ERP SYSTEMS (SAP) ASSIGNMENT NO – 02

1. Name of the Student Mr. Pranav Rajesh Sawant

2. Roll No MM2022254

3. Reg No 23-1208

4. Specialization Operations & Supply Chain Management

5. Batch 2020-2022

6. Institute BIMM

7. Semester Ist

8. Subject Name ERP Systems (SAP)

9. Assignment No. 2

10. Submission Date 13/01/2021

11. Total number of pages written 11

Q1). What are different types of purchasing organisation in procurement? What is the
need to maintain different purchasing organisation?

Ans). The different types of purchasing organisation in procurement are as follows: -

1. Plant specific purchase organization

Since each plant must be assigned to a company code, the company code can be
determined via the plant in each procurement transaction, even if the procuring
purchasing organization is not assigned to a company code. A purchasing
organization must be assigned to one or more plants. This is plant-specific purchasing.

2. Cross plant purchase organization

In cross plant purchase organization, company can procure material for more than one
plant to which they have been assigned.

3. Cross company code purchase organization

It is not possible to assign one purchase organization to multiple company codes, but
it is possible to assign and use one purchase organization multiple plants belonging to
different company codes. This cross-company code purchase organization is useful
for better negotiations at corporate level.

4. Central purchase organization

Central purchasing is a department within a business or organization that is
responsible for making all necessary procurement. Central purchasing works with
other departments and agencies to consolidate orders for products to make use of
economies of scale for receiving cheaper prices.

5. Standard purchase organization

The Standard purchasing organization is used by the system while creating automatic
purchase orders. It is possible to define Standard Purchasing organization for the
pipeline procurement, Stock transfer and Consignment scenarios.

6. Reference Purchasing Organization

Reference purchasing organization is that purchasing organization where the
procurement done for all the plant of purchasing organizations. Reference purchasing
 organization is used in the case of global contract preparation which can be referenced
by any local purchasing organization.

Need to maintain different purchasing organisation: -

Purchasing organization is an independent physical organizational entity of material

management that responsible to procure materials or services with negotiation terms and
conditions from vendors or internal plant. If the company want to purchase material for
multiple plants than the cross-plant purchase organization will be involved. Purchase
organization is also responsible for purchasing price agreements with the external vendors.
One purchase organization can be assigned to only one company code. One company code
can have one or more purchase organizations as per requirements of client. It helps to
perform the task for purchasing process Purchase organization is the top-level organizational
element in SAP MM.

Q2). In the absence of ERP system, what are the difficulties an organization may
encounter in the procurement of raw material?

Ans). In the absence of ERP system, the difficulties an organization may encounter in the
procurement of raw material are as follows: -

1. Handling complex processes

Direct procurement teams have to manage many multi-layered processes, all of which
have a direct impact on the final product or service that the business is selling to its
customers. From managing a precise and streamlined Bill of Materials (BOM) – the
product blueprint with a specified list of raw materials, sub-components, parts, and
quantities of each needed to manufacture a product – to tracking demand and
analysing demand patterns, maintaining visibility of inventory for sufficient but not
surplus stock, and tracking and fulfilling sales orders, direct spend teams have to keep
tight rein on a lot of complex processes. These processes are heavily dependent on
availability and accuracy of information, access to intelligent technologies, and the
involvement of the team far beyond sourcing, which is not necessarily what happens
in many companies.
2. Supply chain risk management
Maintaining sufficient stock and product quality are crucial for direct spend teams as
they impact customer satisfaction, business reputation and credibility. While
globalization gives businesses more choices and better rates when it comes to goods
and materials, it has complicated the procurement process by heightening potential
risks and limiting the team’s control. Now, teams have to manage a diverse, extensive
supply chain that operates across many national borders. The more complex and
spread out the supply chain network design, the higher the risks. New areas mean new
legal and trade requirements; more coordination with suppliers and even
governments; and all the complications of shipping orders across borders, such as
documentation, customs clearance, etc. Direct procurement teams must think on their
feet, build in buffers and have contingency plans to handle the global supply chain
while maintaining competitiveness.

3. Supplier-related issues
Cost optimization, on-time delivery, consistent quality, right quantity, continuity of
supply, sufficient inventory – all of these are linked to suppliers. The less reliable the
supply chain, the higher the risks involved, so supplier performance management is a
huge and critical task. While managing processes involving suppliers is important,
direct procurement must also build strategic, collaborative partnerships with them to
foster loyalty and encourage innovation, which play a strong role in both financial and
business growth. One of the most important factors that affects supply is the vendors’
financial health, so businesses must conduct supplier risk assessment regularly. They
also cannot afford to lose sight of their suppliers’ industry status and safety practices
as these can affect their company’s reputation.

4. Information bottleneck
Accurate and real-time data from various internal business functions is essential for
smooth supply chain management. But for a variety of reasons – security issues, lack
of cooperation, lack of data tracking – information is not always easy to come by.
Professionals managing the direct procurement process should team up with key
internal departments so there is better understanding of the process, more
transparency and easy access to relevant information.
 5. Technological barriers
Often, the supply chain is littered with different types of procurement software and
applications. There may be modern cloud-based systems incorporating machine
learning, artificial intelligence and blockchain; there will be the old, cumbersome
ERP systems; and there may be only email and spreadsheets. Making divergent
platforms compatible is a big challenge, especially when there are a huge number of
suppliers and no geographic boundaries. For direct procurement, the challenge is not
just their own business adopting best practices and automation, but also the suppliers’
capability and willingness to do so.

6. Keeping costs low and savings high

As savings have a direct impact on the organization’s bottom line, it’s always in
focus. But when the supply chain planning is already efficient and direct materials are
being sourced competitively, the effort to deliver higher cost savings is a challenge.
Inevitably, rates tend to gradually rise as suppliers incur higher costs on their end. The
solution cannot always be to switch to a low-cost supplier as this comes with its share
of risks, besides damaging the relationship with a reliable, trusted vendor. Many
companies now specifically measure cost avoidance as direct procurement dedicates a
fair amount of time and effort to it.

Q3). What are the various business operations that can be supported by ERP? Explain
the Procurement to Pay cycle.

Ans). An ERP system is made up of applications and tools that help all areas of your business
communicate with each other more effectively. ERP systems integrate all facets of an
enterprise into one comprehensive information system. Employees in planning and
scheduling, for example, have access to the same data as the staff in financial management
for their specific needs. All data is available in real-time, which enables employees to make
faster, more informed business decisions. With ERP systems, all vital business functions—
estimating, production, finance, human resources, marketing, sales, purchasing—share a
central source of up-to-the-minute information. Enterprise resource planning systems
streamline the collection, storage and use of your organization’s data. The right ERP system
can help to collect and store data into one centralized place from areas such as: -

1. Finance & Accounting

2. Human Resources
3. Customer Relationship Management
4. Production Management
5. Business Intelligence
6. Warehouse Management
7. Inventory Management
8. Supply Chain Management
9. Point-of-Sale (POS)
10. ECommerce

The Procurement to Pay cycle: -

SAP Procure to Pay process is required when we need to purchase materials/services from an
external vendor for our company. This process includes all the business tasks starting from a
purchase requisition (PR) and finishing with payment to the vendor. The events that
determine the start of this process are related to:

 Material requirement planning (MRP) from Warehouse Management to ensure

minimum material stock and tools quantities in the warehouse.
 Plant Maintenance materials, tools, external resources, services plan to procure all the
resources needed to manage Plant Maintenance in a proper way.
 Other procurement needs coming from departments of a company.

To start the process, it is necessary to create a Purchase Requisition (PR), a document that
allows people working in various departments of a company to specify the goods or resources
that have to be purchased. The process ends when the payment to the vendor is booked.

SAP procure to pay process utilizes the following transactions and documents in SAP
ERP: -

1. Purchase Requisition
 Purchase requisition is an internal document which is issued/created whenever the
goods (stock/non-stock) and/or services are required. Several types of document will
be available to be used. SAP system checks automatically various parameters like
budget availability and requires an approval workflow for the requisition mainly
based on its value and internal delegation of authorities, as well as other technical
parameters (like item category or purchasing group). The requisition created in the
system can also be revised if needed.

2. Request for Quotation (RFQ)

RFQ is required when you don’t know your vendor and need quotations from several
vendors for a material/service. It is the complete set of process that is triggered once a
purchase requisition has been received. Requisition line items can be grouped together
in the same RFQ process. Once the quotations are received from your vendors, you
maintain the records in SAP system thus changing the RFQ document to a Quotation.

3. Open Contract
Open contract is a general agreement with the vendor for a given period of validity
with agreed price list. With reference to the same contract multiple Contract Release
Orders can be generated until it is expired or outstanding value is available.

4. Purchase Order
Purchase order is an agreed upon official document from the customer to vendor for
customer’s intent to buy or receive one/multiple materials with agreed prices, lead
times/delivery dates, quantities and specifications. The budget commitment is
automatically created. Tolerances for goods and unplanned services can be foreseen.

5. Contract Release Order

Contract Release Order is an agreed upon an official document from the customer to
the vendor regarding the customer’s intent to buy or receive one/multiple materials
with agreed prices, lead times/delivery dates, quantities and specifications and it is
created with reference to an Open Contract. The budget commitment is automatically
created. Tolerances for goods and unplanned services can be foreseen.

6. Goods Receipt
 Goods Receipt is the step in the procurement cycle where the actual goods ordered via
a Purchase Order/Contract Release Order are received by the company and it is
checked for the required quality / quantity. If the goods quality meets the required
criteria, a Goods Receipt transaction is posted in the SAP system with reference to the
Purchase Order / Contract Release Order. This transaction has dual effect of changing
the stock quantity (for entered materials) and at the same time entry in the financials
module is also passed for the debiting the stock against the payables to the vendor.

7. Service Entry
Service entry certifies that the requested services from the Purchase Order/Contract
Release Order have been actually delivered/rendered. A confirmation with the
required parameters is entered on the service entry sheet which is then routed via a
workflow to the required levels for confirmation and the final approval.

8. Invoice Handling
The process is triggered whenever a vendor invoice received for the purchases is to be
entered in the SAP system. The invoice can be put on a status of block for payment.
Once the invoice is approved via the defined workflow in the SAP system, the invoice
can be actually posted. It is usually done by the responsible person in the Accounts
Payables department of a company. The process usually overlaps joint functionality in
the MM and FI modules.

9. Payment
If the invoice is approved via workflow, the last step in the cycle of purchasing is the
payment to the vendor. This is done by entering a transaction in the SAP system
called the “Automatic Payment Run”, which is usually triggered periodically based on
the payment terms / due dates as mentioned in the purchase order. The result of the
payment run can be a check printed via SAP for the intended vendors or the results of
the payment run can be exported to external systems for online banking portal via
which the vendor payments are transferred electronically.
 Q4). Draw and explain with example how SAP-Purchase cycle and SAP-Sales Cycle are
integrated.

Ans).
Suppliers (MM Module)

Customer (Sales & Distribution) Request for

Quotation

Sales Quotation Purchase

Requisitions

Sales Order Purchase Order

Shipment
Material Receipt Inventory

Customer Invoice
Supplier Invoice

Payment Payment

Integration between SAP-Purchase Cycle and SAP-Sales Cycle: -

 1. When you create sales order in SD, all the details of the items are copied from
Material master of MM.
2. MRP and availability check related data is also taken from MM although you control
this data in SD also.
3. While you create inbound/outbound delivery with reference to a sales order, the
shipping point determination takes place with the help of the loading group, plant
data, shipping conditions etc. This also refers to Material Master.
4. The material which you are entering in a sales order must be extended to the sales
area of your sales order/customer otherwise you cannot transact with this material.

Q5). Top 5 features you think should be built in the ERP system so that it will help
organisation to perform better. Highlight the problem each feature will solve or the
value-add it is going to offer.

Ans). Top five features which can be built in the ERP system so that it will help the
organization are: -

1. Integration
This ERP functionality is a major part of what makes this solution different from
other types of software. While many standalone solutions boast their ability to
integrate with other systems, there’s nothing like a suite of applications built to work
together. Integration ensures the numerous capabilities offered by ERP systems work
together harmoniously. ERP provides a fully-integrated, intuitive platform through
which you can analyse, monitor and conduct the majority of data-driven tasks.
Through a single database, ERP collects, stores and analyses data across all
departments. This ensures seamless communication within your organization.
Companies today no longer have to work in silos, thanks to ERP. Working from a
single source of information reduces the discrepancies between your teams along with
the associated errors and costs.

2. Automation
ERP capability automates common tedious tasks including order entry, payroll,
accounting, invoicing, reporting and more. Automation cuts down the many hours
your staff would typically spend on these processes, allowing them to focus on more
 important assignments. Optimizing your employees’ time ensures more effective
workdays. Automating your processes can also reduce human error. When your
employees are spending the majority of their day repeating the same task over and
over, they’re bound to make a mistake or two. Automation allows data to be sent from
one part of the system to another, without any chance of error.
3. Data Analysis
Since an ERP is already collecting and processing data from all your business
functions, it makes sense to capitalize on that information through analysis. Put
simply, this ERP function finds trends and patterns in your processes. This enables
users to reflect on the effectiveness of certain tasks, in addition to providing forecasts
for future business decisions. ERP analyses data relating to all business operations,
including client data, production statistics, sales data and much more. For instance, an
ERP can help you predict demand, create a budget and analyse your HR functions.
Data analysis offers easy access to vital business data and gives you the tools you
need to track organizational productivity and efficiency.

4. Reporting
Many people use the terms “reporting” and “analysis” synonymously when talking
about ERP. While this isn’t typically an issue, it’s still valuable to distinguish between
the two. You can think of ERP reporting capability as the tools needed to convey
analysis to an end user. These tools often include customizable dashboards, Gantt
charts, pie charts, bar graphs and other visual representations. Many systems also
allow users to restrict access to reports, protecting valuable company information.

5. Customer Relationship Management

Customer relationship management (CRM) software is beneficial for a couple
reasons. First, a CRM is a great option for companies whose customer base has
become too large for spreadsheets. Spreadsheets work well until you find yourself
spending more time updating it than actually using it to find information. Second,
CRMs within an ERP centralize customer information, allowing for quick access
when working with other parts of the system. For instance, an integrated CRM
enables users to access billing information and customer addresses when processing
shipments.