1: Access the transaction using one of the following navigation options.
SAP R/3 Path: SAP Easy Access > Logistics > Materials Management > Purchasing >
Master Data > Source List > Maintain
Transaction Code: ME01 Maintain
ME03 Display
ME04 Changes
Step 2: On the Maintain source list: initial screen enter the following details

Enter material number that you to maintain the source list.

Enter respective plant code.

Step 3: On themaintain source list: overview screen enter the following details
1.
2.
3.
4.
5.

Enter the valid period till until which you can procure this material from this vendor.
Enter vendor code in the vendor field..
Enter respective purchasing organization.
Select fixed source field if the vendor is fixed.
Select block source of supply field if the vendor is blocked for procurement for this
material.
6. Enter 1 in to be included in MRP run.

Page 6 of 17

After updating all the mandatory fields, choose save icon to save the entries. Message will be
displayed as source list changed.

Page 7 of 17

5. Create Purchase Requisition (PR) for Stock Material in

SAP
Purchase Requisition for Stock Material
Purchase requisition (PR) is an internal request to purchasing. You ask the buyer to
provide a certain quantity of a material or service on a certain date. A purchase requisition
can be created automatically by Material Requirement Planning (MRP) or manually created.
PR is created to indicate purchase department to procure materials or services with details
like how much quantity is required, what type of materials or services to be purchased, when
required.
SAP R/3 Menu Path: SAP menu > Logistics > Materials Management > Purchasing >
Purchase Requisition > Create
Transaction Code: ME51N Create PR
ME52N Change PR
ME53N Display PR
Step 1: On the Create Purchase Requisition screen, enter the following entries
1.
2.
3.
4.
5.
6.
7.

Select document type for PR

Enter material code in the material field
Enter quantity of material
Update delivery date
Enter respective plant code
Enter corresponding storage location
Enter requisitioner user id

Step 2: Update purchase requisition text such as Department Account number, Signature by
an Authorized Department, Delivery instructions, terms and conditions, references etc.

Page 8 of 17

After updating all the mandatory fields, click on save button to save the purchase requisition.

Page 9 of 17

6. Create Request for Quotation (RFQ)

Create Request for Quotation
Request for Quotation (RFQ) is used to enquiry in market to obtain quotations from
prospective vendors. RFQ can be created with reference to Purchase Requisition, Outline
Agreement (Contract) and another RFQ.
SAP R/3 Path: Logistics > Material Management >Purchasing >RFQ/quotation >Request
for Quotation > Create
Transaction Code: ME41
Step 1: On the Create RFQ: Initial Screen, enter the following data.

Enter the RFQ type as AN

Enter the Quotation Deadline
Enter Purch. Organisation and Purchasing group
Enter plant and storage location

Step 2: Enter the Collective No to track of all RFQs related to particular instance and
reference data.

Page 10 of 17

Step 3: On the Create RFQ: Item overview screen, enter the following data.
1.
2.
3.
4.
5.
6.

Enter the appropriate item category

Enter the Material No
Enter the RFQ Quantity
Enter the Deliv. Date
Enter the Plant code
Enter the Submission date

Step 4: Click on vendor address button on the tool bar, on Create RFQ: Vendor
Address screen
Enter vendor code and press enter and the vendor details will be displayed automatically.

Page 11 of 17

Step 5: Choose save button to save the Request for Quotation (RFQ). Vendor Address
screen allows to create same RFQ data to a new vendors.

Similarly create RFQ for other vendors in the same screen and RFQ Nos will be generated.

Page 12 of 17

7.

How to Maintain Quotation in SAP

Maintain Quotation
The following step guides you to maintain quotation in SAP step by step.Vendor
communicates price for material and the Request for Quotation(RFQ) needs to be updated in
SAP.
Step 1: Access the transaction using one of the following navigation options
SAP R/3 path: Logistics > Materials Management > Purchasing> RFQ/quotation >
Quotation > Maintain
Transaction Code: -ME47
Step 2: On the Maintain Quotation: Initial Screen, enter the RFQ and press enter to
continue

Step 3: Select line item to enter the details quantity and date, update vendor details

Page 13 of 17

After updating all the mandatory fields, choose save button to save the quotation.

Successfully quotation are maintained in SAP.

Page 14 of 17

8. How to Create Purchase Order (PO) for Stock Material

in SAP
Create Purchase Order (PO) for Stock Material
SAP R/3 Menu Path: SAP Menu > Logistics > Materials Management > Purchasing >
Purchase Order > Create>Vendor/Supplying Plant Known
Transaction Code: ME21N Create PO
ME22N Change PO
ME23N Display PO
If you want create purchase order with reference to the purchase requisition (PR),
> select variant and slect purchase reqstion option,
> Enter the PR number and select exeecute button
> Select PR # and select adopt button, then system will automatically adopt all the data from
purchase requisition

Enter vendor code in the vendor field

Enter purchase orginization

Enter new price of the material and currency
Update storage location
Enter requisitioner user name

Page 15 of 17

Select account assignment tab under item option and update the following data

Enter appropriate G/L code

Enter business area
Enter WBS element

Select invoice tab and update tax code

Select delivery /invoice tab and update payment terms and incoterms

After after all the mandatory fields, press save button to save the PO data.

Page 16 of 17

Page 17 of 17