Fundamental guide to SAP Procurement processes

SAP Materials Management

INDEX
FUNDAMENTAL PROCUREMENT PROCESSES..................................................................................3 MATERIAL MASTER..................................................................................................................................5 VENDOR MASTER.......................................................................................................................................5 PURCHASING MASTER.............................................................................................................................6 PURCHASING DOCUMENTS....................................................................................................................7 NOTES ON PURCHASING DOCUMENTS...............................................................................................9 PURCHASING PROCESSING..................................................................................................................10 GOODS RECEIPT.......................................................................................................................................11 INVOICE PROCESSING............................................................................................................................12 VENDOR PAYMENT..................................................................................................................................13 PURCHASING INTERGRATION.............................................................................................................15 MATERIALS PLANNING AND CONTROL...........................................................................................16 QUOTATIONS.............................................................................................................................................19 PURCHASE ORDER...................................................................................................................................20 OUTLINE AGREEMENT...........................................................................................................................23 CONTRACT ................................................................................................................................................24 SCHEDULING AGREEMENT..................................................................................................................24 PURCHASING INFO RECORDS..............................................................................................................25 SOURCES OF SUPPLY..............................................................................................................................27 MASTER CONDITIONS............................................................................................................................28 EXTERNAL SERVICES MANAGEMENT..............................................................................................31 VENDOR EVALUATION...........................................................................................................................35

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SAP Materials Management

INTRODUCTION
Materials Management covers all tasks within the supply chain, including consumptionbased planning, purchasing, vendor evaluation, and invoice verification. It also includes inventory and warehouse management to manage stock until usage dictates the cycle should begin again. The purpose of the MM-Materials Management module is to provide detailed support for the day-to-day activities of every type of business that entails the consumption of material. The Materials Management module of SAP R/3 consists of the following components: • • • • • • • • Purchasing. External Services Management. Vendor Evaluation. Inventory Management. Invoice Verification. Warehouse Management. Consumption Based Planning. Material Ledger

FUNDAMENTAL PROCUREMENT PROCESSES
Requirements Determination -- Basically, how do we know we need something? The request for goods or services usually comes in the form of a purchase requisition. Purchase requisitions can be created manually or automatically by MRP (Material Requirements Planning). MRP is part of the Manufacturing Planning and Execution process introduced above. Simply put MRP determines the material needs based on current and future sales figures and automatically triggers the requirements when necessary. Source Determination -- The source of supply is determined for the needed item by the purchasing department or the system Vendor selection -- The requisition is assigned to a vendor Order processing -- A purchase order is requested with reference to the requisition Order follow-ups -- The system provides automated expediting and follows up reminders to ensure prompt delivery of the order Goods receipt and inventory management -- The goods are received into the warehouse via purchase order goods receipt Invoice verification -- The invoice is validated by comparing it to the original purchase order price and quantity received Payment -- Payment will be made based on payment terms and conditions defined

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Company code The company code represents an independent accounting unit within a client.Includes the first three steps of the procurement process. Storage location A storage location is the actual physical location.e. Please note that a purchasing group can perform this function for several purchasing organizations. Note that a plant can be a manufacturing facility or a warehouse distribution center. Plant A plant is an organizational unit within a company. Purchase Orders -. i. i. are compiled.Includes step six of the inventory process. A plant produces goods. It represents the corporate group level of an organization.Steps seven and eight of the procurement process. Goods Receipt and Inventory Management Invoice Processing -.SAP Materials Management Four Main Documents and Transactions in the Procurement Processes Purchase Requisitions -. 24/Feb/2009 4 of 39 . Purchasing group The purchasing group is a special subdivision within a purchasing organization that handles certain specific purchasing activities. namely the day-to-day buying.e. Requirements Determination.e. Organizational Elements Client The client represents the highest level of the organizational hierarchy.e. i. Invoice Verification and Payment. Order processing. Purchasing organization A purchasing organization is an organizational unit responsible for procuring materials and services for one or more plants and for negotiating prices and terms of delivery with the vendor. within a plant.e. and Order Follow-Up Goods Receipt Posting -. i.Includes the steps four and five of the procurement process. a business unit for which balance sheets and profit and loss statements. or makes goods available for distribution. Source Determination and Vendor Selection. required by law. where the material stocks are located. renders services. i.

Vendor master records comprise information for both the accounting and purchasing function as well as general vendor data. and standard or moving average price VENDOR MASTER Vendor Master Records include general information such as name and address. each is presented with a different view of the vendor master file. and in the Purchasing view the purchasing agent has access to the general data and the purchasing data. payee 24/Feb/2009 5 of 39 . contact information. the accountant has access to the general and accounting data. terms of delivery. order recipient. and the order unit The purchasing group (buyer group) responsible for the material Accounting data. such as the base unit (stock keeping unit). goods supplier.SAP Materials Management MATERIAL MASTER Organizational levels for inventory management General data Plant data Storage location data Valuation data Material master views – primary views for procurement Purchasing view Engineering view Accounting view Steps to create a material master • • • • The material type and industry sector The units of measure. and the language spoken by the vendor. price control. General data is data that applies to all company codes within the client. such as the valuation class. Purchasing data includes items such as contact persons. etc. currency used for the vendor. invoicing party. In the Accounting view. Because Accounting and Purchasing have different information needs. phone number. It includes such information as address. Accounting data includes accounting specific information such as payment transactions and reconciliation control account information. etc. General functions • • • • Terms of payment One time vendor Blocking vendors Maintaining business partners – vendor. terms of payment.

the info record indicates the units of measure in which materials are ordered from the vendor. Purchasing is supported in its everyday work by the following additional types of master data: • • • • • Purchasing info record Source list Quota arrangement Conditions Vendor evaluation Purchasing info record Info record is short for Information record. You can also create. and the applicable reminder levels. for stock material). The purchasing info record (also referred to in abbreviated form as the "info record") is a source of information for purchasing. The info record contains concise information about a vendor and a material that you already procure from that vendor.SAP Materials Management PURCHASING MASTER In addition to vendor and material master data. It contains information on a specific material and a vendor supplying the material. For example. the vendor's current pricing is stored in the info record. Info records are created automatically when you order a material. 24/Feb/2009 6 of 39 .g. change. The info record also allows buyers to quickly determine: • • Which materials have been previously offered or supplied by a specific vendor Which vendors have offered or supplied a specific material The info record contains data such as: • • • • • • • • Current prices and pricing conditions The number of the last purchase order Tolerance limits for over deliveries and under deliveries The planned delivery time (lead time required by the vendor to deliver the material) Vendor evaluation data An indicator as to whether the vendor counts as the regular vendor for the material The vendor sub-range to which the material belongs The availability period during which the vendor can supply the material There are two types of info record: • Info records with a material master record (e. and delete info records. An info record thus represents a material-vendor relationship. This type of info record represents the relationship between a material or service (for which a master record exists) and a vendor. For example. It also shows price changes made by the vendor for the material. This information can be useful in the process of evaluating quotations to determine the successful bidder.

for consumable materials). Master conditions Master conditions are conditions that are defined centrally and which determine the value of purchase orders. Vendor evaluation Vendor evaluation is the process of analyzing and assessing the performance of your suppliers. and the order unit). It shows the time period in which a material may be ordered from a given vendor or under a long-term agreement. They are used as the basis for calculating the effective price. Vendors are awarded scores for a number of different criteria. reminder levels. Vendors' overall scores can be used to determine whether they are retained in or eliminated from your vendor base. Setting quotas allows you to automatically apportion the total requirement of a material over a period among a number of different sources of supply. Quota arrangement A quota arrangement is a mechanism for determining the source of supply to which to assign a material requirement on the basis of quotas. It enables you to determine the valid source for the procurement of the material listed in a purchase requisition at any given time. PURCHASING DOCUMENTS The main documents and transactions in the procurement process are: • • • • Purchase Requisitions Purchase Orders Goods Receipt posting . This type of info record represents the relationship between a material or service for which no master record exists and a vendor. Source list A source list specifies the possible sources of supply for a material over a given period of time. It also constitutes a basis for vendor selection. The source list helps you determine which vendors or internal suppliers supply a material at a given point in time.updates both stock and financial records Vendor Invoice posting 24/Feb/2009 7 of 39 . It is also used in the automatic selection of vendors for a material. An info record contains general data and organizational data: • • General data that is valid for each purchasing organization or each plant (for example.g. Organizational data such as prices and pricing conditions that you can store for the relevant purchasing organization or plant. origin data.SAP Materials Management • Info records without a material master record (e.

It has the following characteristics: • • • It is the primary instrument for identifying materials or services that must be procured outside the company. Additional items can include: 24/Feb/2009 8 of 39 . Quotation A quotation contains the vendor's pricing and conditions for providing the material or service stated in the RFQ. RFQ (request for quotation) A request for quotation (RFQ) is an invitation to a vendor to indicate his terms and conditions (in particular. It authorizes the purchasing department to purchase materials in specified quantities within a specified time.O) The purchase order represents the formal and final approval of a purchasing transaction with the vendor. the RFQ identifies the material.SAP Materials Management Purchase Requisitions A purchase requisition defines a need for a material or service. quantity. his price) for the supply of a material or the provision of a service by submitting a quotation. Then you can: • • • Use the price comparison list to help you determine the best quotation Send rejection letters to the appropriate vendors Store the pricing and terms of delivery for certain quotations in the info record for future reference. and bid submission deadlines). and delivery date. the vendor's name and address) and important dates for the RFQ (such as the closing date for applications. It is an internal document: it is not used outside the company. You enter the vendor's pricing and conditions in the original RFQ. Purchase Order (P. As in the case of the purchase requisition. the RFQ and quotation are the same document. It identifies: • • • • • • The vendor The material or service to be ordered The quantity The price The delivery date and terms of delivery The terms of payment In addition. or pre-qualification date. the purchase order determines whether the ordered material is placed in stock or consumed directly upon goods receipt. In addition. In MM Purchasing. the RFQ contains information about the vendor to whom the RFQ is sent (for example.

or planned (forecast) delivery dates. and the price. including "blanket order". For each material to be procured. Each purchasing document is subdivided into two main areas: the header and individual items. the terms "release" and "releasing" may also be applied to an internal purchasing document approval or clearance process. For example.as here. and may contain data on previous goods receipts. and contracts. "blanket contract". (Note that in addition to standing for a method of ordering materials or services . This determines. Document types are defined for RFQs. A delivery schedule may contain firm. NOTES ON PURCHASING DOCUMENTS Purchasing documents are differentiated in the SAP system via the document type. semi-firm. In vendor scheduling. you subsequently set up a rolling delivery schedule by creating a number of individual schedule lines. A number of different terms may be used for this concept in purchasing literature. Each document is assigned a unique number. The relevant document type appears as a default value when you create a purchasing document. the delivery dates. Each document will contain a header and can contain several items. information about the vendor is contained in the 24/Feb/2009 9 of 39 . and possibly also delivery time-spots. The header contains information relevant to the whole document. in the SAP System. The items specify the materials or services to be procured. depending on the policy of your enterprise. The standard SAP system includes certain document types. However. "systems contract" and "period contract". for example. The contract does not contain specific delivery dates or the individual delivery quantities.) The delivery schedule specifies the quantities to be delivered. Alphanumeric assignment is only possible in the latter case. For each scheduling agreement item. External number assignment means that the person creating the document must supply it. purchase orders. vendors receive a scheduling agreement release (comprising a header and a rolling delivery schedule made up of individual schedule lines) rather than discrete purchase or release orders. (Note that the "number" may also be an alphanumeric code: see below). These are specified subsequently in release orders issued against the contract. This number can be assigned internally or externally. you create a scheduling agreement item.SAP Materials Management • • • Quantity and/or Value Contracts Quota Arrangements Scheduling Agreements Contract A contract is a longer-term agreement with a vendor (one of the two forms of "outline agreement" in the SAP system) to supply a material or provide a service for a certain period of time. which the relevant number range is and which fields are offered for maintenance purposes. your enterprise can also define its own. Scheduling agreement The scheduling agreement has similarities with a quantity contract: it states the target quantity of a material to be ordered from a vendor over a period of time. for example. Internal number assignment means that the system assigns the number.

the SAP component Consumption-Based Planning suggests materials that need to be ordered on the basis of past consumption or usage figures and existing stock levels. If you wish to spread your purchasing across a number of suppliers. and has no direct connection with the procurement data of the item. For example: Your packing materials are purchased in large quantities on a regular basis from a single supplier. a quota arrangement may be drawn up that splits the purchase orders into predefined ratios. which contains information on already recorded goods and invoice receipts relating to the item. for example. and the delivery date. and the material description and quantity to order is specified in each item. the data from the requisition is copied into a purchase order with the details from the purchase information record. The component also automatically determines the order quantity and the delivery date. Each item in a purchasing document represents a specific planned procurement. Purchasing transactions (involving requisitioning. Once the source of supply is determined. the source of supply must be determined.SAP Materials Management document header. This may be via a number of different strategies depending on the type of product and industry concerned. How are requisitions created? In the SAP System. Via networks from the SAP component PS Via plant maintenance orders from the SAP component PM Directly: Someone from the requesting department enters a purchase requisition manually. requisitions can be created in the following ways: Indirectly: • • • Via materials planning and control . PURCHASING PROCESSING Requisitions may be entered directly or as a result of Materials Requirement Planning (MRP). ordering and monitoring) occur on an item-specific basis. Additional data includes. Before a requisition is created. 24/Feb/2009 10 of 39 . It is displayed in analyses of requisitions and in the statistics data of a requisition item. and the purchase requisitions may call off quantity releases against the contract. account assignment data (such as cost center and G/L account) and the PO history for an item. Materials Planning can stipulate that a requisition be resubmitted to Purchasing if it is not processed within a predetermined period. The person creating the requisition determines what and how much to order. When the requisition is released. This strategy requires specific authorization before a purchase order can be created. The creation indicator in the requisition shows whether the requisition was created manually or through Materials Planning. In this case a long-term contract may have been agreed with this supplier. The additional data includes additional information about the item. the requisition may have a release strategy assigned to it.

price.) Like purchase requisitions. charging the items to cost centers. The G/L accounts involved in a goods movement are updated through an automatic account assignment. if it leads to an update of the G/L accounts). Goods receiving personnel can confirm the receipt of goods simply by entering the PO number. You can create a PO in three different ways: 1. Vendor unknown Use this procedure if you want the system to select possible vendors. several accounting documents are created for a single material document. Vendor known Use this procedure if you know which vendor is to receive the order. or info record as a procurement option). for example. an accounting document is created parallel to the material document. By specifying permissible tolerances.SAP Materials Management Purchase Order Processing • • • • A purchase order is a formal request to a vendor to provide certain materials or services under specific conditions (quantity. different account assignments can be made for the items. a goods receipt is a recorded. (Note: the term "source" covers outline purchase agreements. This might be the case. buyers can limit over. outline agreement. GOODS RECEIPT When a company receives material from a vendor. Accounting documents If the movement is relevant for Financial Accounting (that is. info records. etc. etc. those requisitions containing a vendor.and underdeliveries of ordered goods. and source lists). Assigned requisitions Use this procedure to list the requisitions for your purchasing group that have already been assigned to a vendor (that is. 3. A goods receipt leads to an increase in warehouse stock. if you have two material document items with different plants that belong to different company codes. This procedure is described later in this section. purchase orders may be entered directly. A goods receipt (GR) is a goods movement with which the receipt of goods from a vendor or from production is posted. delivery date. These suggestions are then made on the basis of sources of supply that have been predefined in the system. 2. It is possible to apportion the costs across several cost centers or projects when the order is created. 24/Feb/2009 11 of 39 . projects. There are different types of purchase orders designed to handle various business situations. In some cases. As a result of the order type. assets. POs can be generated from these requisitions automatically.

This speeds the process of auditing and clearing invoices for payment. The accounts payable clerk is notified of quantity and price variances because the system has access to PO and goods receipt data. If you book goods into a storage location. the material document number and item. the integration with FI (Financial Accounting) updates the General Ledger to reflect the increase in the stock value. the movement type. If the goods are destined for consumption. GR/IR accounts. If the goods receipt is posted into goods receipt blocked stock (see the section Goods Receipts Into Goods Receipt Blocked Stock). Order item. which does not yet exist for this material. Which stocks are updated in the material master record depends on the destination of the goods: Goods receipt into the warehouse. and the posting date of the goods receipt. The system supports the checking and matching of invoices. The header contains general data about the movement (for example. Each item describes one movement. Goods receipt into goods receipt blocked stock. Consumption. such as: the delivered quantity. The goods are recorded only in goods receipt blocked stock of the purchase order history. Other Documents generated during Goods receipt posting • A material document is generated that serves as proof of the movement and as a source of information for any applications that follow. At goods receipt. This record contains data essential for Purchasing. etc. the stock remains unchanged. the system increases total valuated stock and the stock type (for example. Transfer Order document Point of Consumption Cost Center Order document Stock Quantity Consumption statistics • • • • • INVOICE PROCESSING Invoice verification validates the invoice by matching the purchase order price and purchase order receipt quantity to the invoice. This also updates the purchase order history and creates a financial accounting document. The vendor evaluation is also updated which allows you to see if vendors are adhering to the requested delivery dates. The stock value is updated at the same time. If the "delivery completed" indicator is set in the material document. After a purchase order has 24/Feb/2009 12 of 39 . • • • • • Stock Update. and the open purchase order quantity is set to zero. a purchase order history record is automatically created. the storage location data will automatically be created in the material master record when the goods receipt is posted. only the consumption statistics are updated in the material master record. the order item is considered closed. its date). A material document consists of a header and at least one item. During goods receipt posting. the unrestricted-use stock) by the delivered quantity. Goods receipt into consumption. If the goods are destined for the warehouse.SAP Materials Management G/L accounts: Stock. Goods receipt into a new storage location. Purchase order history.

You want to clear a down payment partially. You have received the closing invoice for a down payment and can no longer clear it with the payment program. You must carry out a transfer posting of down payments manually in the following cases: 1. In this case. The payment program has been developed for international transactions with vendors and customers. since you will not run the payment program until after you next prepare the balance sheet. You must clear each down payment amount manually. This transaction also supports the transfer posting of partial amounts.SAP Materials Management been filed. which are paid at different times. a good receipt made. The payment program subtracts the down payment only when the corresponding invoice is paid. After this transfer posting. You want to allocate a down payment to a specific invoice. The system notes the document number of the invoice in the line item of the down payment. you can carry out a transfer posting of the clearable down payments. This payment made is taken into account when the invoice is paid. Checks issued by hand need to be dealt with separately in order to create a link between the check number and the payment document. the corresponding amount is no longer displayed in the vendor account and in the General Ledger as a "down payment made". You want to prepare your year-end closing. the invoice must be verified before the invoice is posted to the following areas: • • • • • G/L accounts Assets Cost Centers Projects Order VENDOR PAYMENT SAP's standard system contains the most common forms of payments. but rather as a "payment made" in the payables account. 2. That is. Each method has been defined separately for each country. either manually or automatically. 3. so you can carry out both incoming and outgoing payments. and a vendor invoice created. It is advisable to reserve a separate number range for manually created checks in order to keep the use and management of such checks separate from that of automatically created checks. The standard payment methods include: Check You can post the check payment manually or via the payment program. with which it is to be cleared. 24/Feb/2009 13 of 39 . you clear the down payment with the closing invoice manually. Transfer Immediately after receiving the closing invoice. a down payment is cleared with several invoices.

Your bank pays the bill of exchange on this date. The system shows the screen for entering header data and for selecting a clearing procedure. together with the discount-qualifying periods (for example. or "discount of 2% if payment is made within 10 days). enter the posting key for posting a bill payable (39 in the standard system). 4. Due date Enter the due date of the bill of exchange. Accounts Payable reads and pays all invoices that are due and are not blocked for payment. proceed as follows: 1. Select Process -> Choose open items. This accesses the screen for entering data on the bill of exchange. including the specification of any discounts granted for prompt payment. If you want to post the bill liability to the bank sub-account and the corresponding clearing account. such as the vendor account number. 3. You reach the selection screen for open items. In the latter example. You specify the terms of payment in the vendor master record. You then change to the screen for processing open items. and the special G/L indicator for the bill posting (B in the standard system). The most important fields are: • • • Drawer The address data of the vendor is suggested. 5. To post a bill of exchange payment manually. You can then change to the screen for processing open items to clear the bill payable. Select ENTER. Terms of payment represent stipulations concerning the time of payment of amounts due. Once the invoices are posted. This information can be changed manually on the invoice. the discount is deducted from the invoice amount if payment is made within the specified period. The system suggests the required data. the account type. Enter the header data and select the clearing procedure Outgoing payment. On the bottom line. you must make the corresponding G/L account posting on the bottom line of the screen. All further steps for clearing open items are described in Clearing Open Items. the number of the vendor account. the clause "payable in 30 days net". You can further limit the items to be processed by specifying selection criteria. The payments are based on information (payment terms) that is specified in either the purchase order or in the vendor master file.SAP Materials Management Bill of exchange You can make payments to your vendor by bill of exchange using the payment program. 2. and the company code. You can also post the bill of exchange payment manually. 6. Post the document: The system clears the open payables and posts a bill payable to the vendor account and the special G/L account. Select Document entry -> Bill of exchange ->Payment. To do this. When you place an order 24/Feb/2009 14 of 39 . Drawee The address data of the company code is suggested. you enter these two line items first.

and invoice verification. PURCHASING INTERGRATION The R/3 System consists of various modules that are completely integrated with one another. Financial Accounting (FI) Purchasing and Accounting both maintain information on vendors. so that the cash discount periods can be shifted forwards. since the payment program cannot deduct the cash discount. The vendor master record represents the vendor account in financial accounting. the period in which the vendor grants a cash discount may end before the invoice is released. goods receiving. however. Good communication between all participants in the procurement process is necessary for Purchasing to function smoothly. Through PO account assignment. inventory management. purchasing. To avoid this. Financial Accounting cannot pay the invoice. it works side by side the following modules: Controlling (CO) Orders for materials and services consumed directly illustrate the interface to the cost accounting system (Controlling).SAP Materials Management with the vendor. Information on each vendor is stored in a vendor master record. This is because they can be assigned to a cost center directly. blocking the invoice would be a disadvantage. In this case. Purchasing communicates with other modules in the R/ 3 System to ensure a constant flow of information. The MM module is fully integrated with other modules in the R/3 System. These are then the ones used by the payment program. Purchasing can also specify which G/L accounts are to be charged in the financial accounting system. It supports all phases of materials management: materials planning and control. you can update the baseline date for payment when you release the invoice. which contains both accounting and purchasing information. The invoice must first be released in a separate step before it can be processed. 24/Feb/2009 15 of 39 . Terms of payment can also be entered in the vendor's invoice. Blocking Invoices When an invoice is blocked. An invoice can be blocked for payment due to one of the following reasons: • • • • Variances in an Invoice Item Amount of an Invoice Item Stochastic Block Manual Block Cash discount and blocked invoices: When an invoice is blocked. Purchasing is a component of the Materials Management (MM) module. For example. they automatically appear as default values. This integration allows various departments in a company to share and maintain the same information. you can change them as needed.

customer requirements from Sales can be passed on to Purchasing. MATERIALS PLANNING AND CONTROL This section provides an overview of materials planning and control and shows how the latter affects purchasing activities in the SAP system. In addition. or MRP) determines requirements on the basis of bills of material and outside demand. Consumption-based planning The SAP component Consumption-Based Planning helps the responsible materials planner (or materials or inventory controller) to determine the following: • • • Which materials to order The quantity required When materials must be delivered to meet current and future requirements 24/Feb/2009 16 of 39 . goods etc. Types of materials planning and control There are two forms of materials planning and control: Deterministic Deterministic materials planning (material requirements planning. This form of materials planning is a component of the SAP application Production Planning (PP). It determines requirements on the basis of past consumption data. Consumption-based Consumption-based planning forms part of the SAP application Materials Management (MM). The section discusses how the component Consumption-Based Planning: • • • Identifies which materials to order Determines the quantity to order Sets the delivery date What is materials planning and control? Materials planning and control determines how much of which material. This activity is the responsibility of the materials planner or controller. component. This procedure involves the development of a production plan directly from bills of material. when creating a requisition. Note that in the SAP system both of the above may collectively be referred to as "MRP". is needed and when. you can assign it to a sales order.SAP Materials Management Sales and Distribution (SD) Within the framework of material requirements planning (MRP).

to go ahead with the procurement of the materials or services set out in the requisition. Identifying materials to order The Consumption-Based Planning module identifies material shortages using one of the following methods: • • By reference to the reorder level (reorder point) Using a forecasting model Whether requirements for a given material are determined by reference to the reorder level or using a forecasting model is defined in the material master record. Within Purchasing. These can be assigned to a purchasing group (buyer group) or a materials planner/controller. quantity. the system flags the material for MRP. and should not be confused with the issuing of orders against longer-term purchase agreements. Reorder level Consumption-Based Planning can suggest orders based by reference to the reorder level of a material.reserved stock Releasing Requisitions This section describes the release procedure for requisitions in Purchasing. If the available stock is less than the reorder level. and how a purchase requisition is actually released (approved). The available stock is determined using the following formula: Available stock = (stock in hand in the warehouse + current orders) . The materials planner/controller or buyer can then convert the requisition into a standard purchase order or a release order issued against a contract. The system compares the material's reorder level with the sum of the available stock. or clearance. It discusses how the release (approval) of purchase requisitions is controlled. how you can determine who must release (approve) a purchase requisition. and dates for accuracy and ensure the correctness of the specified account assignment and source of supply. 24/Feb/2009 17 of 39 . Its aim is to check the data on material. An order proposal is then generated during the next MRP run. Purchase requisitions are released on an item by item basis. "release" means giving approval. there are two procedures for releasing purchase requisitions: • • Release procedure 1 (without classification) Release procedure 2 (with classification) Release procedure 1 This procedure serves as a correction and approval procedure for purchase requisitions. (Note that in this context. The system can generate requisitions automatically. which may also be referred to as "releasing" (US) or "calling off" (UK)).SAP Materials Management It bases its decisions on what to order on past consumption.

The daily requirements are determined using forecasting models.SAP Materials Management Release procedure 2 The aim of this procedure is to replace manual written authorization procedures using signatures by an electronic one.000 dollars. Examples of forecasting models: Constant Demand values are scattered around an average value. Their purpose is to identify how much of a material is required at a given future date based on this pattern. thereby marking it with an "electronic signature" which can give the document legal force. The reorder level can either be set manually by the materials planner/controller or automatically by the system. while maintaining the dual control principle. not in the case of the other purchasing documents. Release on an item-by-item basis is only possible in the case of requisitions. Seasonal Demand peaks at regular time intervals. it can be corrected using the formula: Reorder Level = safety stock + daily requirements * replenishment lead time where the replenishment lead time is in days. The material belongs to the material class Metal 05. The item has a value of 15. As soon as the item has been entered. Forecasting Model Forecasting models identify a pattern of demand for a given material. Classification first selects the relevant characteristics and then checks the characteristic values. The person responsible processes the relevant document in the system. the system passes on the field contents from MM Purchasing to MM Classification in a communication structure. If the reorder level is too high or too low. Manually The planner/controller enters the reorder level in the material master record manually.000 pieces of Steel 1 for plant 2. This procedure is available not only for purchase requisitions but for all other purchasing documents as well. A purchase order contains an item relating to 1. Automatically The system regularly compares the reorder level with future requirements. Trend Demand either rises or falls steadily over a period of time. These and other forecasting procedures are 24/Feb/2009 18 of 39 .

either from the material master record or from the purchasing info record · GR processing time (in workdays) defined in the material master record · purchasing department processing time (in workdays). limit the purchase order quantity to a certain range. for example. The minimum lot size and the maximum lot size. the system suggests delivery dates based on: • • The release date of the requisition Certain tolerances in the material master record Release date The release date of a purchase requisition is the date on which it is activated by the materials planner/controller.SAP Materials Management described in more detail in the MM Consumption-Based Planning Guide. The materials planner/controller defines the lot-sizing procedure used for a given material in the material master record. which is defined for a given plant QUOTATIONS 24/Feb/2009 19 of 39 . Factors determining the delivery date The following factors influence the determination of the delivery date: · planned delivery time (in calendar days) . Determining the order quantity The actual order quantity takes the following data in the material master record into account: • • The lot-sizing procedure Tolerances. If the material has to be ordered in fixed packaging units. Tolerances Certain tolerances in the material master record also affect the order quantity. the rounding value is used to round off the order quantity to the packaging unit size. such as the minimum and maximum lot size Lot sizing procedure The lot sizing procedure is used to calculate the order quantity on the basis of the lot size. Determining the delivery date For materials procured externally.

the RFQ contains information about the vendor to whom the RFQ is sent (for example. You specify which vendors will receive the RFQ. Each item identifies the individual materials for which a price is required from the vendor. the RFQ identifies the material. What is a quotation? A quotation contains the vendor's pricing and conditions for providing the material or service stated in the RFQ. quantity. PURCHASE ORDER 24/Feb/2009 20 of 39 . such as the vendor address. A separate document is created for each addressee. One main difference between RFQs and other purchasing document types is the fact that you cannot enter account assignments for RFQ items. In addition. 4. You create an RFQ manually or by referencing a requisition. the RFQ and quotation are the same document. and bid submission deadlines). Structure of an RFQ The RFQ is organized as other purchasing documents. the vendor's name and address) and important dates for the RFQ (such as the closing date for applications. As in the case of the purchase requisition. and delivery date. You enter the prices and conditions from the vendor's quotation into the RFQ.SAP Materials Management This section provides general information on how requests for quotation and quotations are used in MM Purchasing. or pre-qualification date. 3. following creation of a contract or purchase order). In MM Purchasing. 2. his price) for the supply of a material or the provision of a service by submitting a quotation. RFQs can be subject to a release procedure. The header contains general information about the RFQ. Then you can: · use the price comparison list to help you determine the best quotation · send rejection letters to the appropriate vendors · store the pricing and terms of delivery for certain quotations in the info record for future reference Processing of RFQs and Quotations You do the following when processing RFQs and quotations: 1. What is a request for quotation? A request for quotation (RFQ) is an invitation to a vendor to indicate his terms and conditions (in particular. You enter the vendor's pricing and conditions in the original RFQ. You can monitor the status of the RFQ and quotation as it is further processed (that is.

Item category The item category defines whether purchase order item: • • • • Requires a material number Requires an account assignment Will be placed in stock Requires a goods receipt (GR) and/or an invoice receipt (IR) The following are the item categories defined in the standard system: Standard items categories in POs Standard 24/Feb/2009 21 of 39 . the purchase order determines whether the ordered material is placed in stock or consumed directly upon goods receipt. It identifies • • • • • • The vendor The material or service to be ordered The quantity The price The delivery date and terms of delivery The terms of payment In addition. Purchase orders can be subject to a release procedure. the PO consists of: · Header It contains information specific to the entire PO. For example.Material number or short description ("short text") . you can enter additional information such as time-spot schedule lines and item-specific texts. the terms of payment and the delivery terms are in the header.SAP Materials Management This section provides general information about purchase orders and how they are processed with MM Purchasing. The PO history menu enables you to monitor deliveries and invoices received with regard to the item. For example: . · Items It contains information specific to the material or service. Structure of a purchase order As in the case of other purchasing documents. What is a purchase order? The purchase order represents the formal and final approval of a purchasing transaction with the vendor.Quantity .Price For each item.

Material number required . The stock transport order is one of the special order types in Purchasing.IR not necessary Subcontracting . Consignment Items with the item category "Consignment" are items relating to goods procured on a consignment basis. The third-party order is one of the special order types in Purchasing." Stock transport order (inter-plant stock transfer order) The stock transport order is a mechanism facilitating the transfer of stock from one plant to another (that is. The third-party order is specified in the item category field of a requisition or purchase order.SAP Materials Management Provides for normal goods and invoice receipt Consignment . Third-party order Part of a triangular business deal.GR allowed . Subcontracting Order items with the item category Subcontracting are used to order finished assemblies from a subcontractor. A third-party order is an order placed with a vendor instructing the latter to supply goods to or perform a service for a third party (for example. for example.GR necessary . Consignment stocks are managed separately and are not valuated. a transfer involving transport over a longer distance).GR necessary . Any components the subcontractor requires to assemble the final product are entered as "material to be provided. In this case.GR and IR allowed Standard Items with the item category "Standard" are orders for goods that are to be procured externally.No IR Third-party . Account assignments cannot be made for material ordered on consignment.no account assignments .Account assignment required .IR necessary Stock transfer . goods and invoice receipt are possible.Material number required. one of your customers).Kept in stock . Item category and account assignment 24/Feb/2009 22 of 39 .

PO texts You can enter text in a purchase order directly or change texts that are suggested by system.applies to an individual item You define which texts appear in which order on printouts in Customizing. An outline agreement is a longer-term arrangement with a vendor regarding the supply of materials or the performance of services according to predetermined terms and conditions. an outline agreement consists of the following elements: Document header: Contain the information specific to the entire agreement. Items: Contain the information specific to the material or service. an account assignment is possible.Quantity or price of the item . In MM Purchasing.The vendor information and header conditions are in the document header. such as quantity discounts and surcharges Texts in outline agreements You can create your own texts from scratch in an agreement or change a text that has 24/Feb/2009 23 of 39 .Statistics on ordering activities for the item . outside the SAP System. such agreements are subdivided into Contracts and Scheduling agreements Outline agreements may be subject to a release (approval or clearance) procedure. may also be referred to as blanket. For example: .Pricing conditions. master. materials that are not taken into stock). For example: . framework or umbrella agreements) that are used in the MM Purchasing component. but not mandatory. You can enter several header or item texts. which you can identify by your own codes. Structure of an outline agreement As in the case of other purchasing documents. There are two kinds of text: • • Header text .applies to the entire document Item text . In the case of stock material. OUTLINE AGREEMENT What is an outline agreement? This section provides general background information on the "outline agreements" (Which.SAP Materials Management The item category requires an account assignment for materials that are consumed directly (that is.

For each scheduling agreement item. "systems contract" and "period contract". shipping and delivery instructions. you can choose between the following contract types: Value The contract is regarded as fulfilled when release orders totaling a given value have been issued.SAP Materials Management been suggested by the system. Use this contract type when the total quantity to order over the duration of the contract is known. The contract does not contain specific delivery dates or the individual delivery quantities. Ways of creating contracts You can create a contract in one of the following ways: ·Manually: You enter all the contract data manually. The texts are further subdivided into text types. These are specified subsequently in release orders issued against the contract. CONTRACT A contract is a longer-term agreement with a vendor (one of the two forms of "outline agreement" in the SAP system) to supply a material or provide a service for a certain period of time. and the price. A number of different terms may be used for this concept in purchasing literature. Quantity The contract is regarded as fulfilled when release orders totaling a given quantity have been issued. ·Using the referencing technique: You can create a contract by referencing -Purchase requisitions -RFQs/quotations -Other contracts ·You can also mix the two methods: you can create a contract by referencing an existing one and then change or enter some items manually. including "blanket order". For each material to be procured. There are two kinds of agreement text: header text and item text. you subsequently set up a rolling delivery schedule by 24/Feb/2009 24 of 39 . for example. Contract types When creating a contract. you create a scheduling agreement item. The text type determines the print sequence on the document printout. Use this contract type when the total value of all release orders should not exceed a certain amount. SCHEDULING AGREEMENT The scheduling agreement has similarities with a quantity contract: it states the target quantity of a material to be ordered from a vendor over a period of time. "blanket contract".

you can work with or without release documentation. Advantages of vendor scheduling Procurement via scheduling agreements has several significant advantages: · Streamlines paperwork. If you are using scheduling agreements.you can specify the exact time to deliver. This triggers the transmission of the relevant data to the vendor.) The delivery schedule specifies the quantities to be delivered. If you work with scheduling agreements without release documentation. If you work with scheduling agreements with release documentation.because the delivery schedule extends into the future. It contains information on a specific material and a 24/Feb/2009 25 of 39 . In vendor scheduling.one delivery schedule can replace many purchase orders or contract release orders. and possibly also delivery time-spots. you generate a scheduling agreement release. thus reducing the lead time for a delivery. A delivery schedule may contain firm. The information is recorded in the system. or planned (forecast) delivery dates. Working with such documentation affords the advantage that you can display the valid scheduling agreement releases transmitted to a vendor over a certain period whenever necessary. allowing you to verify at any time exactly when you sent which data to which vendor. · Shorter vendor lead times . internally you can make as many changes to the individual schedule lines as you wish. (Note that in addition to standing for a method of ordering materials or services . the terms "release" and "releasing" may also be applied to an internal purchasing document approval or clearance process. and may contain data on previous goods receipts. allowing for minimum stock levels and just-in-time (JIT) deliveries. shortens processing times . As soon as the schedule lines for a certain item have been finalized and the schedule is ready to be transmitted to the vendor. the vendor has less need to backlog orders. vendors receive a scheduling agreement release (comprising a header and a rolling delivery schedule made up of individual schedule lines) rather than discrete purchase or release orders. · Automatic generation of delivery schedule lines via the MRP system (a precondition for this is that Purchasing must assign a scheduling agreement as a unique source of supply using the quota arrangement and source list mechanisms) PURCHASING INFO RECORDS What is a purchasing info record? The purchasing info record (also referred to in abbreviated form as the "info record") is a source of information for purchasing.as here. semi-firm. · Promotes low inventories . in the SAP System. the current schedule is automatically outputted via the message (output) control program. the delivery dates.SAP Materials Management creating a number of individual schedule lines.

SAP Materials Management vendor supplying the material. the subcontractor info record would include the vendor's (subcontractor's) price for assembling the component. Types of info record There are two types of info record: • • Info records with a material master record (e.g. Pipeline info record A pipeline info record contains information on a vendor's commodity that is supplied through a pipeline (for example. for consumable materials) this type of info record represents the relationship between a material or service for which no master record exists and a vendor. you can store the current and future quotation conditions (discounts.g. oil or water) or via similar means (for example. the vendor's current pricing is stored in the info record. For example. 24/Feb/2009 26 of 39 . For example. prices) is also used as default data for purchase orders. Subcontractor info record A subcontractor info record contains ordering information for subcontract orders. The data in the info record (for example. Info records without a material master record (e. You can also maintain the vendor's conditions directly in the info record. if you subcontract the assembly of a component. The info record also allows buyers to quickly determine: • • which materials have been previously offered or supplied by a specific vendor which vendors have offered or supplied a specific material Contents of an info record The info record contains data such as: • • • • • • • • current prices and pricing conditions the number of the last purchase order tolerance limits for over-deliveries and under-deliveries the planned delivery time (lead time required by the vendor to deliver the material) vendor evaluation data an indicator as to whether the vendor counts as the regular vendor for the material the vendor sub-range to which the material belongs the availability period during which the vendor can supply the material The info record contains quotation and ordering data.) in the info record. fixed costs etc. for stock material) this type of info record represents the relationship between a material or service (for which a master record exists) and a vendor. in order to be able to copy them into Pos. For example.

SAP Materials Management electricity through the mains). Short text For material that has a material master record. It is adopted in the PO item and included in the printout. You can store withdrawal/usage prices for different validity periods. the short text (short description) is copied directly from the material master record into the PO or the outline purchase agreement. (To do so. origin data. text in the purchasing organization data of the info record). Both texts are displayed and printed if the indicator No m. text is not set. an internal note that is adopted in the PO item. The info record contains the vendor's price for the consumption of such commodities by the buyer ("pipeline withdrawals"). and the order unit). For an info record linked to a material master record. Structure of an info record An info record contains general data and organizational data: • General data Data that is valid for each purchasing organization or each plant (for example. set the indicator No m. The info record memo is not printed out PO text in info record This text serves to describe the order item and corresponds to the PO text in the material master record. you can specify for each purchasing organization whether • Only the info record PO text is to be displayed and printed in purchasing documents. Or • Both the info record PO text and the material master record PO text are to be displayed and printed in purchasing documents. reminder levels. SOURCES OF SUPPLY 24/Feb/2009 27 of 39 . • Organizational data Data such as prices and pricing conditions that you can store for the relevant purchasing organization or plant Texts in the info record The info record contains the following text types: Info record memo.

They serve as a central repository of pricing for purchase orders. 3. It also indicates the period for which the source is valid. Source determination is the process of assigning a particular source of supply to a purchase requisition (or vice versa). Quota arrangements are used to determine which portion of the total requirement of a material to procure from a given source. Determination of the effective sources (that is. What is a source list? A source list specifies the allowed (and disallowed) sources of supply for a material within a plant. or if it meets certain criteria defined in the extended conditions.Conditions in the info record apply to orders that specify the material and vendor contained in the info record.These are a flexible way of setting vendor pricing. Definition of a source of supply as "blocked". Each source is defined in the source list by means of a source list record. You can manage sources of supply using source lists and quota arrangements. a source of supply may be a vendor or an outline agreement.SAP Materials Management In MM Purchasing.Conditions in a contract apply to all release orders issued against the contract. Conditions in contracts . Extended conditions . 2. One way to use extended conditions would be to define a 10% discount on all orders placed with a specific vendor that are created by a certain purchasing organization. Aims of sourcing administration Source list records and quota arrangements are used in determining the effective source of a material. The former are used to define the preferred or allowed sources of a material. Extended conditions are master conditions that are included in the price calculation in a purchase order only if the PO meets certain criteria. those sources that represent the preferred sources at a certain point in time). Extended conditions are more flexible than master conditions in info records or contracts because you can define which criteria they must meet before they are applied to a purchase order. The source list offers you the following options: • • • Definition of a source of supply as "fixed". the vendor number and purchasing organization are the two criteria a PO must meet before the price in the PO can be calculated. MASTER CONDITIONS Master conditions are conditions that determine the effective price in the purchase order. 24/Feb/2009 28 of 39 . There are three types of master condition: 1. Such sources count as preferred sources over a certain period of time. In this case. Conditions in info records . They are automatically included in the price calculation in the purchase order if the PO references a contract or an info record.

The actual pricing information . The goal of the conditions technique is to calculate the effective price in a purchase order. Condition type A condition type is a representation of a pricing element. Master conditions are simply conditions defined with the conditions technique. you will learn how to specify conditions that apply to the pricing of all orders for any material with a vendor. Basic elements of the conditions technique The conditions technique consists of four main elements: • • • • Condition types Condition tables Access sequences Calculation schema (pricing procedure) These concepts are important for understanding how the system determines pricing in master conditions. Access sequence 24/Feb/2009 29 of 39 . While this section is not essential to your understanding of master conditions in purchase orders. Condition table A condition table defines the combination of fields (the key) that identifies an individual condition record.SAP Materials Management The documentation on outline agreements and purchasing info records shows how the conditions specified in outline agreements and purchasing info records.is stored in a condition record under this key. You learned how to specify condition types when entering pricing in quotations and purchase orders. For example. In this chapter. and freight costs.such as the gross price and any discounts . Conditions technique The conditions technique is used to define pricing across applications. it does provide useful background information on the mechanism for determining pricing in Purchasing. it is used in the SD (Sales & Distribution) module as well as in the MM module. not only for a specific material or material group as is the case with outline agreements and info records. Condition types exist for discounts. respectively. For example. when you enter a vendor's pricing in a purchasing info record with reference to a material master record. You use condition types to enter pricing in purchasing documents. surcharges. The system stores the condition data you enter in the form of a condition record. influence the calculation of the effective price in the purchase order. the key of the condition table includes the vendor number and the material number. for example. for example.

you can define price calculation schemas for specific vendors and/or purchasing organizations. and condition tables. you can define master conditions that use these pricing elements. The system searches for pricing data in condition records. This condition is then stored in a condition record under the vendor and material number. For example. It enables the system to determine that a particular set of condition types. The calculation schema also determines that the condition types for discounts are calculated in the effective price automatically. in a specified sequence. When the material is ordered from the vendor in a PO. The access sequence determines the sequence in which the system searches condition records for a valid price. you can list or maintain the conditions that determine the net price in a single info record or contract. the calculation schema determines which condition types apply to the gross price. The criteria it uses in the search depend on the keys in the condition table. You can maintain conditions in the following ways: Prices With this method. 24/Feb/2009 30 of 39 . the system searches for the discount using the access sequence. Price changes You can change pricing by a fixed amount globally. With MM Customizing. Discounts and surcharges With this method. you can enter discounts or surcharges that apply to all info records or contract meeting your purchasing criteria Other condition types If your company has defined its own condition types. but the same mechanism can also be used to calculate tax amounts. access sequences. Which condition types are used in the search are defined in the calculation schema. Price calculation schema (pricing procedure) A calculation schema (also known as a pricing procedure. The calculation schema ensures that the 10% discount is deducted from the gross price instead of the net price during the price calculation process. suppose that you have just created an info record that specifies a 10% discount from the gross price. period-end rebates. apply in given circumstances. The sequence of the search depends on the access sequence specified for the condition type. For example. defined in a particular sequence.SAP Materials Management An access sequence is a search strategy that the system uses to find condition records for a particular condition type. or costs. You can enter the going market price for a material. for example) is a group of condition types.

the data is simply copied from the master data. and acceptance of services. There are two ways of entering services: o as planned services o as unplanned services Planned Services By "planned services". thus have no descriptions. • • When creating such specifications. A separate set of service specifications can be created for each concrete procurement project or proposed procurement in the purchasing document. which are termed "unplanned services". Use of this referencing technique means that data only has to be entered once.SAP Materials Management EXTERNAL SERVICES MANAGEMENT MM External Services Management (MM SRV) is a program within the Materials Management (MM) module. Unplanned Services A procurement project may constitute or include a number of individual services which you initially cannot or do not wish to specify in detail (for example. Instead. master data. the construction of an office building). Such initially undefined services. It supports the complete cycle of bid invitation. in which the descriptions of all services that are to be procured can be stored. and documents of the application describes the available functionality and how it works explains the procedures for creating documents in the system ESM Functionality The program offers the following functionality: • • A service master database. award of contract. or set out in service specifications as short or long texts. 24/Feb/2009 31 of 39 . we mean services whose precise nature and intended scope is already known at the beginning of a procurement project. The MM External Services Management documentation • • • • affords a general introduction to the procurement of externally performed services indicates the organizational levels. They are entered in the form of money value limits. they are either entered with the aid of a service master record. Prices and quantities are stipulated in both cases. At the time they are requested. The manual entry effort is reduced to a minimum. Sets of service specifications may include both items with services and items with materials. the user does not have to list individual services manually.

to check whether the service number entered corresponds to the number in the standard service catalog.000 dollars for electrical installations). In addition to the description of the service. The accepted service entry sheet constitutes the basis for subsequent invoice verification in the case of services. Vendor master The vendor master database (comprising all the individual vendor master records) contains information on service providers. The system checks adherence to both these sub-limits and the overall limit. Depending on the size of the enterprise and the way Purchasing is set up. 5 million dollars for the construction of the aforementioned office building).000 dollars for masonry works and 250. texts. Master Data This section discusses the master data utilized by MM External Services Management: • • Service master data Vendor master data Service master The service master database (comprising all the individual service master records) is used to store the descriptions of all services that have to be procured on an ongoing basis. for example. This allows you to exercise a degree of cost control in such situations. a purchasing organization can assume responsibility for all procurement (central purchasing) or the purchasing function can be split up among several purchasing organizations. a service master record contains information necessary for its procurement (for example. they are recorded in entry sheets and then accepted. 200. When the services have been performed. The individual purchasing organizations can be subdivided into various purchasing groups (groups of buyers). an individual vendor master record contains data on 24/Feb/2009 32 of 39 . The service master serves as a source of default data provided by the system during the subsequent creation of service specifications (in connection with a bid invitation procedure. each with its own responsibilities. each of which procures the particular services that have been assigned to it. prices). SAP supplies a user exit enabling you. The individual service master records can be grouped according to different service types (for example. you can set limits for individual contracts within the project (for example. standardized sets of service specifications (known as standard service catalogs) such as the one for the construction industry. units of measure. for example). Here you can also maintain services from general. You can set a value limit at the uppermost level (for example. In addition to the name and address of the service provider. In addition. by sector or trade). Organizational Levels The organizational level at which services are procured is the purchasing organization.SAP Materials Management Services may be performed up to a value not exceeding these limits.

24/Feb/2009 33 of 39 . terms of payment.SAP Materials Management • • • the currency for transactions with this vendor. and names of contact persons As the vendor is also regarded as a creditor in Accounting. The vendor master record is therefore maintained by both Purchasing and Accounting. the vendor master record also contains accounting data such as the control account.

Request for quotation (RFQ) The RFQ is an invitation to a vendor to stipulate. Furthermore.SAP Materials Management Purchasing Documents This section introduces the documents used in the procurement of services and discusses the structure of these documents in the SAP System. Service specifications are entered in the contract (in exactly the same way as in the PO) at document item or sub-item level. Requisitions originate outside the Purchasing Department. Purchase order (PO) The PO is a binding request to a vendor to supply certain materials or perform certain services in accordance with specified terms and conditions. They represent a request to Purchasing to procure the specified quantities of the materials or services on or by the desired date. and in the Project System. 24/Feb/2009 34 of 39 . the term "contract" denotes a form of longer-term. You will find more information on the individual purchasing documents in the MM Purchasing documentation. through the submission of a quotation (bid). in the user departments. The purchase requisition is a document that is designed for internal use only. In addition to the documents for the standard materials purchasing function. Fulfillment is on the basis of individual release orders issued by the buying entity according to need over the duration of the contract. A purchasing document is an instrument used by Purchasing to procure materials or services. Quotation The quotation (bid) contains a vendor's prices and conditions for the supply or performance of the materials or services specified in the RFQ. that is to say. within Plant Maintenance. Contract In the SAP MM System. the invoice verification document is also relevant to services. his prices and conditions (amongst other information) for supplying a material or performing a service. Purchase requisition The purchase requisition defines the requirement of a material or a service. there is a document for the entry of services actually performed by vendors or subcontractors. volume purchasing agreement with a vendor covering the supply of a material or the performance of services.

It provides you with accurate information on prices. Steps in procurement of services The procurement of services may involve the following phases: • • • • • • • • • Creation of purchase requisition Determination of possible sources Invitation to potential service providers to submit bids (creation of RFQ) Entry of quotations (bids) Analysis and evaluation of quotations Award of contract (order placement) Entry of services actually performed Acceptance of services performed Checking and approving invoices submitted by vendors for services performed VENDOR EVALUATION The Vendor Evaluation component has been completely integrated into MM Purchasing. By evaluating vendors. and quantities can be taken from purchase orders. you can improve your enterprise's competitiveness. and terms of payment and delivery. and data from the Logistics Information System (LIS). What is Vendor Evaluation? The Vendor Evaluation System supports you in the optimization of your procurement processes in the case of both materials and services. You can quickly determine and resolve any procurement problems that may arise on the basis of detailed information and in collaboration with the relevant vendors. Vendor Evaluation also uses data from Quality Management. 24/Feb/2009 35 of 39 . the service entry sheet constitutes the document in which precise specifications are entered into the system for the first time.SAP Materials Management Service entry sheet The service entry sheet is used to record services as they are actually performed by the vendor or subcontractor. In the case of unplanned services (defined only in the form of money limits in the PO). It also accesses basic data in Materials Management. the services actually performed are recorded in the entry sheet with reference to the specifications already entered in the PO. such as goods receipt data from Inventory Management. prices. Information such as delivery dates. such as the results of incoming inspections or quality audits. Procurement of Materials The system helps you select sources of supply and facilitate the continual monitoring of existing supply relationships. In the case of planned services.

You can determine and compare the performance of your vendors by reference to their overall scores. since all vendors are assessed according to uniform criteria and the scores are computed automatically. The Vendor Evaluation System ensures that evaluation of vendors is objective. 24/Feb/2009 36 of 39 . The system then calculates the higher-level score from these. In this way. Manual You enter a blanket score for a sub criterion per vendor. You can also define other or further main criteria. You can determine whether the vendors perform the services within the specified timeframes and appraise the quality of the work carried out. The vendor's overall score is computed taking into account the weighted scores awarded for each of the main criteria. or for the quality and timeliness of a service performed yourself. Semi-automatic You enter individual scores for important materials. which suffice as a basis for evaluation. The scores for the sub criteria are calculated in three different ways. Changes to evaluations are recorded in logs. Automatic Scores are calculated by the system on the basis of existing data. subjective impressions and judgments can be largely avoided. but you can also define your own additional sub criteria. you can generate ranking lists of the best vendors according to overall score or ranking lists for specific materials. each main criterion can be divided into several sub criteria. and you have the option of printing out evaluation sheets. For example. You can assign different weights to the individual criteria. Scores and Criteria The SAP Standard System offers you a scoring range from 1 to 100 points. as required. which is used to measure the performance of your vendors on the basis of five main criteria. The main criteria available in the standard system are: ·Price ·Quality ·Delivery ·General service/support These four main criteria serve as a basis for the evaluation of vendors from whom you procure materials. Analyses The results of vendor evaluation are displayed in the form of analyses.SAP Materials Management Procurement of Services You can check the reliability of the vendors from which you procure services on a plantby-plant basis. To create a detailed evaluation. The standard system provides you with certain sub criteria.

Vendor Evaluation uses the following master data: • • • Vendor master record Material master record Purchasing info record This section describes the most important elements of Vendor Evaluation: Overall Score Main Criteria Sub criteria Scoring Range Weighting of Scores Overall Score The overall score represents the complete evaluation of a vendor. which you consider important. The individual scoring methods fulfill different purposes and involve different kinds of maintenance. The system does not support a comparison of Vendor Evaluations at the higher company code level. You can evaluate vendors according to several main criteria.SAP Materials Management Organizational Level for Vendor Evaluation The organizational level for Vendor Evaluation is the purchasing organization: Each purchasing organization evaluates the vendors that have been assigned to it. You can compare different vendors on the basis of their overall scores without generating a detailed analysis of their evaluations. The scores for the main criteria are a more accurate representation of the performance of a vendor than the overall score. It is a combination of the scores the vendor has achieved for all the main criteria. Subcriteria Subcriteria are the smallest units to which scores can be assigned in Vendor Evaluation. 24/Feb/2009 37 of 39 . Main criteria The main criteria form the basis for assessing the performance of a vendor. There are three types of subcriteria: • • • Manual Semi-automatic Automatic They are named after the different methods of scoring. The system calculates the overall score for a vendor from the main criteria scores. The system calculates a score for the higher-level main criterion based on the scores a vendor receives for the various subcriteria.

Suppose a vendor receives 80 points for the criterion Price and 80 points for the criterion Service.SAP Materials Management Scoring Range To compare the performance of one vendor with another. it is necessary to establish a range (or scale) of possible scores. When you carry out the next vendor evaluation. you assign the criterion Price a weighting factor of 3 and the criterion Service a factor of 1. Weighting of Scores The scores a vendor is awarded for main criteria can be weighted differently to reflect differences in the significance of the criteria.to the best-possible achievable score. you can save this combination under a weighting key. The 80 points for Price are then worth three times more than the 80 points for Service when the overall score is calculated. You can define your own scoring range from the worst. The system then automatically sets all the weighting factors. The scoring range is defined when the system is configured. Weighting Factor By using weighting factors. If you know that you will want to carry out an evaluation repeatedly with certain main criteria and certain weighting factors. you can increase or reduce the importance of certain criteria when a score is calculated at the next highest level. Evaluating Vendors The evaluation of vendors is subject to certain preconditions. Since the price of the material is more important to you than the service the vendor provides. The examples in this documentation are based on a scoring range of 1 to 100 points. This scale provides you with a good overview and also permits quite a finely differentiated rating of individual vendors. just enter the relevant weighting key instead of entering a weighting factor for each individual criterion. Before you begin. when was the last evaluation? Below are the steps you must carry out to evaluate a vendor: 24/Feb/2009 38 of 39 . you must consider the following: • • • • • • Have you maintained the system settings? Do you have the required authorizations? Which vendor do you want to evaluate? (vendor key) Which purchasing organization is to evaluate the vendor (purchasing organization key)? Is this the first time the vendor has been evaluated? If not. Weighting Keys A weighting key is an identifier under which the weighting factors for a number of main criteria can be grouped together and saved.

SAP Materials Management • • • • Enter vendor information Enter weighting key Enter scores for manual sub criteria Evaluate all main criteria 24/Feb/2009 39 of 39 .

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