Materials Management As Is-To Be: Preface

Module:
Materials Management
Durga Dairy Doc No: 01
Business Processes (DDP) Request_508760454.doc
Product
Materials
Management
As Is-To Be
Submitted By Submitted to
Durga Dairy Limited
Document Control
Role Name of Person Signature Date

Prepared by
Reviewed by
Reviewed by Mr. G. Aravind
Approved by
Preface
Durga Dairy
Page 1 of 35
Product
Module:
Product
Durga Dairy Limited Internal Use Only

The information contained herein is proprietary to Durga Dairy Ltd and may not be used, reproduced, or
disclosed to others except as specially permitted in writing from Durga Dairy Ltd. The recipient of this
document, by its retention and use, agrees to protect the same and the information therein from loss,
theft, and compromise.
Purpose of this Document
The purpose of this document is to capture the overall Materials Management requirements and
procedures for the project.
Intended Audience
This document is intended for the usage of Durga Dairy Ltd Materials Department
Employees involved with the project .
Current distribution of this document
Project Head Mr. (Chairman)

Project Manager Mr. ( AVP –Operations)
Business Process Owner Mr. ( AVP- Purchase & Stores)
Participant Mr. ( Purchase & Stores)
2
Durga Dairy
Page 2 of 35
Product
Module:
Product
Materials Management Module is where Key Sources like Materials and Vendors are defined in the
system.
Materials is the central point of the business process in the company. This module basically deals with
the record and defining of Enterprise elements, Master Data, Purchasing data, Inventory Management &
Physically inventory & Logistics Invoice Verification.
 1.Introduction
 2.company profile
 3.Organisation structure
 4.Types of Master Records
 5.Procurement cycle
 6.Inventory Process
1.INTRODUCTION
The nature of business of Durga Dairy Ltd involves Production (Manufacturing of Ghee and processing
of Milk) and Sales.
2. COMPANY PROFILE
Company established in the year 1995. It has one plant at Nuziveedu Road, Nunna, Vijayawada.
3. ORGANIZATION STRUCTURE FOR MM
INTERNATIONAL
PLANT 1
STORAGE LOCATION
3
Durga Dairy
Page 3 of 35
Product
Module:
Product
CENTRAL PURCHASING
ORGANISATION
The above fig.1 depicts the organization structure of material management for company Durga Dairy
Ltd. It has one plant located at Nuziveedu Road, Nunna, Vijayawada-521212.
Durga Dairy Ltd has single purchasing organization-Centralized Purchasing organization is responsible
for procuring materials or services for one or more plants and for negotiating general conditions of
purchase with suppliers.
The above plants has 14 storage locations.
4. TYPES OF MASTER RECORDS

MASTER DATA
Sub-Process Scope: Maintenance of Material Master
AS-IS TO-BE
Item Codification: At Durga Dairy Ltd , general The material master contains information on all
data is maintained in the existing the materials that a company procures or
legacy system for Raw Materials, Spares, Packing produces, stores, and sells. It is the company’s
and Consumable materials central source for retrieving material-specific
The nomenclature currently adopted follows the data. This information is stored in individual
naming conventions of the Ghee and Milk like material master records.
Model wise, Colour wise.
Materials with the same basic attributes are
grouped together and assigned to a material type.
The material type determines certain attributes of
the material
 Numbering of material number i.e. (Int)
Durga Dairy
Page 4 of 35
Product
Module:
Product
 The number range
 Screen appearance and sequence
 Purchasing for ordering

 Short Text & long Text
 Accounting Information
 Sales and Distribution information
 Production Planning and Control for
material requirements planning,
scheduling, and work scheduling
information will be available in the
material master.
Materials are grouped into:
1. Rawmaterials:These are further

categorized according to manufacturing Material Type
operation, viz- Milk, Butter, Cream and Ghee This allows managing different materials in a
uniform manner in accordance with your
company's requirements. SAP Standard
Material types can be used for all the materials.
2. Packing materials: include Jars of various sizes, At Durga Dairy Ltd, the material types, used are,
and plastic sheets covers.
 Raw Materials
3. Semi Finished: include Cover, Laminations.  Consumables
 Packing Materials (VERP)
4. Finished goods: Types of finished goods:  Semi finished (HALB)
Full Cream Milk, Toned Milk, Curd and Butter  Finished (FERT)
Milk, Ghee.  Spares (ERSA)
 Assets
UOM:
The stock keeping unit of measure for the UOM:

paper could be among the following
Multiple Units of Measure will be maintained in
1. KG Material Masters and can be used in various
2. M2 transactions.
3. Nos
4. Tonne
5. Litre Order unit: Allows a material to be ordered in a
unit differing from the base unit of measure.
The order unit is proposed automatically in
Durga Dairy
Page 5 of 35
Product
Module:
Product
purchasing functions, where it can be changed.
Sales unit: Allows a material to be sold in a unit

differing from the base unit of measure. The
sales unit is proposed automatically in the sales
order, where it can be changed.
Unit of issue: Unit of measure in which the

material is issued from the warehouse. It allows
consumption, stock transfers, transfer postings,
and physical inventories to be recorded in a unit
differing from the base unit of measure and from
the stock keeping unit
Material Groups:
Material Groups:
Materials are currently grouped as follows.
The grouping is mainly done to generate Key that you use to group together several
reports based on customer requirements. materials or services with the same attributes,
and to assign them to a particular material group
e.g. CANOPIES,REGULATORS, BLADES, PAINTS,END-
SHIELDS.
Material Master (Excise Data)

The part of the material master record that
contains information relating to Indian excise
duty. In conjunction with other data, this
data is used to calculate excise duty on various
transactions.
The excise part of the material master is divided
into the following screens:
Chapter IDs: On this screen, you define the
chapter IDs and corresponding descriptions as
described in the excise tariff structure. This
information is used when you create excise
invoices and is also shown in the various excise
registers
Material and Chapter ID Combination

6
Durga Dairy
Page 6 of 35
Product
Module:
Product
On this screen, you maintain the excise data

relating to materials.
For each material, specify:
• Chapter ID
• Whether the material can be sent to
subcontractors
• The material type
This denotes, for example, whether the material
is a raw material, a capital good this affects the
CENVAT process – or if it is a finished
good on which excise has been paid, to be
covered by the Update of RG 1 and Part I
Registers
• Whether you accept more than one goods
receipt per excise invoice, and if so, whether the
excise duty should be credited to the CENVAT
account immediately a goods receipt is posted
(multiple credit) or not until all the goods receipts
have arrived (single credit)
This information is valid for a given plant. If the
information is valid for all the plants, however,
leave the Plant field blank.
Material Assessable Value
On this screen, you maintain the net dealer price
and the assessable value of all materials that you
send to subcontractors or for any other issue.
These values serve as the excise base value when
the materials are issued, and tell the system how
much excise duty to reverse from your CENVAT
account.
CENVAT Determination
On this screen, you specify which raw materials
are used to produce which finished (or semi
finished) goods. The system uses
this information to determine whether it you can
claim a CENVAT credit for a material.
Excise Tax Rate
On this screen, you specify for each chapter ID
every possible rate
Purchasing value keys

A key defining the tolerance limits applicable to
Purchasing Value Keys this material for the purchasing department.
At Durga Dairy Limited, no purchasing value keys
are maintained in the legacy system. For Packing materials 25% tolerance need to be
maintained in SAP
Durga Dairy
Page 7 of 35
Product
Module:
Product
Sub-Process Scope: Maintenance of Conditions for Procuring Materials
AS-IS TO-BE
Prices: This component enables you to store pricing
The pricing structure is maintained manually, at stipulations agreed with the vendor (such as
applicable discounts or surcharges, or stipulations
Durga Dairy Limited, based on each vendor’s terms regarding the payment of freight costs) in the
and conditions which include Gross Price, VAT, system.
Education CESS, CENVAT, taxes, service tax, You can enter these conditions in quotations and
discounts, service charges, etc. for procuring the Purchase orders
The system then applies the conditions in
materials. determining the price in purchase orders
(POs). You can enter further conditions in the PO
itself
Prices shall be of three types –
(a) Gross Price which is exclusive of Discounts or
surcharges,
(b) Net Price inclusive of surcharges, discounts,
taxes,
(c) Effective Price which includes the Net Price but
taking
delivery costs, cash discount and other incidental
costs.
Pricing conditions shall be maintained in the
purchasing info records or in the header or item
level as applicable at the time of PO creation.
Excise & Import Duty: Excise & Import Duty:

At Durga Dairy Limited, the applicable excise duty The setoff of excise duty or inventorying of excise
is maintained manually in legacy system to use duty will be controlled by Tax codes.
while procuring the materials. Condition records determine the excise duty
shall be maintained through the CIN Module .
In Imports the CVD, which needs to be captured
for CENVAT postings, shall also be incorporated.
Sales Tax / VAT

At Durga Dairy Limited, applicable CST and VAT is Sales Tax / VAT
used, against each vendor. Tax condition records can be maintained in the
system for various levels of taxes, like central and
state level, which will be automatically
determined during a transaction depending upon
the receiving plant and the vendor’s locations.
The tax values are maintained as percentages
with the help of tax codes.
Durga Dairy
Page 8 of 35
Product
Module:
Product
Freight
Freight Freight is to be maintained as a condition type.
At Durga Dairy Limited, freight is being used as The Planned Freight costs shall be booked in the
and when applicable with respective vendors as same Purchase Order for which the procurement
per terms and conditions agreed. is to be done. In cases where the material
carrying party is different from the one on whom
the PO is raised the Freight Vendor shall also be
maintained in the same PO.
For uncertain freights, approximate/minimal
freight shall be entered in the PO, for the internal
system purpose and final PO for vendor shall be
sent without mentioning the freight. And when
the actual freight comes to be known, during
invoice entry, the correct freight amount can be
entered. The freight invoice will be booked
as soon as the material is received in the stores
and the value will be updated in the stocks
Need to mention freight condition type in PO
Sub Process Scope: Material requirement Planning
AS-IS TO-BE
This is covered in PP module The requirement is covered in PP module
The main function of MRP (Material Requirements

Planning)
is to ensure material availability at right time and
in right quantity.
It is used to procure or produce the requirement
quantities on time
both for internal purposes and for sales and
distribution. This process involves the monitoring
of stocks and, in particular, the automatic
creation of procurement proposals for purchasing
and production based on the requirements
against the available stocks.
You must first create the master data to be able
to work with the MRP component. To do this, you
require the following components:
Material Master
Bills of Material
Durga Dairy
Page 9 of 35
Product
Module:
Product
Sub Process Scope: Vendor Master Maintenance
AS-IS TO-BE
Vendor Codification: At Durga Dairy Limited , the Vendor Master Data shall be maintained at the
vendor master is maintained in the following levels:
legacy system like their names, addresses, General data
telephone numbers, Company Code Data
CST/LST NO, PAN NO. Purchase Organisation Data
Approved vendor list is maintained in combination
of vendor, product and price in the Excel. General Data:
The general data includes such information as the
vendor's address and telephone number, the
language of communication with the
vendor, email address, etc.
Company Code Data:

Accounting information shall be maintained at
company code level.
This data includes, for example, payment
transaction data and the number of the relevant
control account. Only one control account
can be assigned to each vendor. And we can
maintain vendor customer relation and vendor
bank details in vendor master.
Purchase Organization Data:

Purchasing data like contact persons, terms of
delivery, etc. shall be maintained at purchasing
organization level. Vendor’s excise details can be
maintained using the CIN functionality of R/3.
Vendor Schema Group
10
Durga Dairy
Page 10 of 35
Product
Module:
Product
The schema group mentioned in the vendor

master is useful in determination of pricing
procedures.
Vendor Account Group:

Vendor account Group mentioned in the vendor
master is useful to
group the vendor e.g.:
1. Domestic Vendors
2. Import Vendors
3. Service vendors
Terms Of Payment Terms Of Payment

At Durga Dairy Limited, payment terms are Shall be maintained as per SAP standard system.
maintained manually for each vendor, based on Wherever required, specific payment terms shall
the predetermined negotiations and terms be defined in the system .Payment terms could
& conditions. feasibly be carried out for each vendor as per
the agreed negotiations like 30 days, 45 days,
payment against delivery, etc.
Terms of payment could be used on different
options available in the SAP standard system.
LC 365 days, DA 60 days(document against
acceptance), DP((document against payment)
Vendor Master (Excise Data)

The part of the vendor master record that
contains information relating to excise duty.
In conjunction with other data, this data is used
to calculate excise duty on various transactions.
The excise part of the vendor master is divided
into the following screens:
Vendor Excise Details

On this screen, you enter your vendors' tax
numbers, which are used for various forms of
correspondence and reports:
• Excise registration number (and the range,
division, and collectorate in which this is located)
• Central sales tax (CST) number
11
Durga Dairy
Page 11 of 35
Product
Module:
Product
• Local sales tax (LST) registration number

• Permanent account number (PAN)
At Durga Dairy Limited, no purchasing info record Purchasing Info records shall store vendor -
is maintained in the legacy system. material details for various types of procurement
like standard and sub-contracting.
These details shall be maintained for a Plant and
Purchasing Organization. Details like Prices &
other conditions, under and over
delivery tolerances, are stored in these records.
The information in the latest purchasing info
record for a combination of vendor and
material for that purchasing organization and
plant shall always be defaulted when creating a
Purchase Order.
At Durga Dairy Limited, no source list is The source list shall be used to maintain the
maintained in the legacy system. possible sources of supply of material for a given
period or to block a possible source of supply for
a specific period or to completely block the
external procurement of a material.
Sub Process Scope: Vendor Evaluation Criteria
AS-IS TO-BE
At Durga Dairy Limited, vendor evaluation Vendor evaluation criteria may be required in
assessment is not done .There is no such criteria. future, for desired vendors, as per the SAP
standard system to facilitate and give scoring
Actually it will be done on total performance system for individual vendors. To analyze and
results of each vendor with respect to delivery on assess the performance of external suppliers of
time, competitive price, satisfied quality and materials & services. Vendors shall be awarded
committed service. Mainly, they use Fixed scores for a number of different criteria
Vendors for procurement of materials. Vendor evaluation shall be done on the basis of
the following main criteria:
Price
Quality
Delivery and
Service.
Under the main criterion, again further sub-
criterion can be defined
like Price level, Price History, Goods Receipt,
Quality Audit, Complaints / Rejection level, On-
12
Durga Dairy
Page 12 of 35
Product
Module:
Product
time delivery performance, Quantity reliability,

Compliance with shipping instructions,
Confirmation Date etc.
Sub Process Scope: Service Master Maintenance
AS-IS TO-BE
At Durga Dairy Limited, services are used for Service masters shall be maintained for various
General, Housekeeping, Repairs and Maintenance. Services with Description and Unit of Measure
using the ‘Master Data Maintenance’ in ‘External
Also Durga Dairy Limited has also got some Services management’ of Materials management
services on AMC’s with some vendors. Module.
Following critical information shall be maintained
No service master is maintained in the legacy in the service master record:
system. 1. Service Number, which gives a unique
identification to the service. This shall be
internally generated by the system.
2. Service Category, which describes whether a
service is an internal service or a service to be
procured externally. In conjunction with the
organizational (maintenance) status of the service
master, the maintenance views can be controlled
i.e. whether a service master can have – a basic
data view, controlling view, sales & distribution
view. Based on the type of service, the service
category shall be maintained.
3. Description which describes the service in brief
Examples of Services for which Master records
shall be created:
1. Annual Maintenance Contracts

2. Repairs in Durga Dairy Ltd premises
3. Repairs outside
5.Procurement Process
At Durga Dairy Ltd, the Following kinds of purchases
1.Purchase Order - Domestic
13
Durga Dairy
Page 13 of 35
Product
Module:
Product
2.Purchase Order – Imports
3.Purchase Order – Job work
4.Purchase Order – Services
Purchase Requisition process
AS-IS TO-BE
Procedure for indents in case SAP should be
At Durga Dairy Ltd, if any material is required,
the same as described in AS-IS
Purchase Requisition (Indent) is a verbal
communication by the appropriate department. - Purchase requisition contains item category,
is a request or instruction to procure a certain account assignment category, material group,
quantity of a material or a service and authorized quantity and delivery date of the material
by the Purchase Dept. head for the procurement.
to be supplied or the service to be performed
1. Different document types to be used for types
of material procurement.
2. Internal Number range to be maintained.
Request for Quotation : Request for Quotation :

In Durga Dairy Limited, there is no standard format RFQ process should be maintained in the SAP
for Request for Quotation (RFQ) in the legacy system
system. Purchasing converts the purchase requisition
into a request for quotation (RFQ) .A request
The Purchase process goes through the fixed for quotation (RFQ) is an invitation extended
vendors by mentioning the specifications, to a vendor by a purchasing organization to
quotation received based on the enquiry is submit a quotation for the supply of materials
received via mail/fax. or performance of services. An RFQ consists of
the RFQ header and the items. RFQ header
Very often, Quotations are received from vendors contains general information about the RFQ,
and finalized comparing the prices and other such as the vendor’s address etc. Item details
terms. contain information about the quantity,
delivery dates and other details. There would
not be any release procedures for RFQs.
14
Durga Dairy
Page 14 of 35
Product
Module:
Product
Quotation: Quotation:
In Durga Diary Limited, Quotation received from A quotation is an offer by a vendor to a purchasing
the vendor will consist of quantity, price, organization regarding the supply of materials or
payment terms, and delivery terms. Quotations performance of services subject to specified
are compared based on price, specifications, conditions. A quotation is legally binding on the
delivery time, and supplier capability. This vendor for a certain period. The quotation is the
comparison is done manually in excel and is not vendor’s response to a request for quotation
mapped in the legacy system. Vendor who issued by a purchasing organization. A quotation
provides the best price, right specifications, and consists of items in which the total quantity and
has the necessary capabilities to complete the delivery date of an offered material or service is
order is selected in this process. specified.
Doing comparison in Excel format. Comparison on the basis of price ,taxes,

payment terms and delivery time has to be
mapped in SAP.
Note:
Durga Dairy Limited is currently following This is not good practice in SAP.
without purchase order, material is coming Without Purchase order, any kind of material
inside and directly going to the relevant dept /service should not happen.
and later bill is coming to purchase dept for PO no should be entered in gate entry details.
approval of the goods. By this not able to GRN should be done at stores. And later issuing
track the stock account and consumption to the concerned dept with ref to reservation or
accounts slip .By this correct accountability is carried on. So
for this PR and PO approval process is required .
Approval Process: Approval Process:

There is no Approval Process for PR and PO as Durga Dairy Ltd may use this component,
of now. Release Strategy may be incorporated to set
up approval procedures for purchase
requisitions or other purchasing documents.
Release procedures will be defined for the

following documents:
15
Durga Dairy
Page 15 of 35
Product
Module:
Product
 Purchase Requisitions
 Purchase orders
Under such a procedure, if a purchase

requisition or Purchase order fulfils certain
conditions (e.g. irrespective of value wise), it
has to be approved (by the Dept Head, for
instance) before it can be processed further.
This process of approving (clearing, or giving
the "green light" to) a proposed item of
expenditure is replicated in the SAP System
by the "release procedure".
Item Category
Item Category is used for defining how the
procurement of a material or service is controlled.
The following list contains the item categories that
may be used.
 Standard (For Material)

 Subcontracting (L)
 Service (D)
Account Assignment Category

Account Assignment Category specifies whether
accounting for an item is to be effected via an
auxiliary account, such as a cost center, internal
orders etc. The account assignment category
determines the following:
The nature of the account assignment (cost center,
order, and so on)
Which accounts are to be charged when the
incoming invoice or goods receipt is posted
Which account assignment data to be provided.
The following are the assignment categories that
would be used;
16
Durga Dairy
Page 16 of 35
Product
Module:
Product
 Asset
 Order
 Cost Center
Procurement Process – Procure to pay Process
AS-IS TO-BE
The Different Document types to be created.
DOMESTIC PURCHASE
After negotiations, a Vendor is selected and the A Purchase order is a formal request or
Purchase Order is prepared with inco-terms, instruction from a purchasing organization to a
terms of payment, delivery dates. vendor or a plant to supply or provide certain
quantity of goods or services by a certain point in
Concerned Department Head will speak to Vendor time. A purchase order (PO) consists of a
and finalize the order. Excise Duty and other document header and a number of items.
taxes (VAT or CST) is finalized verbally only. In the MM System, you procure either for stock or
for direct consumption. You can determine the
purpose for which ordered materials are being
procured in the purchase order, for example.
This section describes the differences between
Stock report will be checked by Purchase Manager procuring for stock and procuring for direct
once in a month. consumption in the MM System.
Vendor also sends invoice to Durga Dairy Limited

for billing information along with goods
Procurement for Stock

A stock material is a material that is kept in stock.
Such materials are placed in storage following a
goods receipt. When goods are
received by or issued from stores or the
warehouse, the stock on hand is increased or
reduced by the amount of the quantity received
or issued.
When you order a material for stock, the system
does not require an account assignment. This is
because the posting to the appropriate stock and
17
Durga Dairy
Page 17 of 35
Product
Module:
Product
consumption accounts occurs automatically

after each goods movement (for example, after a
material is received by the stores or issued from
stores) . Furthermore, the value and the quantity
of the stocked material are updated in the
material master record. To order a material for
stock, the material must have a master record.
Procurement for Direct Consumption

When you procure for direct consumption, you
specify the consumption purpose by entering an
account assignment (for example, a cost center).
On goods receipt, the material or service
counts as having been consumed.
If a material is procured for direct consumption,
the consumption accounts in Financial Accounting
are posted when the goods receipt is entered. The
total quantity and value of existing stocks of the
material are not affected.
GR based invoice to be tick for PO

Inco terms
Payment terms
taxes
Different number ranges will be assigned for the

different document types
There are also Dealer purchases like Amount
includes excise duty.
Dealer purchases
Need to change the base value and excise duties
while posting the excise in Dealer purcases
Sale in transit purchases against C form includes
everything in basic cost.
Sale In transit purchases

Need to change the base value and excise duties
while posting the excise
18
Durga Dairy
Page 18 of 35
Product
Module:
Product
Purchase Order Amendment
AS-IS TO-BE
Not available at present. Version management can be activated to keep
track of Purchase Orders after release.
Purchase Orders can be amended before the

Goods Receipt in the case of domestic orders
and Invoice verification in the case of Imports.
If the purchase order is subjected to release

strategy, the changes made to the Purchase
order will reset the release strategy. If the
release strategy has value limits, the purchase
order change in value or quantity, if it violates
the existing release already affected, will reset
the release strategy and a new strategy will be
assigned.
Import Process
AS-IS TO-BE
Best Practices of SAP for this Process shall be
19
Durga Dairy
Page 19 of 35
Product
Module:
Product
IMPORT PURCHASE incorporated .The necessary steps to be followed

A PO is created directly for the fixed vendors to
supply the materials. in this scenario are
 Creating separate pricing procedure as required

Material imports will be done in one way.  Creating condition types for the duties
1. Seaway
 Assigning the procedure at Plant level.
1. PO is created and sent to the import vendor.
2. Vendor sends the Performa Invoice. Different Order type and number range will be
3. Incoterms are decided at the time of Performa created for Import PO’s.
Invoice. PO’s are placed on the foreign vendors with the
Incoterms used in Abc co International are: currency key defined for that country. Currency
FOB key specified in the vendor master that will
CIF automatically get copied in the PO.
4. Abc co International will decide the manner of Custom Duty, CVD, Additional Duty, Cess, Local
payment like LC, Down payment. Freight and Insurance, clearing charges will be
5. Abc co International decides the manner of added as conditions in vendor currency. Duty
dispatch like sea or air. Payment (CVD), Customs duty, Additional Duty
6. When the goods have arrived at the port, Abc and Cess payment will be through the advance
co International files the papers to custom dept. payment request, availing the CVD; will be same
7. Custom Clearance is done. process as that of availing cenvat. Customs duty
8. Then the goods are transported to plant and CVD condition will have vendors mentioned
9. The material received at the plant and then it against the respective conditions mentioned in
will receive into Plant Stock. PO. Commissioner of Customs will be created as
vendor in the system. Clearing Charges, Local
Freight and Insurance will also mentioned in PO
as conditions. These conditions will have provision
to maintain Vendors in PO.
Advance payment to vendor if required will be

accounted through down payment.
The system does not treat CVD as a tax code but

as a condition type for planned delivery costs.
When the purchase order is created, the GR
based IV has to be deactivated so that invoice
verification can be done before GR.
Exact Duty paid due to Customs is to be

calculated before Goods Receipt is done so that
duty can be paid.
20
Durga Dairy
Page 20 of 35
Product
Module:
Product
Vendor Master Record for Customs Office
Create a vendor master record for the customs

office, so that you can create liabilities for the CVD.
Excise Transactions (Import)
The goods arrive at plant, together with the bill of

entry. In order to record the bill of entry in the
system:
a. enter an invoice for the bill of entry
b. captures an excise invoice for the bill of entry
c. The stores posts the goods receipt.
d. The Excise person post the excise invoice .
System of availment of cenvat credit is identical

as that of domestic scenario. However only credit
for CVD & ADC are allowed, whereas custom duty
and cess on custom duty is not allowed.
Total import duty is being paid in advance

through clearing agent based on the advice for
clearance of the import consignment.
2nd copy of the Bill Of entry
(Issued by the customs authority) is relevant

document for availment of cenvat credit.
Inco terms (Import)
Incoterms" are international rules for the

interpretation of the
most commonly used terms of foreign trade
In particular, the Incoterms regulate the division

of costs, and the transfer of risks.
Standard settings
 CFR - Cost and Freight
21
Durga Dairy
Page 21 of 35
Product
Module:
Product
 CIF - Cost, Insurance and Freight

 CIP - Carriage and Insurance Paid To
 CPT - Carriage Paid To
 DAF - Delivered At Frontier
 DDP - Delivered Duty Paid
 DDU - Delivered Duty Unpaid
 DES - Delivered Ex Ship
 EXW - Ex Works
 FOB - Free On Board
JOB WORK PROCESS

AS-IS TO-BE
JOB WORK PURCHASE
In Abc co International, Subcontracting process The subcontracting process shall be operated
plays a vital role .Following are some of the through the SAP standard system.
Subcontracting process which takes place :
The material to be produced by the vendor can be
A. Vendor job work : Aluminium Ingots,
ordered as a subcontract item in a purchase
CRCA Sheets will be sent to vendor for
requisition, purchase order. Each subcontract
different operations to get semifinished
item has one or more sub-items which contain the
items.
individual components the vendor
needs to perform the subcontract work or value-
Tracking will be done at vendor location
added service.
materials will be maintained in excel.
Sometimes, if the materials does not
Separate Purchase orders shall be created for
meet the quality criteria they are sent
Jobwork /Subcontracting with item category ‘L’.
back to vendor for re-process.
The semi finished or raw materials shall be sent
for final product processing, can be entered
Tolerance for wastage is allowed for this
in same.
job works. Any wastage is considered as
Scrap and returned back.
The components that are provided to the
subcontractor are managed as stock provided to
vendor. Monitoring the materials, which have
been provided to sub-contractor at their
premises.
Components in a subcontract order that are
consumed can only be debited from the
stock of the material provided to the particular
vendor.
22
Durga Dairy
Page 22 of 35
Product
Module:
Product
EXTERNAL SERVICES
AS-IS TO-BE
SERVICE PURCHASE For specific service requirements, Purchase
In Abc co International, Services are used for Orders will be created with reference to P.R.s
General, Housekeeping, Repairs and Maintenance. raised by individual departments, Item category
used for Services is “D”.
Abc co International has some services on The Same can be done through the Service text
AMC’s with some vendors. After service done, or Long text in the service line item which will be
payment to vendor. captured in the PO print out
The services actually performed (work actually
done) by a service vendor are recorded in a
Combinations of materials/text and installation
Service Entry Sheet with reference to the
charges along with vat/cst, service tax.
purchase order.
After saving service entry sheet after final

release, Material document, service entry sheet
with unique number, Accounting and controlling
documents will be generated. Following
accounting entry will be passed by system
Service cost A/c Dr

GR/IR clearing A/c Cr
Purchase order history will get updated with

service entry sheet number and material
accounting document number.
Payment for Services will be done based on the
UOM maintained in the Service Master
Service tax in procurement is available for Credit
or inventorisation as per the specific scenarios,
During invoicing Service tax credit amount to be
captured in service tax payable account which will
be used for availing the credit against Cenvat.
ENTRY & EXIT Of Goods

AS-IS TO-BE
GATE PASS:
Returnable Gate pass New ABAP Development
The materials that are leaving the premises are Whenever the material is required to send out
also maintained in the register. The material that form the site locations, Departments will raise a
23
Durga Dairy
Page 23 of 35
Product
Module:
Product
will be again returned back, Returnable gate pass requisition to central stores to issue RGP gate
is prepared. pass signed by the department head. Based on
the request mention the party number, material
Returnable Gate Pass will be sent to Purchase to be sent and the quantity of the material on the
Department. When Materials are returned back, RGP Slip and , Material issue to the party by
Security will verify and allow into premises. giving Material receipt ref in the RGP document
This RGP slip also consists of Requisition code,
date of issue, Item description, and quantity and
service order details.
At the time of receipts of RGP, at gate they will

cross check the requisition code, RGP Code and
receive the material and send to material to the
Central stores there again issue to concerned
depts.
Non Returnable Gatepass New ABAP Development

The Materials that will not be coming back Non
returnable Gate pass will be prepared.
NRGP Document will be created in two scenarios.
1.Material Return to the Vendor : Incase of any Purchase Returns: Return delivery process is to
followed in SAP .
rejection, material will be sent back to the vendor Stock will be reduced in the inventory .And again
with the NRGP slip and with outgoing excise PO will be showing open order quantity to be
invoice / bill. delivered from vendor.If vendor do not agree to
supply the goods further ,PO can be short closed.
STORES PROCESS
AS-IS TO-BE
Goods Receipt of Incoming Materials:
The receipt of goods from an external vendor
At Abc co International, on arrival of goods in the w.r.t. a purchase order. A goods receipt leads to
factory, the Stores/ Purchase dept. will check an increase in warehouse stock
W.R.T D.C provided by vendor. When you post a goods receipt, the system
automatically creates a material document,
The Stores / Purchase dept confirms whether the update the stock movement, which serves as a
24
Durga Dairy
Page 24 of 35
Product
Module:
Product
goods are to be unloaded or not. The goods are proof of the goods movement. Parallel to the
received and authorized by the Stores /Purchase material document, the system creates an
dept., virtual QC will be done for many of the accounting document. The accounting document
materials. contains the posting lines (for the corresponding
accounts) that are necessary for the movement.
Now finally D.C provided by vendor is for the
actual received goods, authorized by Stores Materials in which Batch Management is active,
Incharge, Purchase Manager. system will generate an SAP Internal Batch No.
and the Characteristics like (Vendor batch, Mfg.
date, expiry date) will be captured at the time of
Goods Receipt.
Purchase order history is updated automatically.
Other goods receipts include initial entry of stock

balances, external
goods receipts without a purchase order, goods
receipts of byproducts, returns from the customer
etc.
If a material is delivered for a purchase order, it

is important for all of the departments involved
that the goods receipt entry in the system
references this purchase order, for the following
reasons:
Goods receiving can check whether the delivery

actually corresponds to the order.
The system can propose data from the purchase
order during entry of the goods receipt (for
example, the material ordered, its quantity, and
so on). This simplifies both data entry and
checking (over deliveries and under deliveries).
The delivery is marked in the purchase order
history. This allows the Purchasing department to
monitor the purchase order history
After D.C entry, Stores person forwards excise Excise Postings are done with reference to the
copy and goods receipt note to Finance Goods Receipt or Return Document where
Department. Excise invoice, Date, Excise Duty, Quantity,
No entry in excise registers i.e. for Raw materials etc. are entered
– RG23A (Part I/II)
Excise entry for Capital items/ spares – RG23C Incoming excise Invoice:
(Part I/II)
25
Durga Dairy
Page 25 of 35
Product
Module:
Product
If anything found rejected, the same shall be sent The incoming excise invoice can be captured
back to vendor with intimation note.
against a purchase order. The Excise details
are based on the combination of material,
vendor, Chapter id, Vendor Status (SSI or
Normal, etc) and Tax code applicable in the
PO.
Cancellation of Incoming Excise Invoice:
The cancellation of excise invoice is required in

case the entries done are wrong or the vendor
has issued incorrect excise invoice. The
cancellation can be done with a rejection code,
which can be used for knowing the reason for
cancellation of the invoice.
Tolerance Limits For MRN:

When processing a goods receipt, the system
The tolerance limits are not maintained in legacy
checks each item to determine whether the goods
system. receipt varies from the purchase order.
Generally, will accept the over delivery quantity
The system will check the Over Delivery Tolerance
variance according to the packing and type of at the time of Goods Receipts and give an error
materials. message to prevent the posting of Goods Receipts.
For under delivery quantity system does the
comparison with the open order quantity and flash
information message for short receipt quantity.
Material storage : Once material is received in the Warehouse

Goods moved into the warehouse are arranged in captured in respective storage locations.
racks. There is no means of physically tracking
the order of receipt of material once it is stored in
the racks individually. Tracking is done purely Storage locations can be created like RM01,
based on quantity. RM02 etc.
MRN against Service Orders: Purchase orders shall be created for services and
Services are performed and delivered by the Service entry sheets shall be created for the
respective vendors with verbal communication. quantity of Service received. Part service of the
26
Durga Dairy
Page 26 of 35
Product
Module:
Product
Returnable gate pass procedure is applied for total quantity of service mentioned in the PO can
service materials that are going out physically for be received and Invoice verification shall be done
repair or services. for the invoice raised by the service vendor based
on the service entry sheet created.
MRN against samples for Non valuated /Valuated The goods will be received against without
materials : All scrap materials are considered as the Purchase Order with Zero Value for party paper
Non-valuated materials. These are again material type (Non valuated). Hence, no
distinguished into Excise and Non-Excise
accounting entries will be posted at the time of
materials.
Good Receipt. Stock will be updated on Quantity
basis only. System will not allow Logistics Invoice
Verification for Free of Cost Goods.
MRN against Job Work / Subcontracting Orders

The Goods Receipt will be done for the Semi
At Abc co International, semi-finished materials Finished Goods supplied by the Vendor, and
or raw materials are sent for Job work or sub- simultaneously system will propose the
contracting process and, is received the final consumption of Raw material from Vendors stock.
product against the quantity maintained in excel.
The system will proportionately propose the Raw
The final product is checked and inspected as per material for consumption, however actual figures
the quality parameters prior to making GR entry. consumed can be entered here.
And the invoice of the sub-contracting vendor is
processed for payment release, after the
satisfactory material receipt.
First customs miro will be captured followed by
MRN against Import Orders: GRN with ref to the commercial invoice no
The MRN process for the import materials shall be generated
similar to that of domestic GR process. Goods Receipt Capital item’s Purchase Order:-
Purchase Order is created with account
assignment .
The material will get consumed automatically and
Stock will be available for further processing. For
example procurement of asset or for asset, value
will get loaded on the asset immediately with the
receipt of the material
GOODS ISSUE
27
Durga Dairy
Page 27 of 35
Product
Module:
Product
AS-IS TO-BE
Using Goods Issue component, one can post a
At Abc co International, Goods are issued as material withdrawal or a material issue. A goods
below: issue leads to a reduction in storage locations
stock.
No sort of material indent slips are maintained.
Stores Incharge will deliver the goods to the Standard SAP system allows goods issue against
specified person on request.  Production Order
 Cost Centre
 Subcontracting PO
Requisitions for Production order gets generated

through MRP run. As per the BOM, the material &
their qty. will appear in requisition
MRP run generates internal Production Orders.

Also depending on BOM, the reservation gets
created at the same time. The material
can be issued against Production order.
Reservations can be created manually. The
material can be issued
against such reservations using movement type
‘261’.
Sometimes directly can be issued for non bom

items without any requisition documents for
unplanned.
This is covered in PP module
Goods Issue of Consumables/General
Machine oils, lubricants are issued to Engineering

Dept. The consumables are issued from stores,
against the requirement comes from the
maintenance dept
Consumables can be issued to the requisitioning
dept. against the purchase order raised. The
movement type ‘201’ helps in this case.
The account assignment of Cost Centre & G/L
account is picked up.
Goods Issue of Capital Items

Capital items can be issued to the requisitioning
Capital items are considered as Assets and no dept. against the Purchase Order raised. The
28
Durga Dairy
Page 28 of 35
Product
Module:
Product
Asset Register is also maintained as of now. movement type ‘241’ helps in this case.
The account assignment of Asset no & G/L
account is picked up .
In case of services availed, bill passing entry is
done after the work done by supplier.
The material to be produced by the vendor can be

ordered as a subcontract item in a purchase
Goods Issue against Job Work Purchase orders requisition, purchase order or scheduling
At Abc co International, Jobwork or agreement. Each subcontract item has one or
subcontracting process is undertaken. Semi more sub-items which contain the individual
finished or Raw materials are sent to the components the vendor needs to perform the
subcontractor, for the process of final product and subcontract work or value-added service.
the same shall be received from the
subcontracting vendor. And the service charges, ME2O/MBLB transaction can be used for
pertaining to the job work, shall be liable for monitoring the stocks with subcontractor
payment
Currently the branch to branch transfer will be

handled by Plant to Plant Stock transfers.
Stock Transfer A stock transfer from plant to plant generally
At Abc co International, inward receipt of the takes place within a company code.
goods at main plant, procured for other plant and
transferred thru gate pass.
A material master record must already exist for
the receiving material.
The transferred quantity is deducted from
unrestricted-use stock of the issuing plant and
posted into unrestricted-use stock of the
receiving plant.
A stock transfer from plant to plant affects

accounting also. The issuing material master
record determines the value of the transfer
posting
Movement to non-excisable godowns will be

handled through Storage Location to Storage
location Transfer postings also
29
Durga Dairy
Page 29 of 35
Product
Module:
Product
Logistics Invoice Verification

AS-IS TO-BE
At Abc co International , after receipt of material The process of vendors’ invoice verification and
or services, the store dept. (only Quality Check) payment release should be routed through the
checks the vendor’s invoice for the correct prices, SAP standard system.
taxes, surcharges, value as per the terms
discussed while ordering over phone or mail, and The invoice entry shall me made with reference
if found satisfactory then purchase order document and the PO document is
forwards the vendors’ invoices, along with D.C always available for crosschecking
copy to accounts department for payment its terms and conditions.
release.
There is no provision currently to block the The system should will be able to block the
invoice for payment invoices for payments on certain circumstances /
reasons like one of the vendors sometimes sends
an invoice for a higher amount than that agreed
upon in the purchase order. Sometimes, the
vendor might include the entire quantity on the
invoice; although all the goods have not
yet been received .The invoice blocking
functionality ensures that
the vendor is not paid until these differences have
been corrected and shall be released as and when
required. The system can automatically block
invoices, for example, if there is a price difference
or when the invoice is selected for blocking at
random.
There are several blocking reasons for variances
in invoice items.
The tolerances are defined for:

Quantity variance
Price variance
Purchase order price quantity variances
Date variance
Tolerances for lower and upper limits are defined.

If a variance in an invoice item is accepted and
the default value is overwritten,the system checks
whether the variances are within the tolerance
limits.
If the tolerance limit is exceeded, the system
30
Durga Dairy
Page 30 of 35
Product
Module:
Product
issues a relevant message. Still the invoice can be

posted in the system, but it is automatically
blocked for payment.
The invoice block applies to all items in an
invoice. Even if only one item in the invoice shows
a variance, the entire invoice is blocked
for payment.
The list of open invoices and released invoices

shall be available in the system
Logistics Invoice Verification checks incoming

invoices for accuracy with regards to content,
price, and accounting.
The main task of Logistics Invoice Verification is
to complete the procedure of materials
procurement by posting the vendor invoice
and to pass on information concerning the invoice
to Financial Accounting and subsequent
applications.
For each incoming invoice, Logistics Invoice
Verification creates an MM invoice document and
an FI invoice document.
The invoice documents update data in:
Materials Management
Financial Accounting
The Invoice Verification involves the following

processes:
1. Invoice
2. Credit Memo
3. Subsequent Debit
4. Subsequent Credit
Invoice option is used when the payment is to be

made to the vendor.
Credit memo is used for materials returned back
to the vendor. During invoice verification the
system shall display the materials returned back
to the vendor for which deductions will be made.
Debit Note is to be raised for the shortage qty. Subsequent debit shall be used for transactions
where the Original invoice has already been
cleared and a subsequent invoice has
been raised by the vendor for materials already
sent. Example:
31
Durga Dairy
Page 31 of 35
Product
Module:
Product
Rate change with retrospective effect.
Subsequent Credit shall be used when any

deduction is to be levied on the vendor.
There are 3 options that can be used for Invoice

Verification.
1. Goods / Service Item
2. Delivery Costs
3. Goods/Service Item + Delivery costs
Based on the Goods/Service and delivery
vendors, the option shall
be selected. For Advance payments – expenses
are to be booked as Prepaid Expenses in FICO &
then payment has to made time to time after
intimation by Purchase
More than one purchase order can also be

processed at one time for one vendor. If required
the vendor can be changed from the original
vendor to whom the payment is to be done. If
any Invoice verification has been done for any GR
for a PO, the quantity for this GR will not appear
in the list. In case where the freight vendor is
different, only those entries related to the
delivery costs will be chosen for the payments to
this vendor. It is also possible to raise credit
memo against the goods returned to the
vendor.
In case of Subsequent debit/credit to be made to
the vendor account, (reasons can be change of
rates for previous supplies made, etc), the entries
are made using the Invoice
Verification. Adjustments to other accounts like
Insurance claims Account, etc. can be entered
with invoice verification.
Unplanned delivery costs are costs which are not

known at the time of creation of purchase orders
and these are charged in the
invoice sent by the vendor can also be entered
during invoice verification.
In these adjustments wherever the invoice
involves the CENVAT, based on the Tax code
maintained, vendor and material tax details
32
Durga Dairy
Page 32 of 35
Product
Module:
Product
CENVAT clearing account is prompted and will be

updated on
saving. Simulation facility is available for checking
the accounting
effect.
Import Vendor
Imports invoice verification is slightly different

from the normal invoice verification. In this case
the CVD applicable is taken intoRG23 Registers.
In Import PO the CVD and other conditions are
maintained as delivery condition types hence the
Invoiceverification for the CVD part is to be done
first before the GR is done. Then RG part1 entries
are done then GR is done and then RG part2
entries are posted. Invoice verification is done for
the Purchase Order. In this case No GR based
Invoice verification is possible (This is specific to
Imports only).
Physical Inventory
AS-IS TO-BE
Physical inventory is taken on Monthly basis. Physical inventory component allows the
carrying out of physical inventory of the
Presently Physical items are checked for the
company’s warehouse stock for balance sheet
stocks and maintained in the supply chain
purpose.
management.
After confirming the completion of the physical
There are different types of physical inventory
verification, the statement is taken for
procedures like Periodic Processing,
valuation by accounts, for finalising the
Continuous inventory, Cycle counting. Any of
Balance sheet. Stock of goods are taken and
these techniques can be used for this process.
checked for the book stocks.
The physical stock list contains the
33
Durga Dairy
Page 33 of 35
Product
Module:
Product
consolidated stocks as on date i.e., the date of

verification. a.Periodic Inventory:
In this process all the stocks in the company

are physically counted on the balance sheet
key date. The entire warehouse must be
blocked for materials movement. Most of the
times at the end of the year or after the
season ends (in seasonal industries) it is done
once a year, and this kind of inventory is called
annual physical inventory
b.Continuous Inventory
Continuous inventory ensures that all the

material is counted at least once during the
year. Stocks are counted throughout the year.
c.Cycle counting
Cycle counting is a method of physical

inventory where inventory is counted at
regular intervals within a fiscal year. Fast
moving and high value material can be
counted four times a year while slow moving
and low value material can be counted once a
year. The indicator for this is set in material
master in the Plant/Storage Location 1 View, in
the field.
d.Inventory Sampling
Inventory sampling method uses random

selection of stocks and these samples are
physically counted on the balance sheet date.
If only small variances occur in the count and
the physical inventory, it is presumed that the
inventory balances and book stock are
correct.The counts can be entered in the
system and the differences can be reconciled
between physical and book balance. The
required accounting effect is provided through
34
Durga Dairy
Page 34 of 35
Product
Module:
Product
this reconciliation.
35
Durga Dairy
Page 35 of 35
Product

Materials Management As Is-To Be: Preface

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Materials Management As Is-To Be: Preface

Uploaded by

Copyright:

Available Formats

Module:

Durga Dairy Limited

Role Name of Person Signature Date

Durga Dairy Limited Internal Use Only

Purpose of this Document

Current distribution of this document

Project Head Mr. (Chairman)

3. ORGANIZATION STRUCTURE FOR MM

The above plants has 14 storage locations.

4. TYPES OF MASTER RECORDS

Sub-Process Scope: Maintenance of Material Master

 Numbering of material number i.e. (Int)

 The number range

 Screen appearance and sequence

 Purchasing for ordering

Materials are grouped into:

1. Rawmaterials:These are further

The stock keeping unit of measure for the UOM:

purchasing functions, where it can be changed.

Sales unit: Allows a material to be sold in a unit

Unit of issue: Unit of measure in which the

Material Master (Excise Data)

Material and Chapter ID Combination

On this screen, you maintain the excise data

Purchasing value keys

Sub-Process Scope: Maintenance of Conditions for Procuring Materials

Excise & Import Duty: Excise & Import Duty:

Sales Tax / VAT

Need to mention freight condition type in PO

Sub Process Scope: Material requirement Planning

The main function of MRP (Material Requirements

Sub Process Scope: Vendor Master Maintenance

Company Code Data:

Purchase Organization Data:

Vendor Schema Group

The schema group mentioned in the vendor

Vendor Account Group:

Terms Of Payment Terms Of Payment

Vendor Master (Excise Data)

Vendor Excise Details

• Local sales tax (LST) registration number

Sub Process Scope: Vendor Evaluation Criteria

time delivery performance, Quantity reliability,

Sub Process Scope: Service Master Maintenance

1. Annual Maintenance Contracts

1.Purchase Order - Domestic

2.Purchase Order – Imports

3.Purchase Order – Job work

4.Purchase Order – Services

Purchase Requisition process

Request for Quotation : Request for Quotation :

Doing comparison in Excel format. Comparison on the basis of price ,taxes,

Approval Process: Approval Process:

Release procedures will be defined for the

Under such a procedure, if a purchase

 Standard (For Material)

Account Assignment Category

Procurement Process – Procure to pay Process

Vendor also sends invoice to Durga Dairy Limited

Procurement for Stock

consumption accounts occurs automatically

Procurement for Direct Consumption

GR based invoice to be tick for PO