1.

Materials Management Overview

Materials management module(MM) is core component of the SAP software. The
functionality within MM is the engine that drives the Supply Chain.

MM contains many aspects of SAP functionality, including:

1. Purchasing
2. Goods receiving
3. Material storage
4. Consumption-based planning
5. Inventory

It is highly integrated with other modules such as Finance(FI),

Controlling(CO),Production Planning(PP),Sales and Distribution(SD),Quality
Management(QM),Plant Maintenance(PM),and Warehouse Management(WM).

1.1.Materials Management as part of SAP

1.1.1.SAP History
SAP was founded in 1972.SAP is number one vendor of standard business-
application software and third largest software supplier in the world. SAP delivers
scalable solutions that enable its customer to further advance industry best practice.

1.1.2.Core SAP Functionality

1.2.Materials Management as part of Logistics
1.2.1.Definition of Logistics and Supply Chain
Logistics can be defined as the management of business operations, including
acquisition, storage, transportation and delivery of goods along the supply chain.

The supply chain can be defined as network of retailers, distributors, transporters,

storage facilities, and suppliers that participate in the sale, delivery, and production
of particular product.

Logistics can be defined as the management of business of operations icluding:

 1. Acquisition
2. Storage
3. Transportation
4. Delivery of goods along Supply chain

The suppla chain can be defined as network of:

1. Retailers
2. Distributors
3. Transporters
4. Storage facilities
5. Suplaiers tjat participate in the:
6. Sale
7. Delivery
8. Production of particular product

1.2.2.Management of the Supply Chain

From these definitions it is clear that materials management is an integral part of
Logistics function within SAP. There are three flows that are important when we
look at MM in the supply chain.These are:

1. The Material Flow

2. The Information Flow
3. The Financial Flow

The material flow describes the movement of materials from the vendor to the
company and then on to the customer(and potentially customers returns). Today
companies are integrating with suppliers and customers not just interfaceing.
Therefore any improvements companies can provide to the visibility of their
material flow will allow them to be flexible and responsive to their customers.
Customers will want to do business with companies who are responsive. Those
companies will be also be able to gain a competitive advantage and increase
market share by being more flexible, quicker, more dependable.
The information flow includes the transmitting of orders(including EDI, fax, etc.)
and updating the status of all deliveries. Companies that can show customers and
vendors viability by using real time information have distinct competitive
advantage over others.

The financial flow includes the financial documents that are created at each
material movement.

The material flow:

1. Movement of material from vendor to company to customer and potential

returns
2. Today companies are integrating with customers and suppliers not just
interfacing
3. Customers will want to do business with companies that are responsive
4. Those companies will gain competitive advantage and gain more shares by
being:
4.1.Flexible
4.2.Quicker
4.3.Dependable

The information flow:

1. Transmitting of orders
1.1.Electronic Data Interchange
1.2.Fax

1.2.3.SAP and Logistics

SAP provides a company with the ability to have correct materials at the correct
location at the correct time, with the correct quantity and the most competitive
cost. The competitive advantage is achieved when company can manage the
process. This involves managing the company’s relationship with customers and
vendors. It also involves controlling their inventory, forecasting customer demand,
and receiving timely information with regards to all aspects of supply-chain
transactions.

The Logistics function in SAP includes the following:

1. Materials Management(MM)
2. Sales and Distribution(SD)
3. Quality Management (QM)
4. Plant Maintenance(PM)
5. Production Planning(PP)
6. Project Systems(PS)
7. Finance(FI)
8. Warehouse Management(WM)
9. Logistics Information System(LIS)

1.3.MM Integration with Other Modules

1.3.1.The Material Flow of the Supply Chain
As defined already material flow is the movement of the material from vendor to
the customer. To instigate a flow, a material need would have to be created by
either the Production Planning module (PP) via Materials Requirement
Planning(MRP) system or by a sales order created in Sales and Distribution (SD).
The need is created, and a Purchase Requirement is sent to the vendor, relating to
instructions on delivery date, quantity and price.

The vendor sends material and its received and may be subject to quality
inspection in Quality Management(QM). Once approved, the material can be
stored and may be stored in a warehouse using Warehouse Management.
The material could be required in Production Order in Production Planning (PP) or
be part of larger project defined in Project System(PS).

Once a final material is available for the customer , it can be picked from the
warehouse and shipped to the customer using SD module.

1.3.2. The Information Flow of the Supply Chain

Initially there may be an order from customer. This order could be transmitted via
electronic data interchange(EDI) to SAP system. The information on SAP will
communicate whether the item is in stock, and if not the information is sent to
MRP tool. Information is sent back to the customer giving the delivery date.

The MRP tool takes all the information regarding the production schedules,
capacity of the production facility , and the available materials involved in
production to create production orders and material requests that appear as
information in the procurement system.

The information in the procurement system creates orders with required delivery
dates, which are transmitted to vendors. The return information from the vendor
will confirm the date of delivery of the material.

The vendor can send EDI transmissions informing the company of the status of the
delivery.

Upon receipt of the material, information is passed from the receiving documents
to the warehousing system(WM), in order to store the material correctly. The
information is passed to the production systems (PP) to calculate if the production
order is going to commence.

Once the material is ready to ship, SAP produces information for shipping (SD)
and can send that information to the customer.

At all of the touch points with SAP, information has been recorded and are
available to be reviewed and analysed. The more information that is shared across
the supply chain, the more cost benefits can be achieved with improvements based
on the analytical data. The Logistics Information System(LIS) and other standard
SAP reports can give the supply chain management team invaluable insights into
how their logistics function works.

1.3.3. The Financial Flow of the Supply Chain

The typical flow of financial information in the supply chain includes the invoices
received by the company from their vendors, the payments to the vendors, the
billing of the customers for materials, and incoming payments.

The vendor supplies material to the company and sends an invoice to be paid
against. The company has choice in SAP on how to pay the vendor either pay on
receipt of the materials(two way match) , or more often , on receipt of vendor
invoice(three way match) . The accounts payable department carries out this
function. The invoice verification process within SAP is an excellent example of
the integration between the MM and Finance modules.

Supply Chain users can analyze the financial key performance indicators (KPI) that
are part of overall supply chain. These can include Inventory Turns, Days of
Working Capital, Days of Inventory , Days Sales Outstanding, Days Payables
Outstanding. The integration of MM and other key modules within the Logistics
function combine to provide this important information in a accurate and timely
fashion .

Developments in the financial flow of the supply chain have direct impact in MM
module. The imaging of invoices is an important development that allows
companies to scan the incoming invoices( either internally or using third party) and
create Workflow (WF) to speed approval. A message is sent to purchaser and
approval time is shortened.

Companies now use P cards to reduce cost and speed up the financial flow.
Purchasing with P-cards ties purchasers into an approved vendor list and allows
companies to focus on obtaining discounts and favorable rates with certain
vendors. The other benefit is P card reduces invoice processing by the accounts
payable department. The individual purchases are managed by the limit of each P
card user and payment is made directly to the vendor by the P card company.