RFQ in Procurement Cycle And MRP

DATE OF CREATION 18TH MAY, 2021

 Request for Quotation (RFQ)

 Maintaining a Quotation
 Comparison of Prices

 A request for quotation (RFQ) is an invitation extended to a vendor by a

purchasing organization to submit a quotation (bid) for the supply of materials or
performance of services. 
 A quotation is legally binding on the vendor for a certain period. The quotation is
the vendor’s response to a request for quotation issued by a purchasing
organization. 
 A quotation consists of items in which the total quantity and delivery date of an
offered material or service are specified.
 An item of a quotation may contain a delivery schedule made up of a number of
schedule lines in which the total quantity is broken down into smaller quantities to
be delivered on the specified dates over a certain period.
 Issuing RFQs and Obtaining Quotations You use this process if you wish to
manage and compare RFQs issued to vendors and the quotations received from
them.
 You can compare the prices from all quotations received as a result of a
competitive bidding process using the price comparison list. The comparison list
ranks the quotations by item from lowest to highest price.
 From there we can optionally create a contract or release an order as discussed
earlier

RFQ AND QUOTATION
 A product may be offered by different vendors with negotiable prices and delivery
terms. 
 Where a company is planning to spend a considerable amount of money on a
product, it makes sense to ask for a number of competing bids to see which
supplier offers the best option(s) at the time.  This is normally done via a Request
for Quotation (RFQ). 

RFQ IN THE PROCUREMENT CYCLE

 A request for a quotation (RFQ) can be created directly or with reference to a
purchase requisition, an outline agreement or another RFQ.
 The RFQ can be sent to one or more vendors and linked together using the Bid
Invitation Number.
 If the vendor does not have a master record then the one time vendor facility
is used.
 RFQs can be monitored; a reminder can be sent for a quotation if required.
 A rejection letter can be sent to unsuccessful vendors.
 The RFQ can be converted into a purchase order or an outline agreement.
RFQ in Procurement Cycle And MRP

RFQ in Procurement Cycle

RFQ in Procurement Cycle And MRP

 When RFQs are created for vendors and sent out to them , this process is called
Creating RFQs or Creating Quotation

 When vendor responds by submitting the prices quotation this process is called

maintaining the Quotations. 

CREATING RFQ
 You can either enter RFQs with or without reference to a purchase requisition, another
RFQ, or an outline agreement.
 You maintain the organizational levels and the deadline for submission of quotations on
the initial screen.
 After you have filled out the initial screen, you enter the items for the RFQ.
 You can enter an RFQ for vendors with a master record or for one-time vendors. With a
one-time vendor, you must enter the address in the RFQ.
 Collective Number is used to refer to all RFQs in an specific procurement activity.

MAINTAINING THE QUOTATION

 The quotation contains a vendor's prices and conditions received against RFQ. 
 In the Purchasing component, RFQs and quotations are a single document.
 You enter the prices and conditions stated by the vendor in the original RFQ.
 You can compare quotation data by using the quotation price comparison list.
  The quotation price comparison list shows the most reasonable vendor for each item
individually and for all items.
 RFQ in Procurement Cycle And MRP

RFQ AND QUOTATION

 A vendor is requested to submit a bid for a material or service via an RFQ.  An RFQ can be created directly or
with reference to a requisition.

 After the RFQs are sent out, quotations are received from the vendors.  A quotation contains the pricing and
delivery data that was requested in the RFQ.

 The RFQ and the quotation document number are the same.

 MATERIAL REQUIREMENTS PLANNING

 The main objective of MRP is to ensure material availability. 

 It is used to procure or produce the requirement quantities on time both for consumption
and for sales and distribution. 

 Objectives:
 Ensure availability
 Minimizing costs and working capital.
 Plan manufacturing activities, delivery schedules and purchasing activities. 
The main function of material requirements planning is to guarantee material availability, that is, it is used to procure
or produce the requirement quantities on time both for internal purposes and for sales and distribution

Business Objectives for the MRP process

The Major Drivers for MRP Process are:

 Avoid potential stock outs, by planning to meet requirements on time.  

 Maintain an optimum level of stock to reduce the costs related to Inventory
  Working Capital
 Ordering Costs, Carrying Costs, Handling Costs, and Transportation etc.
 Streamline the replenishment process such that it meets actual business needs.
 Improve visibility of planning and stock situations.
 Improve analysis of materials planning.
 MRP is one of the key processes in MM which can help the Companies:-
 To optimize on stock levels.
 To plan the materials to avoid excessive holding and also to reduce stock outs.
 Stream line the replenishment process.
 Strongly integrated with other modules (such as PM) so as to assist in planning requirements.
 In quick decision making.
RFQ in Procurement Cycle And MRP

STEP OF MRP
MRP Parameters defined in Material Master

  As opposed to MRP , consumption-based planning procedures uses past

consumption data (historical data) to calculate future requirements with the help of the
material forecast or statistical planning procedures. The net requirements calculation is
not hereby triggered by an independent or dependent requirement, but is triggered
either when stock levels fall below a reorder point or by forecast requirements.
The consumption based planning can be used based on reorder levels or forecast
 In reorder point planning, the system checks whether the available stock level falls
below the reorder point defined for the material.  If it does, procurement must be
triggered.  You can determine the reorder point manually or, it can also be calculated
automatically using the material forecast.
 In forecast-based planning, historical data is used in the material forecast to estimate
future requirements.  These requirements are known as forecast requirements and are
immediately available in planning.
 In time-phased planning, historical data is also used in the material forecast to estimate
future requirements.  However in this procedure, the planning run is only carried out
according to predefined intervals.
 For all consumption-based planning procedures, sales orders, planned independent
requirements, reservations and so on are not relevant to planning 
 In MRP sales order, planned independent requirements, reservations and so on are
planned directly as requirements.
 RFQ in Procurement Cycle And MRP

There are two major type of MRP procedures i.e MRP and Consumption Based
Planning.

MRP
 MRP is calculates gross requirements based on sales orders and
Independent Requirements.

Consumption based Planning.

 As opposed to MRP, consumption-based planning procedures are only
based on material consumption.

 In MRP, sales order, planned independent requirements, reservations, and so on are

planned directly as requirements.

 For consumption-based planning procedures, sales orders, planned independent

requirements, reservations, and so on are not relevant to planning
RFQ in Procurement Cycle And MRP


CONSUMPTION BASED PLANNING

 It uses the past consumption data to calculate the future requirements. 

 It has no relation with the independent or dependent requirement instead it is

triggered when the stock falls below the reorder point or by forecast requirements.
It has three types of MRP procedures:

 Re-order point planning. 

 Forecast based planning. 
 Time phased planning.

REORDER POINT PLANNING

 Procurement is triggered when the sum of plant stock and firmed receipts fall below the
reorder point. 

 Reorder point covers the material requirements during replenishment lead time. 

 The safety stock takes care of both excess material consumption within the replenishment
lead time and any additional requirements that may occur due to delivery delays.
RFQ in Procurement Cycle And MRP

Re-order point is defined by :

 Safety stock
 Replenishment lead time.
 Average consumption.
Safety stock is defined by :
 Past consumption data.
 Vendor/ production delivery timelines.
 Reorder point = safety stock + daily requirement * lead time.

OTHER MRP PROCEDURE

Time-phased planning
 This is used specially in case if the planning cycle is known.
 The materials planned using this is given an MRP date in the
MM master MRP parameters.
 This date is set when creating the material
RFQ in Procurement Cycle And MRP

Forecast Based Planning

 It is also based on historical data, or the past material
consumption data.
 Here the forecast values form the basis of the planning run.
 Based on the consumption pattern the system changes the
forecast requirements for future.
RFQ in Procurement Cycle And MRP

MRP Data for Consumption Based Planning

 MRP Type : VB for Reorder point based planning
 Reorder point : Stock level at which MRP is to be triggered.
 Lot Size : HB i.e. Replenishment to Maximum Level
 MRP Controller : Persons responsible for performing MRP i.e.
similar as Purchasing Group in purchasing.

MRP TYPE
 The MRP type is a key which controls the MRP procedure to be
used for planning a material.
 It is a material master data in MRP view # 1.
 It further determines which MRP parameters to be entered when
maintaining the material master record.
 These are SAP Standard MRP types. You can create your
customized MRP types as well
RFQ in Procurement Cycle And MRP

Views for MRP in

MM01 MM02 MM03
RFQ in Procurement Cycle And MRP

MRP PROFILE

 The MRP profile is a key in which you can store MRP

parameters that do not depend on the material master record.
 That MRP profile can be selected while creating a material
master and maintaining MRP parameters.

T-codes :
MMD1, MMD2, MMD3
RFQ in Procurement Cycle And MRP