The Procurement Process

Objectives

­ Describe the basic business process of procuring stock materials

in an ERP System.
­ Discuss the integration points in procurement to Financial
Accounting and Inventory Management.
­ Discuss the reporting and analysis tools used by R/3 in the
procurement cycle.
 Hierarchical Enterprise Structure

Client
• highest hierarchy level, e. g. group with its daughter companies
• Settings made will affect all company codes
S H S H Company Code (FI)
• Org. Unit can present a balance sheet according to the legal
18.000 18.000 18.000 18.000
3.283 3.283 3.283 3.283
137 12.137 137 12.137
12.248 1.248 12.248 1.248

provisions  legally independent enterprise

12121323 12121212 12121323 12121212

• Settings made will only affect the respective company code

Purchasing organization
• procures material or services for the assigned plants
• negotiates on terms & conditions with vendors  make contracts
• is responsible for all the purchase processes
• operative purchasing is done by purchasing groups

Plant
• Operational facility within a company code (e.g. factory, store, ...)
• has its own requirements planning and inventory management

Storage location
• a space for logical inventory management
 Purchasing organization

material
group

purchasing organization purchasing group MG 0, 3

purchasing group MG 1, 4

purchasing group MG 2, 5

purchasing group MG 6
plant
purchasing group MG 7, 8, 9
 Inventory Management with a Warehouse
Management System
client 0001
0001 –– ABC
ABC inc.
inc.

company code 0001 – Jones inc. 0002 – Model Ltd.

purchasing organization 0001

0001 0002
0002 0003
0003
MM
distrib.-
plant center 0001
0001 0002
0002 0003
0003 0004
0004 0001
0001 factory

storage location 0001

0001 0002
0002 0003
0003 0004
0004

warehouse number 001

001

storage type 001

001 002
002 WM
storage bin (physical stock) 05-04-03
05-04-03 05-04-04
05-04-04
 The Module MM – Main Functions

 Maintenance of the material master record (different views)

 Material requirements planning
 Material procurement: 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 verification referring
purchase orders, goods received documents, delivery
notes etc.
 MM – interdependencies to other modules

Logistics

PP MM SD
production sales and
planning distrib.
material master
purchasing
requirements plan.
inventory mgmt.
QM PM
quality invoice verification plant
management maintenance

FI CO AM
financial acc. controlling fixed assets mgmt.
 Basic Data

 Master records - include information about

1. vendors
2. material and 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
 Structure of the Vendor Master Record

sections utilization area of validity

 General data
• name
client wide
• address
• control data

 purchasing • request for quotation for each

• terms and cond.
• quotation processing purchasing
• partner functions
• currency • purch. order handling organization

 accounting data • invoice entry client wide or

• bank account
• invoice verification for each
• acc. maintenance
• payment • payment handling company code
 Views on the Material Master Record

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

 accounting: valuation- and calculation-specific information

 requirements planning: information about material requirements
planning (e. g. reorder point)
 purchasing: e. g. responsible purchasing group, order unit
 engineering: technical information
 storage: information about warehousing, material movements, ...
 forecast: information about the forecasting of the material requirements
 S & D: informationen about sales orders and price determination
 purchasing info record

info record
prices
terms & cond.
PO statistics
tolerance levels
date
quotation outline
agreement
order
 Procurement

The primary SAP R/3

application modules that
Sales &
support the Procurement
Financial
Distribution Accounting

process are: Materials

Mgmt. Controlling

­ Materials Management Production Fixed Assets

Planning
 Purchasing Mgmt.

 Goods Receipts
R/3
Client / Server
 Invoice Verification Quality
Mgmt.
ABAP/4 Project
System

­ Production Planning Plant

Maintenance Workflow
 Purchase Requirements
Human Industry
­ Financial Accounting Resources Solutions

 Payment Processing
 Materials Valuation
Purchasing Process

PO invoice
?
=
X X X

X X

invoice verification determination: requirements

vendor
X X X

X X outline agreem.

determination: source of supply

MM
goods received & vendor
vendor22

inventory mgmt. vendor

vendor11
?

PO
vendor selection
PO
PO

PO monitoring

purchase order processing

 Procurement Cycle

 The procurement cycle may consist of eight processes:

Purchase Order
Purchase Order

8. Payment
1. Requirements
determination
2. Source
determination
7. Invoice verification

Purchase Order
Purchase Order
6. Goods receipt and 3. Requisition assigned
inventory management to a Vendor

5. Order follow-up 4. Order processing

 Business Process Flow for Procurement

 The main documents and transactions in the Procurement

process are:

Purchase Purchase Goods Invoice

Requisition Order Receipt Posting

Planning, Reporting, and Analysis

­ Note: Payments to vendors are usually made at specified

times (e.g. at the end of the month).
­ Payment amounts are determined according to the ‘open’
invoices posted on the system.
 Purchase Requisition Processing

or

Material Resource Direct Entry

Purchase Order
Planning Purchase Order
Purchase Order

Purchase requisition Release strategy Purchase order

Determine source of supply

 Purchase Orders

 A purchase order is a formal request to a vendor to provide

certain materials or services under specific conditions
(quantity, price, delivery date, etc.)

Purchase Purchase Goods Invoice

Requisition Order Receipt Posting

Planning, Reporting, and Analysis

 Create Purchase Order (PO)

vendor
vendor22

purch. order
1
vendor known

terms & cond.

purch. order
2 source list
outline
agrement info record
vendor not known
vendor

vendor
vendor22
3 purch. req. purch. order

assigned purchase
requisition exists
(from user department)
 Purchase Order Processing

Purchase
Purchase
Order
Order

• •Standard
Standard
Direct Entry
• •Sub
Subcontract
contract Statistics
or Purchase • •Consignment
Requisition Consignment
• •Third-party
Third-party Order History
Purchase Order
Purchase Order
Purchase Req.

Stock material Account assignment

(cost center, asset,
Consumable material project…)
Service
 Goods Receipt

 When goods are received from a purchase order, the item

data is copied from the purchase order into the goods
receipt document.

Purchase Purchase Goods Invoice

Requisition Order Receipt Posting

Planning, Reporting, and Analysis

 Goods Receipt for Stock Material

 Entering the goods receipt increases the inventory level

of a material that is procured for stock.
P
urch
asing
d
ocuments
Items
1 .
2 .
3 . G
oods W
are
hou
se/s
tore
s
R
ece
ipt

 Inventory Management (MM module)

controls and records all goods movement,
V
end
or form purchase order receipt through the
plant, to consumption
 Results of a Goods Receipt Posting

 Transaction documents are created both for materials

management and finance.
Accounting
document
G/L accounts: Stock quantity
Consumption account Consumption statistics
GR/IR account

Material Point of consumption

document Cost center Order
Goods Receipt
Posting
Goods receipt Transfer
slip Order
Purchasing data:
Order item, Order history
 Posting an Order Entry (Goods Receipt)

Logistics
MM
PP purchasing req. planning SD
production sales and
planning distrib.
goods receipt

inventory mgmt.

goods issue. transfer

posting
QM PM
quality inventory invoice plant
management controlling verification maintenance

FI CO AM
financial acc. controlling fixed assets mgmt.
 Invoice Processing

 This last step in the procurement process includes invoice

verification and updating accounts payable in the FI module.

Purchase Purchase Goods Invoice

Requisition Order Receipt Posting

Planning, Reporting, and Analysis

­ Payment will then be made later based upon the ‘open’

invoices posted on the system
 Invoice Verification

input output
invoice verification
information information

actions:
orders
• enter invoice
• verify invoice
goods receipt
• post invoice
• update
master data: relevant data
• (re-edit financial
material
invoice) accounting
vendors
accounts asset
management
terms & cond. cost accounting
 Invoice Verification Environment

 Invoice verification accesses data from purchasing,

inventory management, material master, and vendor
master files.
G/Laccounts
Purchase Assets
O rder PurchaseO rder
P urchaseO rder
Costcenters

Projects
V endor
Invoice Invoice Orders
verification
Goods
Receipt P
Po
os
stt
in
ingga
an
ninv
ino
vic
oiceein
intt
hhe
eR/3
R/3S
Sy
ys
stt
em
em
u
up
pd
daatt
es
esp
purr
uch
ca
hs
asin
ing
g a
anndda
ac
cco
cu
on
utt
ning
ingd
da
att
aa
Material master

Vendormaster
 Vendor Payment

 Accounts payable reads the invoice file and pays all posted
invoices due. (Payment runs can be automated to occur at
specific times.)
Vendor Bank
Financial 1000 Payment
Payment 1000
Accounting program
program

Motor Sports International 1449

1234 Main Street
New York, NY 10181 Date _______________

Pay to: ________________________________________

________________________________________________________

_______________ _________________

Released 12930 39040 2020 20202 10923 1449

Invoice
Procurement Integration
MM

Purchase Order PP FI FI

Purchase Order

Goods Receipt

Invoice Verification

Invoice
 Reporting and Analysis

 Standard Reporting provides List Displays (pre-defined

programs) by:
­ Vendor
­ Material
­ Account assignment
­ Material group
­ Purchase order number
­ Tracking number
 General Analysis
 Order Value Analysis
 Inventory Transaction Analyses
 Logistics Information System (LIS)

 The Logistics Information System (LIS) contains several

information 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.
 Logistics Information System (LIS)

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

 The LIS contains several information systems such
as: ­ Inventory Controlling
­ Sales Information System ­ Shop Floor Info 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. Logistics
Information
Logistics Information Library Systems

Sales Purchasing Shop Floor Maintenance Quality Mgmt

Inventory
Information Information Information Information Information
Controlling
System System System System System

R/3 Logistics
Sales and Materials Production Plant Quality Processing
Distribution Management Planning Maintenance Management Systems
(SD) (MM) (PP) (PM) (QM)
 In Summary (important)

 The basic procurement process includes:

­ Purchase requisition ­ Goods receipt
­ Purchase order
­ Invoice processing
 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