Name – Saurabh Poddar

Roll no. – HRD2017134

Reg. no.- (20-1022)
Specialization- Marketing
Batch- 2020-22
Institute- BIMHRD
Semester – 1st
Subject Name – ERP Systems (SAP)
Assignment No. – 2
Submission Date – 13th January, 2021
Total number of pages written – 8

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

Ans) 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.

The different types of purchasing organisation in procurement involves:

a) Centralized Purchase: This type of organization is the one in which all purchase
activities are conducted by a single central unit. This is an organization created by firms
that perform buying/selling for more than one project/workplace to make purchases in
better conditions (price, delivery time, transportation fee, etc.). There is no purchasing
agent in the projects. This type is used more when a number of purchasing item is low
but the budgets are large.
b) Coordinated (Combined) Purchase: This type, intending to minimize the cons of the
central purchase organization and to provide quick response times, is applied by making
big-budget purchases by the central group, and small purchases by the project. The
majority of purchase activity is performed by the purchasing agents in projects but is
constantly coordinated and controlled by the central purchase.
c) Independent (Local/Separate) Purchase: As the generally-used organization type,
this one is conducted entirely by the project (except for the Procurement unit in energy
projects). In this organization, bureaucracy is at a minimal level as there are not
procedures such as sending documents to the central group and receiving approval.
d) Independent + Active Consultant Style Purchase (Regional): This is the type of
organization that large-scale, project-based firms should use. I have combined the
Coordinated and Independent purchase approaches here. In this type of organization,
there is a regional active consultant along with the independent purchase type. The role
of the active consultant here is to link the contracts of big-budget purchases with high
discount rates according to ABC analysis by using the firm-wide control opportunity
and to constantly investigate purchase activities of the projects remotely in coordination
with the central quality group.

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It is an organizational unit in Logistics, subdividing an enterprise according to the requirements
of Purchasing. A purchasing organisation is an organisational level that negotiates conditions
of purchase with vendors for one or more plants or companies. It is legally responsible for
completing the purchasing contracts.
1. A purchasing organization can be divided into several purchasing groups that are responsible
for different operational areas.
2. Each purchasing organization has its own information records and conditions for pricing.
3. Each purchasing organization has its own vendor master data.
4. Each purchasing organization evaluates its own vendors using MM Vendor Evaluation.
5. Authorizations for processing purchasing transactions can be assigned to each purchasing
organization.
6. All items of an external purchasing document, that is, request for quotation, purchase order,
contract, or scheduling agreement, belong to a purchasing organization.
7. The purchasing organization is the highest level of aggregation for purchasing statistics.
8. The purchasing organization serves as the selection criterion for lists of all purchasing
documents.

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

Ans) Without ERP system, an organization may encounter difficulties in the procurement of
raw material because the system solves a number of issues related to business which are as
follows:
a) Communication challenges: If one employee has to contact another employee to get
key information, you are in trouble. Being so dependent is both a problem and a risk in
a professional setting. You do not want the whole business process to stop because
someone is unavailable. You want everyone to be informed. And you do not want
people to constantly distract each other. Therefore, you need a system for keeping all
the necessary information. This is exactly what ERP software can be. As a result, each
authorized team member will be able to find what they look for.
b) Repetitive manual tasks: In the beginning, performing tasks manually is often the only
available option. However, the bigger your company gets, the more data there will be.
Naturally, at some point, you will consider hiring more people to deal with a new load
of tasks. Please keep in mind that company growth does not necessarily mean employee
increase. By setting up ERP, you can organize the work of your enterprise in a truly
effective manner. For example, ERP can create order sheets and invoices instead of
accountants. Or it can provide relevant information about the products you have in
stock.
c) Customer data tracking: No matter what you do, the customer is king. But what
happens to the customer`s data when the order is fulfilled? Your company cannot
improve if you do not keep track of the details. You cannot meet the needs of your
customers if you are not aware of them. Meanwhile, ERP software can. It allows your
employees to keep track of all communication, order history, feedback and so on. When
a customer returns, anyone on the team will be able to provide the best personally-
tailored service.
d) Financial disorder: To be financially stable, the company has to know where the
money goes. Depending on the number of processes that are involved in any business,
this can be challenging. Not with ERP though. It can store information about orders,
production and delivery expenses. It can analyse the information and provide detailed
reports without mistakes. By the way, this software can be so powerful that you might
be able to use different currencies without any additional difficulties.
e) Decision making: All of the above leads to this point. Decision making is one of the
most complicated and responsible parts of any job. To enable your employees to deal
with it well, you need to create a suitable environment. The one where they will always
have a clear understanding of the company`s state. It is impossible to make this happen
without smart software that is adapted to your circumstances. You can avoid some of
them. If you face any of the aforementioned issues, but ignore them, they will get worse.
And if you decide to fix them, you need a universal solution. Not just a way to tackle a
particular problem now, but a long-term system. By using ERP software you can
transform the way your company functions and create an efficient process which will
then lead to long-term success.

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3. 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 you collect and
store data into one centralized place from areas such as:

• Finance & Accounting

• Human Resources
• Customer Relationship Management
• Production Management
• Business Intelligence
• Warehouse Management
• Inventory Management
• Supply Chain Management
• Point-of-Sale (POS)
• E-Commerce

The procure-to-pay process is the coordinated and integrated action taken to fulfil a
requirement for goods or services in a timely manner at a reasonable price. It involves a number
of sequential stages, ranging from need identification to invoice approval and vendor payment.
Steps in a procure-to-pay cycle need to be executed in a strict order. Based on organizational
practice and the requirement in question, procurement leaders choose to complete the most
relevant stages of a procure-to-pay process.

Here are nine logical steps of an ideal procure-to-pay cycle:

Step 1: Identify needs: The first step of a procure-to-pay process is to determine and define
the business requirements with the help of cross-functional stakeholders. Once a valid need is
identified, procurement teams sketch out high-level specifications for goods/products and
terms of reference (TOR) for services, and statements of work (SOW).
Step 2: Create requisitions: After finalizing the specifications/TOR/SOW, a formal purchase
requisition is created. A requester submits the filled-out purchase requisition form after
ensuring that all necessary administrative requirements are met. Requisitions can be created
for any type of procurement from standard purchases to subcontracts and consignments.
Step 3: Purchase requisition approval: Submitted purchase requisitions are then reviewed
by department heads or procurement officers. Approvers can either approve or reject the project
requisition after evaluating the need, verifying the available budget, and validating the purchase
requisition form. Incomplete purchase requisitions are rejected back to the initiator for
correction and resubmission.

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Step 4: Create a PO/spot buy: If the requested goods/products have characteristics such as
unmanaged category buys, one-time unique purchases, or low-value commodities, then a spot
buy can be performed. Else, purchase orders are created from approved purchase requisitions.
Step 5: Purchase order approval: Purchase order are now sent through an approval loop to
ensure legitimacy and accuracy of specifications. Approved purchase orders are then
dispatched to vendors. After reviewing the purchase order vendors can either approve, reject,
or start a negotiation. When an officer approves a purchase order, a legally binding contract is
activated.
Step 6: Goods receipt: Once the supplier delivers the promised goods/services, the buyer
inspects the delivered products or services to ensure that it complies with the contract terms.
The goods receipt is then approved or rejected based on the standards specified in the
purchasing contract or purchase order.
Step 7: Supplier performance: Based on the data obtained from the previous step, the supplier
performance is evaluated. A number of factors like quality, on-time delivery, service, contract
compliance, responsiveness, and Total Cost of Ownership (TCO). Non-performance is flagged
in existing rosters and information systems for future reference.
Step 8: Invoice approval: Once a goods receipt is approved, a three-way match between the
purchase order, the vendor invoice, and the goods receipt is performed. If there are no
discrepancies found, the invoice is approved and forwarded to the finance team for payment
disbursement. In the case of inaccuracies, the invoice is rejected back to the vendor with a
reason for rejection.
Step 9: Vendor payment: Upon receiving an approved invoice, the finance team will process
payments according to the contract terms. Any contract changes or reviews liquidated financial
security will be taken into account. A payment made to a supplier will fall into one of the
following five types: advance, partial, progress or instalment, final, and holdback/retention
payments.

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4. Draw and explain with example how SAP-Purchase cycle and SAP-Sales Cycle are
integrated.

Ans) SAP Sales and Distribution is one of the key components of SAP ERP system and is used
to manage shipping, billing, selling and transportation of products and services in an
organization. SAP Sales and Distribution module is a part of SAP Logistics module that
manages customer relationship starting from raising a quotation to sales order and billing of
the product or service. This module is closely integrated with other modules like SAP Material
Management and PP. The key components in SAP Sales and Distribution module are −

• Customer and Vendor Master Data

• Sales Support
• Shipping of Material
• Sales Activities
• Billing related
• Transportation of products
• Credit Management
• Contract Handling and Management
• Foreign Trade
• Information System

SAP provides many components to complete SAP Sales and Distribution organizational
structure like Sales Areas, Distribution Channels, Divisions, etc. The SAP SD organization
structure majorly consists of two steps −

• Creation of Organization elements in SAP system, and

• second is to link each element as per requirement.

On top of this organization structure in the SD module, sales organization is at highest level
and is responsible for distribution of goods and services. SAP recommends to keep the number
of sale organization in an organizational structure to be minimum. This will help in making the
reporting process easy and ideally it should have a single sales organization. The next level is
distribution channel, which tells the medium by which the products and services are distributed
by an organization to its end users. Division in an organizational structure, which represents a
product or service line in a single organization. A sales area is known as entity, which is
required to process an order in a company. It comprises of sales organization, distribution
channel and a division. In SAP SD organizational structure, each sales organization is assigned
to a company code. Then the distribution channel and divisions are assigned to sales
organization and all of these comprise to make a sales area.

Consider an example of creating a sales order in SAP SD, it involves copying the details of
items from Material Management. Availability check of the item and price details are also
taken from MM, but this can be controlled in the SD module. To create inbound and outbound
delivery of goods for a sales order, shipping details, loading point etc. also comes from the
Material Master. The item that is placed using a Sales order must be extended to the sales area
of an organization to sales order/customer, otherwise it won’t be possible to transact with this
material. This confirms that there is a link between SAP SD and MM module, when a sales
order is created and fulfilled. Similarly, there are many other links between two modules.

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5. 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) The following is a list of the most important ERP features most commonly found in an
ERP software system:

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 various 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: When someone asks, “What does ERP do?” the answer will likely always
include automation. This 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. ERP provides detailed reports that are
intuitive, actionable and relevant. Additionally, it allows complete traceability, ensuring every
error, inconsistency and questionable process can be traced, corrected and prevented. Thus,
ERP’s reporting capabilities help you target your business’s weaknesses, ensuring stronger
performance over time.

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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.