Procurement Cycle: 4. Purchase Order Processing (part 1)

In the previous step, the buyer has selected the vendor which will provide the material/service needed in PR. Now, the buyer needs to create a Purchase Order (PO) based on the PR and the reference document (that can be an contract, an info record, or a quotation).

Purchase Order (PO) is a formal document that issued by a company to request materials/services to a vendor with certain conditions agreed, such as the materials/services specification, quantity, delivery date, price, terms of delivery, terms of payment, etc.

In SAP ERP software, PO can be created from various ways, such as:

• From ME57 t-code.
  
  
  ME57 is a t-code to Assign and Process Purchase Requisitions. With this t-code, buyer can display list of PRs that he needs to process. The buyer can select the PR items that will be processed and check whether these items have existing source of supply documents (such as contract or info record) by clicking “Assign Automatically” button.
  
  If there is existing source of supply that can be used to order the PR items, the buyer can directly create a PO from this t-code by clicking the “Assignment” and then “Process Assignment” button. There will be a pop up window like this:
  
  
  
  The buyer needs to fill the “Order Type”, “Purchase Order Date”, “Purchase Order number (in the case of external number assignment)”, “Purchasing group”, and “Purchasing Organization” fields.  Those fields will be explained later in this article. After pushing the OK button, SAP ERP will redirect the buyer to the ME21N (Create Purchase Order) t-code screen.
  
  
• Directly from ME21N t-code.
  
  
  ME21N is t-code to Create Purchase Order. It can be accessed from ME57 t-code (as explained above) or directly through SAP Menu tree or SAP command field.
  
  In SAP ERP software, it is possible to create PO with or without reference. It depends on your business process. Usually, PO is created by referring to PR and a source of supply document (which can be a contract, an info record, or a quotation). In ME21N screen, the buyer can copy the data from PR and source of supply document by simply entering the PR and source of supply documents number in the corresponding fields and hit enter. By doing so, the buyer does not need to retype the data.

Like other purchasing documents (RFQ, contract, scheduling agreement), PO consists of document header, one or more items, and additional data of each item.

Purchasing Documents Header

PO and other purchasing documents header contains information that refers or relevant to the entire document. The RFQ, contract, scheduling agreement, and PO purchasing document header information are stored in the EKKO table. There are more than 120 fields on the EKKO table (in SAP ECC 6.0 version), while on previous version there are less fields (in SAP 4.6C version, there are about 70 fields). Some of them are relevant to PO and some are not (such as “Deadline for submission of bid/quotation” and “Binding period for quotation” that only relevant to RFQ/Quoation).

In SAP ERP standard, some important purchasing document header data that relevant to a PO are:

• MANDT - Client: the highest organizational unit in SAP in which the PO exists.
  
  
• EBELN – Purchasing document number: the identifier of the PO. It must be unique in a client. EBELN and MANDT combined are the primary keys of EKKO table. We can configure whether the purchasing document number can be input by the PO creator (external numbering) or determined by the system (internal numbering).
  
  
• BUKRS – Company Code: The organizational unit in SAP in which the PO exists. It determines the chart of account to which Goods Receipt (GR) and Invoice Receipt (IR) transactions of the PO are posted.
  
  
• BSTYP - Purchasing document category: an identifier to differentiate between purchasing document categories. In standard SAP ERP, there are four categories:
  
  
  • A: Request For Quotation (RFQ)
  • F: Purchase Order (PO)
    
  • K: Contract
    
  • L: Scheduling Agreement
  As purchasing documents from various categories are stored in the same table, this field can be used in ABAP programming to determine whether a record in EKKO table is an RFQ, PO, contract, or scheduling agreement. In this article, the focus is on the purchasing document with “F” category (PO).
  
  
• BSART - Purchasing document type: an identifier to differentiate between groups of purchasing documents that has same attribute (such as number assignment, field selection, etc). A group of purchasing documents with same document type will have same behavior. So, with document type, we don’t have to configure the behavior for each Purchasing document. We only need to configure the behavior for each purchasing document type. In standard SAP ERP there are some default PO document types that can be used for different purpose, such as:
  
  
  
  • “NB – standard PO” document type. PO with this default document type is used to procure a material/service externally, such as from 3rd party supplier/vendors, or from subsidiary or related company.
    
  • “UB – stock transport order” document type. PO with this default document type is used to procure a material internally, such as from other plant of the same company.
  
  We can create or edit our own document type as our own requirement with “OMEC” t-code or “SPRO” t-code menu: Materials Management – Purchasing – Purchase Order – Define Document Type.
  
  PO document type determines several things, such as:
  
  
  • Item number interval.
    It defines the default interval size of one PO item number with the next one. For example, in the standard SAP ERP, the item number interval is 10. It means when we create a PO item without filling the “Item Number of PO” field (on ME21N screen), the first one’s “Item Number of PO” will be 10, the second one’s will be 20, the third one’s will be 30, and soon.
    
    If you want to insert an additional item between the first and the second item, you can just create it on the last record/row, then fill the “Item Number of PO” field with the value that lies between 10 and 20, such as 15. When you hit “enter” the new item will be placed in the second row (between item 10 and 20).
    
  • Whether we can use internal number assignment, external number assignment, or both of them.
    
    Internal number assignment means that the PO number is determined by SAP, with sequential numbering. When a user creates a PO, he can’t fill the PO Number field.
    External number assignment means that the PO number is determined by the creator of the PO. When a buyer creates a PO, he must fill the PO Number field.
    The number of a PO must be unique. There can’t be more than one PO with the same number.
  • Number range: the allowed interval of PO number.
    
    For each internal and external number assignment we have to define the allowed interval of PO number.
    For example, a PO document type can have both assignments.
    In the case of internal number assignment, the number range interval is from 4500000000 to 4599999999. SAP will determine the PR number sequentially in that range, refers to the last PO number created.
    In the case of external number assignment, the number range interval is from 4200000000 to 4299999999. PO creator must fill the PO number field with the value in that range which has not been assigned to other PO.
    
  • The screen layout of PO document.
    
    Document type combined with other field selection keys (such as: transaction, activity type, item category/document category, function authorization/release status, and subitem/creation indicator) determines which fields are “required”, “optional”, “displayed only”, or “hidden” in a PO document.
    
  • The allowed item category.
    
    Item category is a key defining how the procurement of a material or service item is controlled.
    There are 7 standard item category in SAP ERP which are: blank (“standard”), K (“consignment”), L(“subcontracting”), B (“Limit”), S (“Third party”), U (“Stock transfer”), and D (“services”).
    Item category combined with other field selection keys determines the field selection and whether any additional data screens are shown such as component (L), limit (B), customer (S), services (D), etc. In addition, it determines whether a goods receipt or invoice receipt is to follow.
    
  • The linkage purchase requisition - document type.
    
    A PO is usually created by referring to purchase requisition (PR). We can set that a specific PO document type can only be processed by referring to the specific PR document types.
    The linkage purchase requisition document type is set for each item category allowed in PO document type configuration.
  
  We can set in SAP that the PO must be approved or released before it can be used in subsequent function (print, goods receipt, invoice receipt, etc). Unlike PR release strategy, PO release strategy can only be done in header level (overall release), cannot be done in item level (item-wise release).
  
  PO document type can also be used as:
  
  
  • A characteristic in determining Release Strategy, so we can distinct the approval needs for each PO document type.
    
  • An authorization object of a role, so we can restrict that a user with specific role can only create/edit/display a PO that has a specific document type. The authorization object is M_BEST_BSA (Document Type in Purchase order).
  
  
• AEDAT - Date on which the record was created: PO creation date, which is copied from system date automatically when the PO is created (saved at the first time).
  
  
• ERNAM - Name of Person who Created the Object: the SAP user of the PO creator.
  
  
• LIFNR - Vendor's account number: the vendor number to which the PO items are ordered.
  
  
• ZTERM - Terms of payment key: Key for defining payment terms composed of cash discount percentages and payment periods.
  
  
• EKORG – Purchasing Organization: the Purchasing organization which issues the PO.
  
  
• EKGRP – Purchasing Group: the purchasing group which issues the PO.
  
  
• WAERS – Currency key: the currency that is used in the PO.
  
  
• WKURS - Exchange rate: the exchange rate used to translate the PO currency into the local currency. If the PO currency key is the local currency, then he exchange rate will be 1.
  
  
• KUFIX - Indicator: Fixing of exchange rate: Yes or No. If yes, then the PO currency and the exchange rate cannot be changed during invoice verification.
  
  
• BEDAT - Purchasing document date: PO date. It can be different with PO creation date.
  
  
• VERKF - Responsible salesperson at vendor's office. It’s copied from vendor master data.
  
  
• TELF1 - Vendor's telephone number. It’s copied from vendor master data.
  
  
• INCO1 - Incoterms (part 1): commonly used trading terms that the company (buyer) and vendor (seller) agree to follow about the shipping transaction to be completed. The standards are established by the International Chamber of Commerce (ICC), such as Free on Board (FOB), Cost, Insurance, and Freight (CIF), Delivered cleared by customs (DDP), etc.
  
  
• INCO2 - Incoterms (part 2): Additional information for the primary Incoterm. For example, if the primary incoterm is FOB, the incoterm (part 2) can be “Dallas”.
  
  
• KNUMV - Number of the document condition. PO condition is stored in another table, which is KONV. The link between EKKO and KONV table is this KNUMV field.
  
  
• FRGSX - Release strategy: Release strategy that is assigned to the PO.
  
  
• FRGKE- Release indicator: specifies whether the PO has been released or not.
  
  
• MEMORY - Purchase order not yet complete: specify whether the PO has been complete or not (on hold). If PO is “on hold”, it can't be printed, GR, or Invoiced.
  

In the next article I will explain about PO item data.

.. Read More ..

Procurement Cycle: 3. Vendor Selection

Vendor Selection is the third step of a procurement / purchasing cycle.

If, in the previous step about source of supply determination, there are some outline agreement or info record documents that can be used as references to create a PO, the buyer can select or choose which vendor that will be appointed to provide the material/service at this time.

If there is no outline agreement or info record documents that can be used as references to create PO, the buyer will send the RFQ documents to one or some vendors. The vendors will send their quotations which include the information about the price, delivery terms, terms of payment, etc that they offered to the company. The buyer can input that information into SAP with ME47 t-code.

Price Comparison

After all vendor’s quotation have been maintained in SAP, the buyer can perform the Price Comparison transaction with ME49 t-code. With this t-code, SAP ERP will show the list of Quotations in one bidding process (by entering all the RFQ numbers or the collective number of the bidding on the initial screen), complete with the price and delivery date of each quotation.

SAP can also calculate the mean (average) of the price offered by all vendors. In this transaction, the buyer can also save the mean value of Quotations price as “market price”. Market price of a material can be seen with MEKH t-code. The market price is used as the basis for valuating the price level of a vendor and is called up for vendor evaluation. Vendor evaluation is an important process in Purchasing to improve the strategic and long-term vendor relationships.

If needed, the buyer can negotiate with one or more vendors about their offering. If the vendors agree, they can submit their updated quotation, and the buyer perform the maintain quotation (ME47) transaction for the updated quotation.

The buyer or other responsible person can choose which vendor should supply the material/service specified in the RFQ. The usual aspects that usually used in determining the winning vendor of a bidding process are:

• The price condition (gross price, discount, surcharge, net price)
• The delivery date
• Terms of payment
• Incoterm
• Others, such as technical score, warranties, after sales service, vendor evaluation score, etc.

The winnning vendor then will be given a Purchase Order (PO) document that refers to the quotation.

In the next article I will explain more about PO processing.

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Procurement Cycle: 2. Source of Supply Determination

In the previous posts I have written about procurement cycle and the first step of it (the requirement determination). In that step, user’s requirement is recorded as a Purchase Requisition (PR) document in SAP ERP. This PR needs to be processed by the buyer into a Purchase Order (PO) in the case of external procurement, or a Stock Transport Order (STO) in the case of stock transfer between plants. In this post I will explain more about general process of source of supply determination for external procurement PR.

PR item with source of supply

In the PR, user can propose source of supply of his requirement. The proposal can be an outline agreement or an info record. If the buyer agrees with the proposal, he can directly create a PO from that PR referring to the source of supply proposed. If he doesn’t agree with the user’s proposal, the buyer can find other source of supply for that PR item by himself. It can be an existing outline agreement or info record. Those can be done with ME57 t-code (Assign and Process Purchase Requisition).

Outline agreement is a longer-term arrangement between a company and a vendor concerning the supply of materials or the performance of services over a certain time frame (validity period) on the basis of predefined terms and conditions (such as unit price, delivery terms, terms of payment, etc).

An example of processing PR referring to an outline agreement:

A company has an outline agreement with a vendor that valid for a year (let say valid until 31.12.2010). In the outline agreement, the vendor agrees to supply the company the material “M” with 100 USD unit net price. When a user creates a PR to request the material “M”, he can assign the outline agreement to the PR item as source of supply. Then the buyer can directly create a PO for that PR referring to the outline agreement (with 100 USD as unit price and other terms and condition agreed in the outline agreement). With this source of supply, the buyer does not have to search the possible vendor for the material at every time a user requests the material “M”, so he can save PO processing time. In SAP there are two types of outline agreement which are Contracts and Scheduling agreements. I will write a post about the outline agreement in detail later.

Info record is one of the master data in SAP ERP Purchasing besides material and vendor master data. Info record links a material with a vendor in a purchasing organization or plant. Info record stores the general, conditions, purchasing, and text data of a material that is supplied by a vendor. For example: in info record of material “X” and vendor “V”, the unit net price is 105 USD (which is valid to the next two months), incoterms is DDP, etc. When a user creates a PR to request material “M”, he can assign the info record as source of supply of the PR item. Then the buyer can directly create a PO for that PR referring to the info record (with 105 USD as unit price and other terms). With this source of supply, the buyer does not have to search the possible vendor for the material at every time a user requests the material “M”, so he can save PO processing time.

Info record can be created or updated manually (with ME11 or ME12 t-code), or from other documents such as quotation, outline agreement, purchase order, etc. In fact, in the previous example of outline agreement as source of supply, SAP determines the conditions in the PO created from the info record (that is created/updated when the outline agreement is created/updated), not directly on the outline agreement document. I will write a post about the info record in detail later.

PR item without source of supply

If the PR is created without source of supply, the buyer can assign source of supply by himself with ME57 t-code. SAP can propose the existing valid source of supply of the material/service to the PR items, such as outline agreement or info record.

If there is no valid source of supply at that time, the buyer can create Request For Quotations (RFQs) documents to one or some prospective vendors. The buyer can access the procurement history of the material/service specified in the PR (with ME1M: List of Info records per material, ME2M: List PO per material, ME3M: List outline agreement per material, or ME4L: list of RFQ per material), so he can see which vendors that have provided it to the company before. He can also create the RFQ to the new prospective vendor that might have never provided the material/service to the company before.

Request For Quotation (RFQ) is an external purchasing document that usually used as bidding process invitation. RFQ is sent by a company to the prospective vendor to request the vendor providing a quotation which contains information about the price and delivery conditions, terms of payment, etc that the vendor formally agree in case it is appointed to provide the material/service to the company.

RFQ can be created from ME57 t-code. On the ME57 screen, the buyer can select the PR items that will be processed into RFQ. RFQ can also be created from ME41 t-code. An RFQ can contain items from one or several PR documents. Data from PR document, such as material number, short text, quantity, delivery date, etc will be copied into the RFQ, so the buyer does not have to re-enter them.

For one bidding process, the buyer usually sends RFQ to more than one vendor. The buyer must create an RFQ for each vendor (which usually contains the same items). The vendor address and other data can be obtained from vendor master data. The buyer can also create an RFQ to a vendor that has not been created in the vendor master data by using “one-time vendor”. The buyer must enter the address and other data of the “one-time vendor” when creating RFQ.

Each RFQ has its own RFQ number. All RFQs in one bidding process can be grouped with a collective number. Collective number is a 10 characters field in the header data of RFQ document. It can be alphanumeric. Several RFQs with same collective number can be listed, such as in price comparison, based on the collective number.

In the RFQ, the buyer must include the information about the material/service needed from the vendors (copied from the PR), the latest submission date of the quotation, the preferred term of payment, currency,  incoterm, etc. RFQ can be printed in a hardcopy and sent to the vendor, or it also can be sent through email.

The vendor will receive the RFQ and will check whether they can supply the materials/services specified in the RFQ or not. If the vendor can, it will send the quotation to the buyer. The quotation should contain the offering regarding the material/service specified in the RFQ, such as the price and conditions, the delivery date, the term of payment, incoterm, the validate date of the quotation, etc. The vendor should also include the RFQ number in their quotation so the buyer will know the RFQ that the quotation refers to.

Quotation and its relationship with RFQ

The buyer will input the information in the vendor’s quotation to the SAP quotation document with ME47 (Maintain Quotation) t-code. The quotation document in SAP is the same with the RFQ document, they’re a single document. The data of an RFQ and the corresponding quotation are stored in the same record in the same table in SAP.

RFQ/Quotation documents, like other Purchasing documents, consist of three sections, which are header, item overview, and item details. The header data of RFQ/quotation are stored in EKKO table. The item detail data of RFQ/Quotation are stored in EKPO table.

In standard SAP ERP, the difference between RFQ and Quotation documents is only the screen layout of the transaction that can edit and display them. Some fields, such as: net price, quotation, quotation date, tax code, etc are shown in maintain quotation (ME47) and display quotation (ME48) transaction. In transaction create/edit/display RFQ (ME41/ME42/ME43), those fields are suppressed / hidden.

So, basically, when the buyer create RFQ (from ME57 or ME41 t-code), SAP create a new record in the EKKO table with the RFQ number as a primary key, and some records (same with the count of RFQ items) in the EKPO table with the RFQ number and RFQ item number as primary keys. At this stage, the quotation, quotation date, net price, tax code fields are blank. When the buyer maintain the quotation (input the vendor’s quotation information to SAP) with ME47 t-code, by entering the RFQ number in the initial screen, some fields such as the quotation, quotation date, net price (and other conditions), tax code, etc are input into SAP. The corresponding fields on the EKKO and EKPO tables are updated.

When a Quotation is maintained, the “Status of purchasing document” field (STATU) in EKKO table is updated from blank to A (RFQ with quotation). In EKPO table, the “RFQ status” field (STATU) of the RFQ items that have been maintained (not necessarily all items of the RFQ) are updated from blank to A (Quotation exists in case of RFQ item). With these fields, we can distinct which RFQ and RFQ items that have been maintained (have quotation) in ABAP programming.

When the buyer maintain quotations, he can use the info update indicator (a field in the item detail, EKPO table) to define whether the info record is to be created (if there is no info record for the material and vendor before) / updated (if there is an info record for the material and vendor before), or not. SAP will copy the conditions from the quotations to the info record.

In the next article, I will explain about the 3rd step of Procurement Cycle, which is "vendor selection".

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Thank you for reading my blog. I wish you success in your SAP career.

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Procurement Cycle: 1. Requirement Determination (Purchase-Requisition)

In the previous post I have explained about SAP basic procurement process which consists of 8 steps of procurement cycle. In this post I will explain in details about the 1st step: The Determination of Requirement.

Introduction
The determination of requirement in SAP procurement process is about Purchase Requisition (PR) creation. Purchase Requisition (PR) is an internal purchasing document that is used to give notification to responsible department about the requirement of material/service. In SAP ERP, the creator of the PR can keep track of his requirement by monitoring the status of the PR, whether it has been processed to be an Purchase Order (PO) or not .

A PR must contain clear information about the description and quantity of the material/service, the required date, and other information. PR can be created directly in SAP MM module with ME51N t-code, or indirectly by another SAP component, such as: materials planning, maintenance order of PM module, production order of PP module, network activity of PS module, etc. We have explained this in the previous article about MM integration with other modules. 

SAP PR Document Type

In SAP ERP, there is a concept of document type for purchasing transaction. A group of purchasing documents (PR, RFQ, PO, etc) with same document type will have same behavior. So, with document type, we don’t have to configure the behavior for each PR document. We only need to configure the behavior for each PR document type.

In standard SAP ERP there are two default PR document types that can be used for different purpose, which are:

• “NB” document type. PR with this default document type is used to procure a material/service externally, such as from 3rd party supplier/vendors, or from subsidiary or related company.
• “TB” document type. PR with this default document type is used to procure a material internally, such as from other plant of the same company.

We can create or edit our own document type as our own requirement with “OMEB” t-code or “SPRO” t-code menu: Materials Management – Purchasing – Purchase Requisition – Define Document Type.

PR document type determines several things, such as:

• Item number interval.
  
  It defines the default interval size of one PR item number with the next one. For example, in the standard SAP ERP, the item number interval is 10. It means when we create a PR item without filling the “Item Number of PR” field (on ME51N screen), the first one’s “Item Number of PR” will be 10, the second one’s will be 20, the third one’s will be 30, and soon.
  
  If you want to insert an additional item between the first and the second item, you can just create it on the last record/row, then fill the “Item Number of PR” field with the value that lies between 10 and 20, such as 15. When you hit “enter” the new item will be placed in the second row (between item 10 and 20).
  
  
• Whether we can use internal number assignment, external number assignment, or both of them.
  Internal number assignment means that the PR number is determined by SAP, with sequential numbering. When a user creates a PR, he can’t fill the PR Number field.
  
  External number assignment means that the PR number is determined by the creator of the PR. When a user creates a PR, he must fill the PR Number field.
  The number of a PR must be unique. There can’t be more than one PR with the same number.
• Number range: the allowed interval of PR number.
  
  
  
  For each internal and external number assignment we have to define the allowed interval of PR number.
  For example, a PR document type can have both assignments.
  In the case of internal number assignment, the number range interval is from 1000000000 to 1099999999. SAP will determine the PR number sequentially in that range, refers to the last PR number created.
  In the case of external number assignment, the number range interval is from 1100000000 to 1199999999. PR creator must fill the PR number field with the value in that range which has not been assigned to other PR.
  
  
• The screen layout of PR document.
  
  
  
  Document type combined with other field selection keys (such as: transaction, activity type, item category/document category, function authorization/release status, and subitem/creation indicator) determines which fields are “required”, “optional”, “displayed only”, or “hidden” in a PR document.
• The allowed item category.
  
  
  
  Item category is a key defining how the procurement of a material or service item is controlled.
  There are 7 standard item category in SAP ERP which are: blank (“standard”), K (“consignment”), L(“subcontracting”), B (“Limit”), S (“Third party”), U (“Stock transfer”), and D (“services”).
  Item category combined with other field selection keys determines the field selection and whether any additional data screens are shown such as component (L), limit (B), customer (S), services (D), etc. In addition, it determines whether a goods receipt or invoice receipt is to follow.
• The allowed follow-on document types.
  
  
  
  A PR will be processed to be other purchasing document (follow-on document) such as Request for Quotation (RFQ) or Purchase Order (PO). We can set that specific PR document type can only be processed to specific follow-on document type (such as specific RFQ type or specific PO type).
  The follow-on document types are set for each item category allowed in document type configuration.
  
  
• Whether the PR will be released with "overall release" or "item-wise release".

We can set in SAP that the PR must be approved or released before it can be passed to the next step of purchasing processes. We have explained about the PR Release Strategy in the previous article.

PR document type can also be used as:

• A characteristic in determining Release Strategy, so we can distinct the approval needs for each PR document type.
• An authorization object of a role, so we can restrict that a user with specific role can only create/edit/display a PR that has a specific document type. The authorization object is M_BANF_BSA (Document Type in Purchase Requisition).

PR document in SAP ERP

T-code related to PR:

• Create/Edit/Dsiplay PR: ME51N/ME52N/ME53N
• Release PR (individually): ME54
• Release PR (Collectively): ME55
• List PR - general: ME5A
• List PR per account assignment: ME5K
• Follow on function: ME57

In SAP ERP, PR item data are stored at EBAN table. PR item account assignment data are stored at EBKN table.

Fields that are usually filled when we create PR are:

• Purchase Requisition document type (stored as BSART field in EBAN table).
• Purchase Requisition Number (stored as BANFN field in EBAN table)
  This field can be filled only if the PR document type allows the external number assignment.
  
• Account Assignment Category (stored as KNTTP field in EBAN table).
  
  
  
  It specifies whether accounting for an item is to be effected via an auxiliary account (such as a cost center, asset, etc). You can read our post about K (cost center) account assignment category and A (Asset) account assignment category.
• Item category (stored as PSTYP field in EBAN table)
  
  
  
  It determines the field selection and whether any additional data screens are shown. In addition, it determines whether a goods receipt or invoice receipt is to follow.
• Material number (stored as MATNR field in EBAN table)
  
  
  
  The material number requested. If the PR item has a material number, SAP ERP will copy the material master data into the PR so we don’t have to fill it manually, such as Unit of Measurement, Purchasing Group, Short text (material description), Material Group, etc.
• Short text (stored as TXZ01 field in EBAN table)
  
  
  
  The description of material/service requested.
• Quantity (stored as MENGE field in EBAN table)
• Unit of Measurement (stored as MEINS field in EBAN table)
• Delivery date (stored as LFDAT field in EBAN table)
  Date on which the goods are to be delivered or the service is to be performed.
  
• Plant (stored as WERKS field in EBAN table)
  It defines plant in which the material/service is requested.
  
• Storage location (stored as LGORT field in EBAN table)
  It defines storage location in which the material/service is requested.
  
• Purchasing Group (stored as EKGRP field in EBAN table)
  It is a key for a buyer or a group of buyers, who is/are responsible for certain purchasing activities.
  
• Requisitioner (stored as AFNAM field in EBAN table)
  It indicates for whom the material or external service shown in the purchase requisition is to be ordered.
  
• Supplying plant (stored as RESWK field in EBAN table)
  It defines plant from which the ordered material is supplied in the case of stock transport order.
  
• Valuation price (stored as PREIS field in EBAN table)
  
  
  
  It is the price of the requested material per price unit. This unit price will determine the PR item value (along with the quantity). The PR value can be used as a characteristic in PR Release Strategy, so we can set different approval need for PR with different value.
  
  
• Source of supply (stored as BANFN field in EBAN table)
  
  
  
  It’s the proposed source of supply from the PR creator. It can be outline agreement or inforecord.
• Other fields based on Item Category and Account Assignment.

In the next article I will explain about the 2nd step of procurement cycle, which is source of supply determination.

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SAP MM Procurement Process

One of the main areas covered by MM module is Purchasing/Procurement. The purchasing process is initially started when there is a requirement of material/service from a user. If the material/service can not be obtained from company’s internal resource, the responsible person of that company must find the vendor/supplier which can provide it on the required date. The purchasing process is ended when the payment processing to the vendor that supply the material/service has been done.

In this post, I will explain about the basic of the purchasing/procurement process, which usually known as Procurement Cycle as the following steps.

1. Determination of Requirements
   
   In this step, there is a requirement of material or service, which must be procured externally, from the user. The requirement must be recorded as Purchase Requisition (PR) document in SAP MM.
   
   Purchase Requisition (PR) is an internal purchasing document in SAP ERP that is used to give notification to responsible department about the requirement of material/service and to keep track of such requirement. PR must contain clear information about the description and quantity of the material/service, the required date, and other information.
   
   PR can be created directly in SAP MM module with ME51N t-code, or indirectly by another SAP component, such as: materials planning, maintenance order of PM module, production order of PP module, network activity of PS module, etc. We have explained this in the previous article about MM integration with other modules.
   
   We can set in SAP that the PR must be approved or released before it can be passed to the next step of purchasing processes. We have explained about the PR Release Strategy in the previous article.
   
2. Determination of the source of supply
   
   
   
   
   
   
   After the PR has been created (and released if needed) in the previous step, the responsible department (usually purchasing/procurement department of the company) must process it. The buyer of the procurement department must determine the possible sources of supply of the material/service specified in the PR.
   
   
   
   
   
   
   With ME57 t-code, the buyer can check in the SAP whether the material/service needed can be obtained from the existing outline agreement (contract or scheduling agreement) documents or not.
   
   
   
   
   
   
   If there is no existing outline agreement, the buyer can also check whether there is an existing info record documents (which contain information about the price and delivery conditions of the material/service agreed with vendor in the last Purchase Order/PO) that still can be used(valid) as a reference to create new PO to the same vendor.
   
   
   
   
   
   
   If there is no valid info record at that time, the buyer can create Request For Quotation (RFQ) documents to one or some prospective vendors. The buyer can access the procurement history of the material/service specified in the PR, so he can see which vendors that have provided it to the company before. He can also create the RFQ to the new prospective vendor that might have never provided the material/service to the company before.
   
   
   
   
   
   
   Request For Quotation (RFQ) is an external purchasing document that usually used as bidding process invitation. RFQ is sent by a company to the prospective vendor to request the vendor to provide a quotation which contains information about the price and delivery conditions, terms of payment, etc that the vendor formally agree in case it is appointed to provide the material/service to the company.
   
   
   
   
   
   
   In the RFQ, the buyer must include the information about the material/service needed from the vendors (can be copied from the PR), the latest submission date of the quotation, the preferred term of delivery, term of payment, currency, etc.
   
   
   
   
3. Vendor Selection
   
   
   
   
   
   If in the previous step, there are some outline agreement or info record documents that can be used as references to create a PO, the buyer can select or choose which vendor that will be appointed to provide the material/service at this time.
   
   
   If there is no outline agreement or info record documents that can be used as references to create PO, in the previous steps, the buyer will send the RFQ documents to one or some vendors. The vendors will send their quotations which include the information about the price, delivery terms, terms of payment, etc that they offered to the company. The buyer can input that information into SAP with ME47 t-code. With ME49 t-code, the buyer can compare the offering of all vendors that have sent their quotation. The comparison can be used to determine which vendor should be appointed to provide the material/service to the company.
   
   
   SAP ERP can also create rejection letters to the vendors that are not selected as the supplier of the material/service.
   
   
   
   
   
4. PO Processing
   
   In the previous step, the buyer has selected the vendor which will provide the material/service needed in PR. In this step, the buyer creates a Purchase Order (PO) based on the PR and the reference document (that can be an outline agreement, an info record, or a quotation).
   Purchase Order (PO) is a legally binding document that issued by a company to a vendor which contains information about description, quantity, delivery date, agreed prices, terms of delivery, and terms of payment for material or service the vendor will provide to the company.
5. PO Monitoring
   
   After the PO has been sent to the vendor, the buyer has the responsibility to monitor whether the vendor delivers the material/service at the right time on the right place. The buyer can monitor whether the material/service has been received by the person responsible (such as the warehouse man) online with PO history function in the PO document. If the warehouse man or anyone else has received the material/service and posted the Goods Receipt/Service acceptance document, the PO history will be updated in a real-time basis.
   SAP ERP can also has a functionality to give the reminder to the buyer if the PO item has not been GR in the specified period in respect of the delivery date agreed with vendors.
   
   
6. Goods Receipt
   
   When the vendor delivers the material or perform the service, the responsible person of the company must perform the goods receipt (GR) or service acceptance (SA) transaction. The GR/SA will update the PO history. If the PO item is an inventory material, the GR will increase the stock level of the material.
   When we perform the GR for the PO item for the first time, SAP will propose the quantity to be GR as the PO order quantity. Depends on the delivery terms agreed with the vendor, the vendor might deliver the material partially. We can post the GR partially too, so when the next material delivery is received, SAP will propose the quantity to be GR as the remaining quantity that has not been GR yet.
   
   
7. Invoice Verification
   
   After the vendor delivered the material/service, it will send the invoice to the person responsible in the company.
   Invoice is a formal document issued by a vendor to the company to request the payment for the material or service that the vendor has already provide to the company according to the terms of payment agreed in the PO. An invoice is usually attached with the delivery note (goods receipt) document.
   The person responsible, usually an accounting staff, will perform the three way matches. He will check whether the invoice information (such as price, terms of payment, etc) is the same with the PO, and whether the PO item has been received (GR/SA). If yes, then he will post the Invoice Receipt (IR) transaction in MM module. The IR transaction will credit the account payable of the vendor which specified in the "pay to" partner function in the PO.
   
8. Payment Processing
   
   After the IR transaction has been posted, the vendor’s account payable will increase and the company must process the payment to that vendor as stated in the terms of payment of the PO. The payment transaction will be performed in FI module. After the payment has been posted, the vendor’s account payable will be debited and the cash or bank account will be credited.

In the next article I will explain the 1st step of the procurement cycle in more details: The Determination of Requirement. You can get alert when I post new article if you subscribe here.

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MM Integration with SD-PM-PS-FI-WM-QM modules

Material Management (MM) module is one of the core modules of SAP ERP (formerly known as SAP R/3). MM is highly integrated with other modules such as FICO (Financial Accounting & Controlling), Sales & Distribution (SD), Production Planning (PP), Plant Maintenance (PM), Project System (PS), Warehouse Management (WM), Quality Management (QM), etc.

The main areas covered by MM are:

• Enterprise structure
• Master Data (vendor and material)
• Purchasing /procurement
• Materials planning (MRP and CBP)
• Inventory Management and Physical Inventory Management
• Material valuation and Account determination
• Invoice verification

In this post, I will try to explain the integration between SAP MM and other modules. I will explain it in a simple way. Please give your opinion or suggestion by writing a comment at the end of this post.

The sales order (SO) or demand forecast of a finished product from SD module can be considered as a requirement in SAP MM. I have explained the SD business processes at previous article.

• If the finished product is available, then it can be delivered to the customer by converting SO to outbound delivery, then perform Goods Issue (GI) transaction based on outbound delivery in inventory management.
• If the finished product is not available, this requirement can trigger materials planning process in MM. Materials planning in SAP can automatically create procurement proposals, such as planned order. Planned order can be converted into:
  
  
  
  
  • Purchase Requisition (PR), if the finished product is procured externally.
  • Production order in PP, if the finished product is produced internally. The production order will be considered as dependent requirement for their components or raw materials. SAP will determine these dependent requirements by using the information from Bill of Materials (BOM) of finished product. These dependent requirements will also trigger materials planning for the components  that will create planned order of the components.
  In addition, materials planning can also create purchase requisition directly as a procurement proposal (no planned order).
  
  

The maintenance order (from PM) or network activity (from PS) can also create:

• PR of material/service that is procured externally, or 
• Reservation of the stock material.
  
  
  
  
  
  • If the stock of material is available then the reservation item can be issued with GI transaction in Inventory Management.
  • If it’s not available, the reservation (which can be considered as requirement) can be processed by materials planning to create procurement proposals, such as planned order that can be converted to PR or production order.
    

The PR will be processed by purchasing/procurement department with MM module to be a purchase order (PO). Based on the PO, the vendor will deliver the material/service. Then it will be received in Inventory Management with Goods Receipt (GR) transaction.

• If the material received is finished product, we can deliver it to the customer by converting SO to outbound delivery, then perform GI transaction in inventory management. 
• If the material is component or raw material, we can use it in production order to produce the finished product with GI to production order transaction. When the finished product has been  produced, we can perform the GR to production order transaction in inventory management. Then, we can deliver it to the customer by converting SO to outbound delivery, then perform GI transaction in inventory management.

The vendor that delivered the material/service based on PO, will send their invoice to the responsible person in the company. Then, he/she will perform the Invoice Receipt (IR) transaction in MM. Based on the IR transaction, the finance department will process the payment in FI module.

The GR, GI, and other transactions in Inventory Management can be linked in details to the WM module. In WM module, we can maintain material stock at a level that more detail (which is storage bin) than MM module (which is storage location). We can store the same materials at several storage bins in a storage location.

With QM, we can copy quality master data, such as certificate required, of a material that ordered in a PO, so the vendor will provide it.  When we post GR transaction, we can post it to quality inspection stock. We can give a score/quality level to the material that delivered by vendor.

The GR and GI transactions in inventory management also trigger the accounting journals in FI module that in a real-time basis update the company financial reports such as Balance Sheet and Profit & Loss Statement.

The budgeting in PS can also be linked to the PR and PO in MM to keep that the total value (price) in PR and PO does not exceed the budget.

If you have something to add about MM integration with other modules please write on comment section.

In the next article I will explain more about MM main areas.

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