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Review questions - chapter 5

1. Briefly discuss the organizational levels relevant to the fulfillment process. Be sure to explain
the relationships among the various levels.
Client: highest level in the organizational hierarchy
Company code: second level; represents legally independent entities
Sales area: combination of sales organization, distribution channel and division
Plant: manufacturing and/or storage facility
Storage location
Shipping point: location in a plant from which outbound deliveries are shipped
Credit control area: organizational level responsible for customer credit

2. What is a distribution chain? How is it relevant to the fulfillment process?

Combination of a sales organization and division that maintains master data such as pricing conditions
and material master

3. Explain the relationships among the following organizational levels: sales organization,
distribution channel, division, and sales area.
Sales organization: responsible for the sale and distribution of goods and services for an specific
geographic area
Distribution channel: means by which a company delivers its goods and services to their customers
(wholesale, retail)
Division: used by companies to consolidate materials with similar characteristics within a unit
Sales area: combination of sales organization, distribution channel and division
They are all associated with a product line

4. What is a credit control area? Explain the difference between a centralized and a
decentralized model of credit control areas.
Credit control area: organizational level responsible for customer credit; determines customers
creditworthiness, establishes credit limits and monitors/manages the actual extension of credit to
customers
Centralized system: manages credit for customers across all company codes
Decentralized system: maintains multiple credit control areas, managing credit for one or more
companies within the enterprise

5. Briefly discuss the master data relevant to the fulfillment process.

Material master: data relevant to the material being sold to customers (sales organization data, sales
plant data)
Customer master: data the company needs to conduct business with customers and execute
transactions related to the fulfillment process (general data, accounting data, sales area data)
Customer-material info record: related to purchases of a specific product by a specific customer
(customers material number cross-referenced with company's material number)
Pricing conditions: used to determine product prices
Output conditions: methods companies use to generate different outputs of the fulfillment process
(quotations, invoices)
Credit management master record: includes relevant data to manage credit for customers
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6. Explain the relationship between the master data and organizational data in the fulfillment
process.
Master data is defined for specific organizational levels in the fulfillment process.
Customer master data: defined for specific company codes (financial data) and sales organization
(dales data)
Material master: defined for a client (basic data), sales organization (sales strategies), sales plant data
(how materiales will be shipped)

7. Describe, with examples, the data in the three segments of a customer master.
General data: information about the customer (name, address, account number)
Accounting data: payment terms and reconciliation accounts in the general ledger
Sales area data: sales, shipping, billing, partner functions, currency

8. At what organizational levels are the material master defined as it relates to the fulfillment
process? Provide examples of data in the material master.
Basic data: defined at client level (name of the material)
Sales organization data: defined for combinations of sales organizations and distribution channels
(delivering plant, sales units)
Sales plant data: defined at the plant level (transportation requirements, methods of loading)

9. Explain the role of each partner function in the fulfillment process.

Sold-to-party: customer who submits the order
Ship-to-party: customer who materials should be shipped to
Bill-to-party: customer who will receive the invoice
Payer: customer authorized to make a payment of an order
All functions can be filled by one or multiple customers

10. What is the purpose of a customer-material info record? Provide examples of the types of
data it contains.
Customer-material info record: contains master data specific to one customer and one material; data
relates to purchases of a specific product by a specific customer (customer material number:
cross-references company’s material number with the sellers material numbers)

11. How is pricing determined in the fulfillment process? Provide examples of data relevant to
pricing.
Companies create different conditions for the components of the final selling prices such as gross
prices, discounts, freight, surcharges, taxes. This conditions can be fixed amounts, percentages, or
calculated on a sliding scale

12. What is the credit management master record? How is it related to the customer master
record?
Credit management master record: an extension of the customer master record; includes data relevant
to managing credit for that customer

13. Describe the steps in the fulfillment process in terms of triggers, data, steps, and outcomes.
Fulfillment process: pre-sales activities > sales order processing > shipping > billing > receipt of
payment
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Presales activity (optional); the trigger is customer action (inquiry, request of quotation) or
salesperson action (proposal, contracts, campaigns)
Sales order processing; triggered by the receipt of customer purchase order (involves creating sales
order, used to manage and track the order as it flows through the process); the order is picked and
packed
Shipping: when sales order becomes due for delivery it’s shipped to the customer
Billing: bill the customer or the shipped materials
Receipt of payment: company receives a payment from the customer

14. Describe the structure of the following documents

a. Sales order
Header: includes data valid for entire sales order (partner functions, dates, order total)
Sales document: includes one or more line items that contain data about each item included in
the sales order
Schedule lines: specify delivery quantities and dates for each line item in the sales order
Line item: includes at least one schedule line
b. Delivery document
Header: includes data applicable to the entire document (ship-to-party, shipping address,
dates, totals: weight, number of items)
Line item: data about each item in the shipment (material number, delivery, quantity, weight)
Each schedule line in sales order is a line item in delivery document
c. Billing document
Header: consists of partner identification (sold-to-party and payer, billing date, document
currency, payment terms, total)
Each billing document item includes data such as material number, quantity and price

15. Explain the relationship between each of the following pairs of key elements of the
fulfillment process:
a. Quotations and sales orders
Quotation: binding agreement to sell specific products to the customer under clearly defined
delivery and pricing terms
Sales order: internal document that contains information necessary to fill customer orders in a
standardized form
Much data contained in the sales order is also found in the quotation; a sales order can be
created with reference to one or more quotations; a single quotation can generate one or more
sales orders
b. Sales orders and deliveries
Delivery documents serve as authorization for delivery. Schedule lines from multiple sales
orders with similar characteristics can be combined into one shipment or delivery (only when
sales orders have the same ship-to-address, shipping point, and due date)
c. Deliveries and transfer orders
Items from multiple delivery documents can be included in a single transfer requirement. This
can help optimizing pickers work in warehouses by grouping requests for materials located in
the same area. A delivery document can generate multiple transfer requirements. Data from
delivery documents is copied to the transfer requirement.
d. Deliveries and billing documents
Multiple deliveries can be combined to create one billing document (only when deliveries
share the same characteristics such as payer, billing date and country of destination. One
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delivery can also generate multiple invoices, here terms of payment for delivered items are
different

16. Explain how the steps in the fulfillment process impact the general ledger accounts.
Shipment, billing and payment have an impact on the general ledger.
Shipped order: inventory value in general ledger is reduced
Billing completed: accounts receivable reconciliation and sales revenue accounts are updated
Payment recorded: relevant general ledger accounts are updated and a FI document is created

17. How do companies manage payments that are less than the amount of the invoice?
Small amount of difference: company charges off or writes off difference using an appropriate G/L
account and the invoice is considered paid (difference within tolerance limits specified in the system)
Significant amount of difference: payment is handled through partial payment or residual item
(difference falls outside tolerance limits)
Partial payment: payment is posted to customer account and original invoice item remains
open
Residual item: original item is closed, a new item for the balance is posted to the customer
account

18. Briefly describe the credit management process. Which steps of the fulfillment process are
relevant to credit management?
Credit management process: useful to determine whether a customer should be granted a credit to
purchase and receive goods prior to payment
Relevant steps from fulfillment process: (1) sales order is created or changed, (2) delivery is
authorized (created) or changed, (3) post goods issue is performed during shipping
Company performs credit check to determine if the customer has exceeded its credit limit; possible
outcomes (when sales order or delivery is being created or changed):
1. Warn the user and allow to continue
2. Display an error message and don’t allow to continue
3. Block order delivery

19. Briefly explain how the fulfillment process is integrated with other processes.
Fulfillment process - Financial accounting: fulfillment involves revenues and customer payments.
Master data used in fulfillment (customer and material master) are maintained by sales and
accounting.
Shipment, billing and payment have an impact on the G/L
When conducting availability checks during sales order processing, we use inventory management,
production and purchasing data (sources of the materials for shipment)
Sales data also used by material planning to schedule procurement and production of materials
Goods movement is related to inventory management
Fulfillment is also related to project systems, which influence deliveries and billing

20. What is a document flow?

Document flow: displays all of the documents associated with steps that have been completed for a
single customer inquiry or order; it’s updated after each process step is completed; it displays a sales
order history and status

21. Provide examples of works lists and online lists associated with the fulfillment process.
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Work lists: tasks ready for completion that can be generated for each fulfillment step (preparing
deliveries, picking, post of goods issue, billing)
Delivery due list: a list of orders that are scheduled to be shipped by a specific date
Lists of orders that have been shipped but not billed
Online lists to create lists of documents associated with specific master data (list of delivery
documents for specific customers, list of sales orders for a specific combination of
customers/materials)

22. Provide an example of reporting using standard analysis in fulfillment. Make certain to
include the concept of drill down.
Sales reporting: includes sales organizations, order value, invoiced amount; it also provides a drill
down to display customer for a selected sales organization (drilling down for a customer can reveal
data for each period of time)

Bibliografía: Simha R. Magal. Integrated business processes with ERP systems.