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Procurement

1. Procurement Process Cycle Overview

2. Types of Purchasing Documents

3. Set Tolerance Limits for Price Variance

4. Maintain source list

5. Create Purchase Requisition (PR)

6. Create Request for Quotation (RFQ)

7. Maintain Quotations

8. Create Purchase Order for stock materials

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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 today’s 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. Material requirement planning

2. Vendor Selection

3. Request for Quotation

4. Purchase Requisition

5. Purchase Order

6. Goods Receipt

7. Goods Receipt Invoice

8. Invoice Verification

9. 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 vendor’s terms and conditions and constitutes the basis for vendor selection

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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 :-

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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

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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.

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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 the”maintain source list: overview screen” enter the following details

1. Enter the valid period till until which you can procure this material from this vendor.

2. Enter vendor code in the vendor field..

3. Enter respective purchasing organization.

4. Select fixed source field if the vendor is fixed.

5. 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.

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After updating all the mandatory fields, choose save icon to save the entries. Message will be

displayed as source list changed.

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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. Select document type for PR

2. Enter material code in the material field

3. Enter quantity of material

4. Update delivery date

5. Enter respective plant code

6. Enter corresponding storage location

7. 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.

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

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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 RFQ’s related to particular instance and

reference data.

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Step 3: – On the Create RFQ: Item overview screen, enter the following data.

1. Enter the appropriate item category

2. Enter the Material No

3. Enter the RFQ Quantity

4. Enter the Deliv. Date

5. Enter the Plant code

6. 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.

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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.

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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

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

Successfully quotation are maintained in SAP.

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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

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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.

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