EGN 5620 Enterprise Sys Procurement Process Spring 2012

Procurement Processes
EGN 5620 Enterprise Systems Configuration Spring, 2012
Procurement Process
Concepts & Theories
Procurement Process
1. 2. 3. 4. 5. 6. 7. 8.
Requirements Determination Requisition request Request for Quotation (RFQ) Vendor Selection Order Processing - Purchase Order Order Tracking Goods Receipt and Inventory Management Invoice Receipt and Verification Payment
SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.
January 2008
Purchase Requisition (Request)

Is an internal document Requests a certain quantity of certain material (or service) on a certain date Is generated:
Manually MRP (automatically), or Sales orders, etc.
With an optional request approval (or release) procedure

January 2008
Purchase Requisition Sources
Non-inventory items: manually specified by the user department for:

Office supplies, Project-specific materials, and Prototype materials
Inventory items: automatically created by a MRP/MPS planning mechanism for:

Plant Maintenance Production Orders Sales Orders
January 2008
Purchase Requisition Data
Default data for line items

Delivery dates, Plants, storage location Purchasing groups, etc. Material, Quantity, Delivery date
(from the material master, vendor info record, & user preferences)
Individual line item data
Account assignment (if required)

Cost center, General Ledger accounts, Project number, etc.
Check data
January 2008
Quotation Process
1. 2. 3. 4. 5.
Request for Quotation (RFQ) Maintaining a Quotation Comparison of Prices Creating a Contract Creating a Release Order
January 2008
Request for Quotation (RFQ)

Is an invitation to a vendor to indicate their terms and conditions (in particular, their price) for the supply of a material (or service) by submitting a quotation Identifies the required material, quantity, and delivery dates
January 2008
Request for Quotation
An RFQ is an invitation to a vendor by a Purchasing Organization to submit a bid for the supply of materials or services The accepted quotations will generate Purchasing Information Records Perform Quotation Price Comparisons Finally Select a Quotation
P.O. Quote Vendor 1 Pur Req.
generate 4512
RFQ
Vendor 2 Vendor 3 Quote
Quote
Eval. Reject Letter
Maintaining a Quotation
Enter each vendor's quotation in the associated Request for Quotation (RFQ) 2. Compare prices using the price comparison list 3. Store the best quote in an info record 4. Optionally, send rejection letters to the losing bidders
1.
January 2008
10
Vendor Evaluation
Evaluate vendors (for sourcing) with respect to: Price Price Level Price History Quality Goods Receipt Quality Audit Complaints/Rejection level Delivery performance On-time delivery Quantity reliability Compliance with shipping instructions Confirmation Date A scoring range (1 -100) may be used with weight factors to score each identified/qualified vendor.
Comparison of Prices
Compares the prices from all quotations from the competitive bidding process using a price comparison list Ranks the quotations in the comparison list by item from the lowest to highest price
January 2008
12
Creating a Release Order
Release order is a purchase order that references a contract; it specifies:

Number of the contract Quantity to be released Delivery date
When a release order is created, release order documentation is automatically updated against the contract (including open quantity, quantity released to date, total value)
January 2008 SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. 13
Creating a Release Order (2)

The vendor data, price data, and the delivery terms and conditions are copied directly to the release order Release orders can be created from a proposed purchase requisition generated off a MRP run (net requirements)
Automatically Manually
January 2008
14
Purchase Orders
Purchase Orders are:
Purchase Orders specify:

Vendor Material and/or service Quantity and price Delivery dates Terms of payment
a formal request to a vendor to provide materials or services An internal planning and tracking tool
A purchase order can be for variety of purposes:

Standard Stock or Consumption Services Subcontracting Consignment
January 2008
15
SAP Implementation
Business Process Integration

FI MM SD
FI MM SD
January 2008 SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.
Rules
17
Business Process Integration

Purchase Process
January 2008
18
Rules (review)
Rules define the parameters for Master Data and Transactions Rules determine functionality for Master Data and Transactions Rules are relatively fixed Rules change, when corporate policy changes
January 2008
19
Rules (review)
Material Management Fiscal Periods Account Groups Material Types Plant Parameters Purc./Rec./Inv. Tolerances Automatic Account Assignment Reservations Material Group Loading Group
Transaction Data (review)

Transaction data are application data; each transaction is dynamic and unique, unlike master data and organization data which do not change very often. Transaction data use (is comprised of) organization data, master data, and rules Transaction data includes internal and external exchanges that describe business activities
January 2008
21
Purchasing in SAP R/3 (review)
The purchasing process resides in the Materials Management (MM) module of SAP R/3 as well as the Finance (FI) module
Master data for the purchasing process exists in the (MM) and (FI) modules
The purchasing process may interface with the modules below:
Production Planning (to plan for production), Quality Management (to check quality at receipt), and Warehouse Management (to put away)
January 2008
22
Procurement Process (Procure-to-Pay)

Purchase Requisition Purchase Order
3-Way Match Payment to Vendor Invoice Receipt
Notify Vendor
Vendor Shipment Goods Receipt

23
January 2008
Create & Save Purchase Order
Purchase Order in SAP

Three sections in a purchase order:
Header Item overview Line item
Purchase Order Structure

Header Vendor Purch. Org. Purch. Org. group Item Overview Purchase Order 45......01 Company Date PO Price
Materials Quantities Delivery Date

Line Item PO History Line Price Delivery Schedule
Price/UofM Currency Plant
Tolerances Storage
Purchase Order Structure: Header
Header - information specific to the entire purchase order Vendor Purchase organization data Condition (total purchase price) Partner Payment process Status
January 2008
27
Purchase Order Structure: Line Items
Line item purchasing information required for the item

Item category Material ID and description Material or service quantity Delivery date Net price Currency Plant Storage location Measurement unit
Purchase Order Structure: Item Details

Material data for the item Quantity/weight Delivery schedule Invoice Conditions (Purchasing price for the item) Delivery address Confirmation Condition control Subcontracting
Purchase Order: Output Format
Printed and mailed E-mail Electronic Data Interchange (EDI) Faxed (hardcopy or electronic) eXtensible Markup Language (XML)
January 2008
30
Search Purchase Orders
You can search for the purchase order number with

Material number, Vendor number, etc.
January 2008
31
MM: Goods Receipt

Notify Vendor
Purchase Order 45......01
Vendor
Receipt
Shipment
Goods Receipt Movement Types
Movement types - stock transactions

Goods receipt (from a vendor or production) Goods issue (to customer or production/use) Stock transfer (from one SL to another)
Movement type determines which

Quantity fields are updated Stock types are updated General Ledger (G/L) stock or consumption accounts are updated Fields are displayed during document entry
January 2008
33
Material Movements
When a goods movement takes place it is represented by a Movement Type Movement types are three-digit keys used to represent a movement of goods 101 goods receipt into warehouse 102 - reversal of goods receipt for purchase order into warehouse/stores 103 goods receipt into GR blocked stock 122 return delivery to vendor 501 - receipt w/o purchase order into unrestricted-use stock
Goods Receipt
Goods receipt is a goods movement activity in which we accept goods into our system. If materials are delivered against a purchase order we will reference that order and SAP can:
retrieve data from the PO for us to verify: material, quantity, and so on Update inventory G/L account automatically Update purchase order history with the receipt Update physical inventory
Goods Receipt Destinations
Goods receipt into (destined for) the warehouse Goods receipt into consumption
SAP increases total valuated stock by the delivered quantity. SAP updates the stock value at the same time. SAP only updates the consumption statistics in the material master record SAP does not update the consumption statistics if the goods movement posting uses the special stock types: sales order stock type and project stock. SAP maintains the same stock level. SAP only records it in good receipt block stock of the purchase order history. If goods receipt is being posted into a storage location where data does not yet exist for the material, SAP automatically SAP AG - University Alliances and The Rushmore Group, LLC 2008. All creates a storage location data in the material master record.
January 2008 rights reserved.
Goods receipt posted into blocked stock
Note:
36
Goods Receipt Effects

Purchase Order (PO) history and Purchase Order (PO) updated Material Master - stock and value updated Notification of goods receipt issued (optional) Transfer request to the Warehouse Management module (if active)
January 2008
37
Goods Receipt Effects (continued)

Material and financial documents created and/or updated Stock and consumption accounts updated Inspection notification in the Quality Management (QM) module - if active
January 2008
38
Goods Receipt Account Postings

Inventory account is debited at standard price Goods Receipt/Inventory Receipt (GR/IR) clearing account is credited at purchase order price Price difference account is debited (credited) with difference between standard price and purchase order price
January 2008
39
Goods Receipt Account posting

Purchase requisition
Purchase order No impact on Financial Accounting (FI) Materials Management (MM) and Financial Accounting (FI) via automatic account assignment GR / IR Dr Cr $100
Goods receipt
Inventory (account) Dr Cr $100
Invoice Receipt Process

Tasks:

Engage in 3-way match to validate the invoice. Enter PO number to retrieve the PO and view (verify)
Open dollar amount. Quantity, Price, receiving date, Vendor name
Enter the invoice number and the dollar amount to be paid Simulate invoice posting Post the invoice in SAP
3-Way Match for Payment

Purchase Order Payment Program Invoice Receipt Verification
Debit Credit
Goods Receipt
Invoice Processing - 3-Way Match

Incoming Invoices are reference against a Purchase Order to verify their content, prices, and arithmetic. If discrepancies arise between the purchase order or goods receipt and the invoice the system with generate a warning or an error
Depending on system configuration the difference could cause the system to Block the Invoice Purchase order - Target quantity - Target price -
Invoice receipt - Actual price -
Goods receipt - Actual quantity -
Invoice Verification - 3-way match

Matches the vendors invoice to the purchase order and the goods receipt (3rd part of 3-way match) Matches price and quantity Updates the purchase order and its history Updates accounting information
January 2008
44
Financial effects of Invoice Posting

When an invoice is posted, SAP shifts the liability From the Goods Receipt/Invoice Receipt account (for the purchase order) To the vendor account Upon posting, SAP: Updates the Purchase Order Updates the Material Master Creates an Accounting Document Initiates the payment process within Financial Accounting
Invoice Receipt Reconciliation Account

Amount owed is assigned and transferred to vendor account payable
Invoice receipt
GR / IR Dr Cr
Vendor Dr Cr
A/P Dr automatic posting Cr
$100
$100
$100
Accounts Payable Reconciliation Account

Vendor 100234 Vendor 100435
200
250
Accounts Payable (AP) Reconciliation
950
Vendor 100621 Vendor 100846
100
400
January 2008
47
Invoice Payment
Selects invoices for payment based on the payment terms in the vendor master or purchase order Generates payment for released invoices Updates accounting information
January 2008
48
Accounts Payable Settlement Process
Determines:
Which open items to be paid When they will be paid Which bank to make payment Payment medium Who will get paid
Payment process creates a financial accounting document to record the transaction

Payment to Vendor
Can be done automatically or manually Post Outgoing Payment vs. Payment Program Elements of the Payment Transaction: Payment Method Bank from which they get paid Items to be Paid Calculate Payment Amount Print Payment Medium Process will create a financial accounting document to record the transaction
Vendor Payment
Amount owed is paid to vendor and account payable is reduced
Bank
Vendors Dr $100 Cr automatic posting
A/P Dr Cr
Banks Dr Cr
$100
$100
(FI MM) Integration Points

Goods Receipt Invoice Receipt Payment Program
Vendor
Dr Cr
Inventory
Dr Cr
GR / IR
Dr Cr
Bank
$100
$100
Dr
Cr
$100
$100
$100 AP
Dr
$100 automatic posting

Cr
$100
$100
PEN, Inc.
600
Cxxx xxx Pxxx
xxx
Check PO History (ME23)
January 2008
55
Check PO History (continued)
January 2008
56
Check Inventory
January 2008
57
Exercises:
100. 101. 102. 103. 104. 105. 106. 107. Create a Purchase order for Slick Pens Create a purchase order for premier pens Create a purchase order for Promotions Ltd. Create receipts for the purchase orders Create an invoice receipts from vendors Post payments to vendors Display vendor line items Create purchase outline agreement (contract) for Stock item

EGN 5620 Enterprise Sys Procurement Process Spring 2012

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Procurement Processes

EGN 5620 Enterprise Systems Configuration Spring, 2012

Purchase Requisition (Request)

Manually MRP (automatically), or Sales orders, etc.

With an optional request approval (or release) procedure

Purchase Requisition Sources

Non-inventory items: manually specified by the user department for:

Inventory items: automatically created by a MRP/MPS planning mechanism for:

Purchase Requisition Data

Default data for line items

Individual line item data

Account assignment (if required)

Request for Quotation (RFQ)

Request for Quotation

Vendor 2 Vendor 3 Quote

Eval. Reject Letter

Creating a Release Order

Release order is a purchase order that references a contract; it specifies:

Creating a Release Order (2)

Purchase Orders are:

Purchase Orders specify:

A purchase order can be for variety of purposes:

Business Process Integration

Business Process Integration

Transaction Data (review)

Purchasing in SAP R/3 (review)

Procurement Process (Procure-to-Pay)

3-Way Match Payment to Vendor Invoice Receipt

Vendor Shipment Goods Receipt

Create & Save Purchase Order

Purchase Order in SAP

Purchase Order Structure

Materials Quantities Delivery Date

Price/UofM Currency Plant

Purchase Order Structure: Header

Purchase Order Structure: Line Items

Line item purchasing information required for the item

Purchase Order Structure: Item Details

Purchase Order: Output Format

Search Purchase Orders

You can search for the purchase order number with

MM: Goods Receipt

Goods Receipt Movement Types

Movement types - stock transactions

Movement type determines which

Goods Receipt Destinations

Goods receipt posted into blocked stock

Goods Receipt Effects

Goods Receipt Effects (continued)

Goods Receipt Account Postings

Goods Receipt Account posting

Inventory (account) Dr Cr $100

Invoice Receipt Process

3-Way Match for Payment

Invoice Processing - 3-Way Match

Invoice receipt - Actual price -

Goods receipt - Actual quantity -

Invoice Verification - 3-way match

Financial effects of Invoice Posting

Invoice Receipt Reconciliation Account

A/P Dr automatic posting Cr

Accounts Payable Reconciliation Account

Accounts Payable (AP) Reconciliation

Accounts Payable Settlement Process