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The Procurement Process

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Objectives

- Describe the basic business process of procuring stock materialsin an ERP System.

- Discuss the integration points in procurement to FinancialAccounting and Inventory Management.

- Discuss the reporting and analysis tools used by R/3 in the

procurement cycle.

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Hierarchical Enterprise Structure

Client

highest hierarchy level, e. g. groupwith its daughter companies Settings made will affect allcompany codes

Company Code(FI) Org. Unit can present a balance sheetaccording to the legal

provisionslegally independent enterprise

Settings made will only affect the respective company code

Purchasing organization procuresmaterial or services for the assigned plants

negotiates on terms & conditions with vendorsmake contracts

is responsible for all the purchase processes

operativepurchasing is done by purchasing groups

Plant Operational facilitywithin a company code (e.g. factory, store, ...)

has its own requirements planningand inventory management

Storage location

a space for logical inventory management

S H

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Purchasing organization

purchasing group MG 0, 3purchasing organization

purchasing group MG 1, 4

purchasing group MG 2, 5

purchasing group MG 7, 8, 9plant

purchasing group MG 6

material

group

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Inventory Management with a Warehouse

Management System

client

0001plant

storage location

001warehouse number

001storage type

05-04-03

002

05-04-04storage bin

MM

WM

company code

0001ABC inc.

0001Jones inc. 0002Model Ltd.

purchasing organization

0001

0001 0002 0003

0002 0003 0004 0001

0002 0003 0004

distrib.-center factory

(physical stock)

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The Module MM Main Functions

Maintenance of the material master record(different views) Material requirements planning

Materialprocurement:handling of the documents for

- purchase requisition

- request, quotation- vendor selection

- purchase order, outline agreement

- vendor master record

Inventory management- goods movement, material valuation

Invoice verificationreferring

purchase orders, goods received documents, delivery

notes etc.

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MM interdependencies to other modules

MM

material master

purchasing

requirements plan.

inventory mgmt.

invoice verification

SDsales and

distrib.

PM

plantmaintenance

QM

qualitymanagement

PPproductionplanning

Logistics

FI

financial acc.

CO

controlling

AM

fixed assets mgmt.

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Basic Data

Master records - include information about1. vendors

2. materialand services to be procured

3. the relation between 1.and 2.(purchasing info record)

e.g. prices / terms and conditions

bills of material for

- production planning

- purchasing

- sales and distribution

- withdrawal of Material

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invoice entry


payment handling

request for quotation

quotation processing

purch. order handling

Structure of the Vendor Master Record

General data

name

address

control data

accounting data

bank account

acc. maintenance

payment

purchasing

terms and cond.

partner functions

currency

utilization

for each

purchasing

organization

client wiede or

for each

company code

client wide

area of validitysections

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Views on the Material Master Record

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

accounting: valuat ion- und calculat ion-specif icinformation

requirements planning: information about mater ial requ irementsplannin g (e. g. reorder po int)

purchasing: e. g. responsible purchasing group, order unit

engineering: technical information storage: information about warehousing , mater ial mo vements, ...

forecast:information about the forecast ing of th e mater ial requ irements

S & D: informationen about sales o rdersand pr ice determ inat ion

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purchasing info record

info record

pricesterms & cond.

PO statisticstolerance levels

date

quotation

order

outlineagreement

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Procurement

The primary SAP R/3application modules that

support the Procurement

process are:

- Materials Management Purchasing

Goods Receipts

Invoice Verification

- Production Planning Purchase Requirements

- Financial Accounting Payment Processing

Materials Valuation

Sales &Distribution

Materials

Mgmt.

Production

Planning

FinancialAccounting

Controlling

Fixed Assets

Mgmt.

QualityMgmt.

Plant

Maintenance

Human

Resources

Workflow

Industry

Solutions

R/3Client / Server

ABAP/4 ProjectSystem

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outline agreem.

PO

Purchasing Process

MM

X X X

X X

determination: requirements

X X X

X X

determination: source of supply

vendor 1

vendor 2

vendor selection

vendor

PO

PO

purchase order processing

PO monitoring

goods received &

inventory mgmt.

PO invoice?=


?

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Procurement Cycle

The procurement cycle may consist of eight processes:

8. Payment

3. Requisition assigned

to a Vendor

5. Order follow-up

2. Source

determination

1. Requirements

determination

4. Order processing

Purchase OrderPurchase Order

6. Goods receipt and

inventory management


7. Invoice verification

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Business Process Flow for Procurement

The main documents and transactions in the Procurementprocess are:

Planning, Reporting, and Analysis

Purchase

Requisition

Purchase

Order

Goods

Receipt

Invoice

Posting

- Note: Payments to vendors are usually made at specifiedtimes (e.g. at the end of the month).

- Payment amounts are determined according to the openinvoices posted on the system.

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Purchase Requisition Processing

Material Resource

Planning

Direct Entry

Determine source of supply

Purchase requisition Release strategy


Purchase Order

Purchase order

or

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Purchase Orders

A purchase order is a formal request to a vendor to providecertain materials or services under specific conditions

(quantity, price, delivery date, etc.)


Purchase Requisition

Purchase

Order

Goods

Receipt

Invoice

Posting

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Create Purchase Order (PO)

1

vendor known

purch. order

vendor 2

2

vendor not known

terms & cond.

outline

agrement

source list

vendor

info record

3

assigned purchase

requisition exists

(from user department)

purch. req.

vendor 2

purch. order

purch. order

P h O d P i

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Purchase Order Processing


Purchase Req.

Service

Consumable material

Stock material Account assignment(cost center, asset,

project)

Purchase

Order

Standard

Sub contract

Consignment

Third-party

Purchase

Order

Standard

Sub contract

Consignment

Third-party

Statistics

Order History

Direct Entry

or Purchase

Requisition

G d R i t

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Goods Receipt

When goods are received from a purchase order, the itemdata is copied from the purchase order into the goods

receipt document.



Purchase

Order

Goods

Receipt

Invoice

Posting

G d R i t f St k M t i l

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Goods Receipt for Stock Material

Entering the goods receipt increases the inventory level

of a material that is procured for stock.

Inventory Management (MM module)

controls and records all goods movement,

form purchase order receipt through the

plant, to consumption

Purchasing

documents

Items

1.2.

3. Warehouse / storesGoods

Receipt

Vendor

R lt f G d R i t P ti

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Results of a Goods Receipt Posting

Transaction documents are created both for materialsmanagement and finance.

Goods Receipt

Posting

Accounting

documentStock quantity

Consumption statistics

Point of consumption

Cost center Order

Transfer

OrderPurchasing data:

Order item, Order history

Goods receipt

slip

Material

document

G/L accounts:

Consumption account

GR/IR account

P ti O d E t (G d R i t)

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Posting an Order Entry (Goods Receipt)

MM

Logistics

purchasing req. planning

inventory

controlling

invoice

verification

goods receipt

inventory mgmt.

goods issue. transferposting

SDsales and

distrib.

PM

plant

maintenance

QM

quality

management

PPproductionplanning

FI

financial acc.

CO

controlling

AM

fixed assets mgmt.

I i P i

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Invoice Processing

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



Purchase

Order

Goods

Receipt

Invoice

Posting

- Payment will then be made later based upon the openinvoices posted on the system

I i V ifi ti

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input

information invoice verification

output

information

ordersactions:

enter invoice

verify invoice post invoice

update

relevant data

(re-edit

invoice)

goods receipt

master data:

material

vendorsaccounts

terms & cond.

financial

accountingasset

management

cost accounting

I i V ifi ti E i t

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Invoice Verification Environment

Invoice verification accesses data from purchasing,

inventory management, material master, and vendormaster files.

Purchase

Order

Vendor

Invoice

Goods

Receipt


Invoice

verification

G/L accounts

Assets

Cost centers

Projects

Orders

Material master

Vendor master

Posting an invoice in the R/3 System

updates purchasing and accounting data

Posting an invoice in the R/3 System

updates purchasing and accounting data

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Procurement Integration

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Procurement Integration

Purchase Order

Goods Receipt


PP FI FI

MM

Purchase Order

Invoice

Reporting and Analysis

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Reporting and Analysis

Standard Reporting provides List Displays (pre-definedprograms) by:

- Vendor

- Material

- Account assignment

- Material group

- Purchase order number

- Tracking number

General Analysis

Order Value Analysis

Inventory Transaction Analyses

Logistics Information System (LIS)

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The Logistics Information System (LIS) contains severalinformation systems such as:

- Purchasing Information System

- Inventory Controlling

- Sales Information System

- Shop Floor Information System

LIS extracts its data from the operative applications; it

offers many different views on this information.


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The LIS exists for the entire logistics system in R/3

The LIS contains several information systems suchas:

- Sales Information System

- Purchasing Information System

The LIS extracts data from the operative applications;offering it in many different views, the depth of which

is determined by the user.

- Inventory Controlling

- Shop Floor Info System

Sales

Information

System

Purchasing

Information

System

Inventory

Controlling

Shop Floor

Information

System

Maintenance

Information

System

Quality Mgmt

Information

System

Sales and

Distribution

(SD)

Materials

Management

(MM)

Production

Planning

(PP)

Plant

Maintenance

(PM)

Quality

Management

(QM)

Logistics Information Library

R/3

Logistics

Information

Systems

Logistics

Processing

Systems

In Summary

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In Summary

The basic procurement process includes:

- Purchase requisition- Purchase order

Procurement master data includes the vendor and material

master files.

At various times during the Procurement process,integration occurs between the PP, MM and FI modules.

The two reporting tools used in the procurement

environment are:

- Standard Reporting List Displays General Analysis Inventory Analysis

- Logistics Information System

Purchasing Information System Inventory Controlling System

- Goods receipt- Invoice processing

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