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Chapter 4

The Procurement Process

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Learning Objectives
1. Describe the major organizational levels associated with the
procurement process.
2. Discuss the four basic categories of master data that are
utilized during the procurement process.
3. Explain the key concepts associated with the procurement
process
4. Identify the key steps in the procurement process and the
data, documents, and information.

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Learning Objectives (Continued)
5. Effectively use SAP ERP to execute the key steps in the
procurement process
6. Utilize SAP ERP to extract meaningful information about
the procurement process

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A Basic Procurement Process

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Outline
 Organizational data
 Master data
 Key concepts
 Process
 Reporting

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Organizational Data
 Client
 Company code (CC)
 Plant
 Storage location (S Loc)
 Purchasing organization (P Org)
 Purchasing group

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Plant
 Many definitions or uses. A location
 That holds valuated stock (for distribution)
 Where production planning is carried out
 Where products and services are created
 That contains service or maintenance facilities
 Factory, warehouse, distribution center
 Can be assigned to one CC only
 A CC can have many plants

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Storage Location
 A place, within a plant, where materials are stored
 Areas designated for different types of material (raw material,
work-in-process, finished goods)
 More sophisticated divisions including storage bins, cabinets,
trays
 A plant must have at least one storage location
 A storage location can belong to only one plant

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GBI Storage Locations

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Purchasing Organization
 Identify and select vendors
 Negotiate general conditions of purchase and contracts for
one or more plants or companies.
 Determine pricing conditions
 Typically three models for Purchasing Organization
 Enterprise-Level
 Company-Level
 Plant-Level

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Enterprise-Level Purchasing Organization
 Also known as cross-company code model
 One Purchasing Organization assigned to all CC in a client
 Purchasing for all plants across all CC
 Highly centralized – corporate Purchasing Org

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Enterprise-Level Purchasing Organization

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Company-Level Purchasing Organization
 Also known as cross-plant model
 Different Purchasing Organizations are assigned to each CC
 Purchasing for all plants in one or more CC

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Company-Level Purchasing Organization

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Plant-Level Purchasing Organization
 Also known as plant-specific model
 Each plant has its own Purchasing Organization
 Highly decentralized

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Plant-Level Purchasing Organization

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Reference Purchasing Organization
 One centralized Purchase Org for high-level decisions across
the enterprise
 Multiple CC-specific and plant-specific Purchase Org

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Purchasing Group
 A buyer or group of buyers responsible for certain materials
or groups of materials
 Can be internal to the company or external
 Decide to purchase land, but use a realtor (external purchasing
group) to execute the purchase
 Not assigned to or related to purchasing org

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Master Data
 Material Master
 Vendor Master
 Purchasing info record
 Conditions

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Material Master
 Data needed to execute transactions related to materials
(along with org data)
 Data are grouped by different user areas (views)
 Data are specific to (defined for) for different organizational
levels

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Material Master – Views
 Basic data  Plant / Storage
 Purchasing  Work Scheduling
 Accounting  MRP
 Forecasting  Classification
 Sales  Warehouse Management

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Material Master – Views
 Basic data
 Description, unit of measure, weight, material group
 Purchasing
 Purchasing group, GR processing time, delivery (under / over)
tolerances
 Accounting
 Currency, valuation class (link to G/L), price control (moving
price, standard price, future price)
 Plant / Storage
 Storage requirements (hazard, temperature, etc.)
 Shelf life
 Weight, volume
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Material Master - Views
 Views for other processes
 Forecasting (Material Planning process)
 Sales (Fulfillment process)
 Work Scheduling (Production process)
 MRP (Production process)
 Classification (PLM process)
 Warehouse Management (WM process)

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Material Master - Views
 Different material types have different required views
 Examples:
 Raw material: no sales view
 Finished Goods: no purchasing view
 Trading goods: no production related views

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Material Master – Org Levels
 Defines the level at which the master data is maintained
 Can have different data for different combinations of Org
data
 Purchasing: Plant, storage location
 Sales: Sales Area (Sales Org, Distribution Channel)
 Warehouse: Warehouse #, storage type
 Example:
 SHRT1000 + MI00+ TG00
 SHRT1000 + SD00+ TG00
 SHRT1000 + US00 + Wholesale channel
 SHRT1000 + US00 + Internet channel
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Demo 4-1: Review Material Master
 Review some of the data included in a material master.

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Vendor Master
 Data needed to do business with vendors
 Data needed to execute transactions related to vendors
(along with org data)
 Data are specific to (defined for) different organizational
levels. The three segments are:
 Client level data (General)
 Company code level data (Accounting)
 Purchasing organization level data (Purchasing)

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Vendor Master Segments

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Data in the Vendor Master

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Vendor – General Data
 Client-level data
 Valid across all CC in a client
 Examples
 Name,
 Address
 Communication (phone, fax)
 Search term

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Vendor – Accounting Data
 Company code specific data
 Valid for the entire company code across purchasing areas
 Examples
 Account information
 Bank information
 Reconciliation account
 Payment terms and methods
 Communication (dunning)

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Vendor – Purchasing Data
 Separate for each Purchasing Organization
 Applies to the specified Purchase Org
 Examples
 Partner functions (vendor, invoicing party, payment recipient)
 InCoTerms: defines responsibilities and costs of shipment
 Freight, insurance, customs clearance, locations

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Demo 4-2: Review Vendor Master
 Review some of the data included in a vendor master.

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Purchasing Info Record
 Relates vendors and materials.
 One info record per combination of vendor and material (or
material group)
 General data
 Conditions: pricing, discounts, free goods (current and future)
 Vendor data
 Texts (notes)

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Purchasing Info Record

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Purchasing Info Record

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Conditions
 Pricing Conditions
 Gross price
 Discounts and surcharges
 Freight / shipping
 Obtained from
 Purchasing info records
 Contracts and agreements
 Other sources

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Demo 4-3: Review Purchasing Info
Records
 Review data in a purchasing info record.

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Key Concepts
 Item categories
 Account determination
 Stock type/status
 Goods movement

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Item Categories
 Defines the process used to procure the item
 Categories
 Standard
 Subcontracting
 Components provided; finished product received
 Consignment
 Liability only when withdrawn from stock
 Service
 Stock transfer
 Third party order
 Ship to third party; bill to us (drop shipment)

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Demo 4-4: Review Item Categories
 Review various item categories used in the purchasing
process.

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Account Determination
 Which GL account to assign to PO?
 Defined in material master (valuation class)
 Account assignment categories
 Used when purchasing material without material master
 Assets, Production Order, Cost Center, Sales, Order, Project
 Automatic GL account determination based on category

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Purchase for Stock vs. Consumption

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Stock Types / Status
 Based on usability of material
 Unrestricted use
 In quality inspection
 Blocked stock (damaged, unusable; wrong delivery)
 Stock in transit

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Goods Movement
 A transaction that causes a change in stock (value or status)
 Categories of Goods Movement
 Specific Movement types

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Structure of a Material Document

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Demo 4-5: Review a Material Document
 Review data included in a material document.

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Goods Movements
 Goods Receipt
 From vendor or production process
 Increase in quantity and value of stock
 Goods Issue
 To sales order or internal consumption
 Decrease in warehouse stock
 Stock Transfer
 Physical movement of material between storage locations
 Sloc to Sloc
 Plant to Plant
 CC to CC

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Goods Movements
 Transfer Posting
 Results in a change in material status
 In-quality inspection/ blocked/ unrestricted use
 One material type to another
 May or may not include a change in location (Sloc, plant)

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Demo 4-6: Review Goods Movements
and Movement Types
 Review various goods movements and movement types

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A Detailed Procurement Process

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Process Steps
 Trigger
 Data
 Task details
 Outcomes

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GBI Story
 Inventory of t-shirts (SHRT1000) is low (<=50) in the
Miami plant
 Therefore it is necessary to procure more t-shirts
 Spy Gear is the only supplier of t-shirts
 Quantity purchased is 500
 Purchase price is $15 per t-shirt

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Elements of the Purchase
Requisition Step

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Purchase Requisition
 Trigger
 Other processes
 Manually
 Data
 User input: Dates, materials, quantities
 Master data: Material master, Vendor, Info record
 Organizational data: Client, CC, P Group
 Task details: none
 Output
 Document: Purchase requisition
 Subsequent steps
 Purchase Order
 RFQ
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Data in a Purchase Requisition

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Converting a Purchase Requisition
to a Purchase Order

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GBI Scenario
 Material planning process has determined
 Re-order point = 50
 Order quantity = 500
 Miami plant employee reviews inventory report and
determines that it is necessary to reorder
 Requisition:
 500 SHRT1000 to be delivered at the Miami plant by a specified
date

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Demo 4-7: Create a Purchase Requisition
 Create a purchase requisition for stock material.

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Elements of the Purchase Order Step

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Purchase Order
 Creation
 Manually or automatically
 With or without reference to other documents
 Data
 Documents: Purchase requisition, Purchase order, RFQ,
Quotation
 Master data:
 Material (characteristics)
 Vendor (terms)
 Info record (pricing)
 Conditions (pricing)

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Data in a Purchase Order

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Purchase Order
 Tasks
 Data automatically included from input sources
 Source determination using info records, agreements and
contracts, and source lists
 Outcomes
 Purchase order
 Purchase requisition history – PO added
 Communicate
 with vendor (external procurement) using messages: fax, EDI,
print
 Plant (internal procurement) using transfer orders

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Purchase Order Structure
 Header
 Document number, dates
 Vendor, currency, terms
 PO total
 Line items
 Material number, description
 Quantity, price, item total
 Delivery date

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The Structure of a Purchase Order

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Purchase Requisition to Purchase Order

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Communicating with vendors

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Purchase Order Processing Options

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GBI Scenario
 Create purchase order
 Material: SHRT1000
 Quantity: 500
 Vendor: Spy Gear (from source list or manual entry)
 Receiving plant: Miami
 Reference document: purchase requisition
 Price: $15 each (from info record)
 Total PO value: $7500

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Demo 4-8: Convert Purchase
Requisition to Purchase Order
 Convert a previously created purchase requisition into a
purchase order
 Review data in the purchase requisition

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Elements of the Goods Receipt Step

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Goods Receipt
 Data
 Documents: PO, Delivery document (packing list)
 Master data
 Task
 Verify materials receipt
 Create GR document
 Outcomes
 Material documents
 Header: Document number, date, reference
 Details (items): Material, quantity, location, movement type
 Financial Accounting documents
 Header: Document number, date, reference, currency
 Details (Items): GL accounts, description, amount

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Goods Receipt
 Outcomes
 Notifications
 Material master: stock and value
 GL accounts (Stock/Consumption, GR/IR)
 PO history – Material document added
 Quality management
 Quality inspection lot
 Warehouse management

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Data In The Goods Receipt Step

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Financial Impact of Goods Receipt

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Material and Accounting
Documents from a Goods Receipt

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Demo 4-9: Receive goods against a
Purchase Order
 Record the receipt of materials for the purchase order
previously created.
 Review data in the associated purchase requisition.
 Review data in the associated purchase order.

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Elements of the Invoice Verification Step

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Invoice Verification
 Data
 Vendor invoice
 Purchase order
 Material document
 Tasks
 Three-way match
 Outcomes
 Financial Accounting documents

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Data needed for Invoice Verification

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Invoice Verification
 Outcomes
 GL: vendor account, A/P, GR/IR
 PO history - invoice document added
 Material master :
 Stock value,
 Moving average price (if using moving price vs. standard price)

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Financial Impact of Invoice Verification

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Demo 4-10: Receive and Verify an Invoice
 Verify and record an invoice received from a vendor.
 Review data in the associated purchase order

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Elements of the Payment Step

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Payment Processing
 Creation: manually or via automatic payment program
 Data
 Three-way match (or other process)
 Payment method, account, items to pay,
 Tasks
 Calculate payment amount (discounts)
 Post payment document (accounting document)

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Payment Processing
 Outcomes
 Financial Accounting Documents
 Payments (checks, EFT, notifications)
 Updates
 GL accounts
 Material master :Moving average price (if using moving price vs.
standard price)

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Data needed for Vendor Payment

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Financial Impact of Vendor Payment

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Demo 4-11 Make payment to Vendor
 Record payment made to a vendor for previously recorded
invoices.

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Integration With Other Processes

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Reporting
 Source of data
 Instance level reporting (status)
 Process level reporting
 Lists and reports
 Purchasing Information System

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Reporting - Sources
 Organizational data
 Master data
 Transaction data (documents)
 Purchasing documents
 Material documents
 Accounting documents
 Invoice documents

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Reporting - Instance
 Status of a Requisition, Purchase Order

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List of Invoices

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Work List – List of Requisitions

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Demo 4-12: Display a List Report
 Retrieve and display a list of invoices (online list)
 Retrieve and display a list of open purchase requisitions
(work list)

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Reporting - Standard
 Process level reporting
 Standard reports / List displays
 Logistics Information System

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Reporting – Logistics Information System
 Components
 Purchasing Information System
 Sales Information System
 Quality Management Information System
 Inventory Control
 Transportation Information System
 Shop Floor Information System
 Plant Maintenance Information System

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Reporting – Logistics Information System
 Information Structures
 Special tables of statistics from various modules that is
constantly updated
 Selection criteria (types of information)
 Key figures: variables of interest
 Quantitative values on measurable facts
 Numbers (of orders, deliveries)
 Quantities (of material)
 Cost, delivery time
 Characteristics: used to organize key figures
 Vendors, material, organizational levels
 Timeframe: day, week, month, etc.
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Standard Analysis

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Demo 4-13: Display a report using
the Purchasing Information System
 Generate a standard report using the purchasing information
system for the US00 Purchasing Organization.
 Drill down to several levels of information in the report.

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Flexible Analysis

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The Following Slides
 The following slides will be hidden and are for Instructors
that may want to use the SAP R/3 to demo functionality
covered in the chapter.

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Review Material Master
 Logistics -> Materials Management -> Material Master ->
Material -> Display -> Display Current
 Select
 Material: T-Shirt (SHRT 1000)
 Org levels: Basic data, purchasing, accounting1
 Plant: MI00
 Review data for several views

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Review Vendor Master
 Logistics -> Materials Management -> Purchasing -> Master
Data -> Vendor -> Central -> Display
 Select Olympic Protective Gear.
 Select company code US00
 Select Purchasing Organization US00
 Note the three areas of data
 General data, CC data, Purchasing Organization data
 Select all check boxes except withholding tax
 Enter and review data in the various screens

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Review Purchasing Info Records
and Conditions
 Logistics -> Materials management -> Purchasing -> Master
data -> Info Record -> Display
 Select a GBI vendor – Olympic Protective Gear
 Select a material – SHRT 1000
 Select org levels
 Note the four areas of data
 General data, P Org data, Conditions, and Texts
 Review data in the various screens

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Review Item Categories
 Logistics -> Materials Management -> Purchasing ->
Purchase Order -> Create -> Vendor/Supplying plant
known
 Close “header” and “item detail” sections
 Open “item overview” section
 Review choices for Account Assignment Category column (2nd
column)
 Review choices for Item Category (3rd column)

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Review Goods Movements and
Movement Types
 Logistics -> Materials Management -> Inventory
Management -> Material Document -> Display
 Search for material document. In search screen include only
plant DL00
 Review resulting list
 Select one document (enter year if needed after selection)
 Review document
 Header items
 Line items

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Create a Purchase Requisition
 Need to purchase
 500 t-shirts
 Navigation:
 Logistics -> materials management -> purchase requisition ->
Create
 Input: material number and quantity

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Create a Purchase Requisition
 Automatic data entry
 description, unit of measure, delivery date, material group
 Review tabs, in particular:
 Valuation: valuation price
 Source of supply: none
 Status: Proc. Status = not created; review options
 Save
 Document (requisition number):

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Create a Purchase Order
 Navigation:
 Logistics -> Materials Management -> Purchasing -> Purchase
Order -> Create -> Vendor/supplying plant known
 Automatic data entry (copy from requisition)
 Document overview on
 Selection variant – my requisitions
 Select requisition and adopt
 Note data transferred from requisition to order
 Close item detail
 Input
 Select vendor
 Enter price? (why or why not?)
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Create a Purchase Order
 Navigation:
 Logistics -> Materials Management -> Purchasing -> Purchase
Order -> Create -> Vendor/supplying plant known
 Automatic data entry (copy from requisition)
 Document overview on
 Selection variant – my requisitions
 Select requisition and adopt
 Note data transferred from requisition to order
 Close item detail
 Input
 Select vendor
 Enter price (why?)

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Example / Demo
 Open item detail and review tabs
 Material data (source?)
 Conditions
 NOTE: no tab for PO status
 What do these data apply to?
 Open item header and review tabs
 Conditions
 Org data
 Status
 What do these data apply to?
 Save
 Document (PO) number:

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Example / Demo
 Review Purchase Requisition
 Navigation:
 Logistics -> materials management -> purchase requisition -> Display
 Review status tab
 Note purchase order data

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Receive goods against a Purchase
Order
 Navigation:
 Logistics -> Materials Management -> Inventory Management
-> Goods Movement -> Goods Receipt -> For Purchase
Order -> GR for Purchase order
 Input
 Close detail area tab
 Enter (search for) PO number
 Check “ok” box
 Enter storage location: finished goods + Enter
 Automatic data entry (tabs in detail data area)
 Where: Movement type, stock type, plant
 Save
 Document (material document) number:

115 Magal and Word | Integrated Business Processes with ERP Systems | © 2011
Example / Demo
 Review Purchase Requisition
 Navigation:
 Logistics -> materials management -> purchase requisition -> Display
 Review status tab; note GR data
 Double click on PO number
 Review PO history tab
 Click material document number
 Review material document and go back
 In PO, close item detail, open header, review status
 Exit

116 Magal and Word | Integrated Business Processes with ERP Systems | © 2011
Example / Demo
 Review GL accounts
 Navigation: Accounting -> Financial Accounting -> General
Ledger -> Account -> Display Balances
 Review A/P account – nothing there! Why?
 Review GR/IR account
 View Inventory account

 Review vendor account


 Navigation: Accounting -> Financial Accounting -> Accounts
Payable -> Account -> Display Balances
 Select and review vendor account – nothing there! Why?

117 Magal and Word | Integrated Business Processes with ERP Systems | © 2011
Receive and Verify an Invoice
 Navigation:
 Logistics -> Materials Management -> Invoice Verification
 Input
 Enter date, amount and PO number
 Check “booking ok” box
 Verify green light and zero balance
 Automatic data entry
 Vendor data, material, quantity, price, total
 Save
 Document (accounting ) number:

118 Magal and Word | Integrated Business Processes with ERP Systems | © 2011
Example / Demo
 Review Purchase Requisition
 Navigation:
 Logistics -> materials management -> purchase
requisition -> Display
 Review status tab; note invoice data
 Double click on PO number
 Review PO history tab
 Click account document number
 Review account document and go back
 In PO, close item detail, open header, review status
 Exit

119 Magal and Word | Integrated Business Processes with ERP Systems | © 2011
Example / Demo
 Review GL accounts
 Navigation: Accounting -> Financial Accounting -> General
Ledger -> Account -> Display Balances
 Review A/P account – updated

 Review vendor account


 Navigation: Accounting -> Financial Accounting -> Accounts
Payable -> Account -> Display Balances
 Select and review vendor account – Updated

120 Magal and Word | Integrated Business Processes with ERP Systems | © 2011
Make payment to Vendor
 Navigation:
 Accounting -> Financial Accounting -> Accounts Payable ->
Document Entry -> Outgoing Payment -> Post
 Input
 Enter date, bank account, amount and vendor account
 Enter to next screen
 Select invoices (double click invoice amount) to be paid until
“amount entered” and “assigned” are equal
 Save
 Document (accounting ) number:

121 Magal and Word | Integrated Business Processes with ERP Systems | © 2011

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