IT2401

Materials Management (MM)

Materials Management (MM) is a SAP ERP module concerned with helping organizations with material
management, inventory management, and warehouse management in the supply chain process. It also deals
with all tasks in the supply chain such as consumption-based planning, planning, vendor evaluation, and
invoice verification.
MM Organizational Structure (SAP SE, 2022)
The MM organizational structure can be divided into Materials Management and Purchasing.
Materials Management includes the following organizational unit:
• Client – an independent environment in the system.
• Company Code – the smallest organizational unit where a legal set of books can be maintained.
• Plant – or Delivering Plant, an operating area or branch within a company. It includes manufacturing,
distribution, purchasing, or maintenance facilities.
• Storage Location – a unit that differentiates the various material stocks in a plant.

Purchasing includes the following organizational unit:

• Purchasing Organization – the buying activity for a plant takes place at this unit. This unit is
responsible for services and material procurement and is in charge of negotiating the conditions of
the purchase with the vendors.
• Purchasing Group – a key unit representing the buyer or group of buyers responsible for certain
purchasing activities. This unit also serves as the communication channel for vendors.

Figure 1 details the different MM organizational units of the Global Bike organizational structure.

Figure 1. Global bike’s structure for materials management. Retrieved from SAP SE/SAP UCC.

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MM Master Data (SAP SE, 2022)

The MM master data consists of Vendor Master Data, Material Master Data, Purchasing Info Record,
Condition Master Data, and Output Master Data.
Vendor Master
This master data contains all the necessary information for business activities with an external supplier. It is
used and maintained by the Purchasing and Accounting Departments. Every vendor must have a master
record. Additionally, the supplier master record in SAP S/4HANA is created as a central business partner master
record with different roles.
The vendor master is divided into three (3) views: Client Level, Company Code Data, and Purchase Org Data.
Client Level includes the vendor address, vendor number, and preferred communication. Company Code Data
includes reconciliation account, terms of payment, and bank account. Purchase Org Data includes purchasing
currency, salesman’s name, and vendor partners.
Material Master
This master data contains all the information a company needs to manage a material. The SD Material Master
is the same as the MM Material Master, which means the same components within the SAP system also use
the MM Material Master.
Material master data is stored in functional segments called Views, such as:

Figure 2. Material master views. Retrieved from SAP SE/SAP UCC.

The Material Master is divided into three (3) areas: General Information, which contains material information
relevant to the entire organization, such as material name, weight, and unit of measurement; and Sales, which
includes specific details on the Delivery Plant and Loading Group. For example, Storage Location contains
particular information about the Stock Quantity.
Purchasing Information Record
This data allows buyers to determine which vendors have offered or supplied specific materials quickly. It
serves as the default information for Purchase Orders. The framework for purchase order contains the relation
between a vendor and a material.
Purchasing information records include the following:
o Data on pricing and conditions o Specific lead times
o Last purchase order o Availability periods
o Tolerance limits for delivering o Vendor Evaluation data

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MM Processes (SAP SE, 2022)

The MM Processes, particularly the Procure-to-Pay process, include the following steps in order:
1. Purchase Requisition 5. Vendor Shipment
2. Vendor Selection 6. Goods Receipt
3. Purchase Order 7. Invoice Receipt
4. Notify Vendor 8. Payment to Vendor

Purchase Requisition
It involves an internal document instructing the purchasing department to request a specific good or service
for a specified time.
It can be created in two (2) ways: Directly or manually, where a person making the requisition determines the
what, how much, and when, and Indirectly or automatically, which includes Materials Request Planning
(MRP), Production Order, Maintenance Order, and Sales Orders.
Requisition Sourcing
Once the requisition has been assigned to a Source of Supply, it can be released for processing. The variety of
ways that a purchasing department can process a requisition to determine the appropriate Source of Supply
includes:
o Internal Sourcing Requirements o Outlines Agreement
o Source List o Request for Quotation (RFQ)

Internal Sourcing
The requisition for materials could be satisfied by sources within the company, such as:
o It is possible that a plant within the firm could represent a potential source of supply for the material
needed (centralized warehouse)
o If an internal source is identified, the requirement is covered by an internal procurement transaction
(stock transport order)
Source List
It is a record that specifies the allowed means for procuring material for a certain plant within a given period.
These are the following conditions:
o If the list contains a sole source, the system will assign the vendor to the requisitions.
o If several options exist, the system will display a list of vendors.
o If no source has been established, the system will revert to searching information records and
outlining agreements.
Outline Agreement
Requisitions can be satisfied through existing longer-term purchasing agreements divided into contracts and
scheduling agreements.
Contracts consist of items defining the individual materials, material groups, or services with prices and in
many quantities. Scheduling Agreements are how the total amount of material is spread over a certain period
in a delivery schedule, consisting of line items indicating quantities and their planned delivery date.

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Request for Quotation (RFQ)

It is an invitation to a vendor by a Purchasing Organization to submit a bid for the supply of materials or
services. It is submitted to vendors if nothing exists in the system.
The process for RFQ includes:
o The accepted quotations will generate Purchasing Information Records
o Perform Quotation Price Comparisons
o Select a Quotation

Quotation for Vendor

The invitation received by the vendor is a legally binding offer, should decide to do business with the vendor,
and contains prices and conditions for the materials in the RFQ for a predefined period.
The RFQ and the Quotation will become a single document in SAP. The vendor’s response will be entered in
the created RFQ.
Vendor Evaluation
It helps purchasing evaluate vendors for sourcing while also enabling the company to monitor vendor relations
through performance scores and criteria put in place.
The evaluation supports a maximum of 99 main criteria and 20 sub-criteria for each main. Some of these
criteria are as follows:
Price as a criterion includes the Price Level and Price History as sub-criteria. Quality as a criterion includes
Goods Receipt, Quality Audit, and Complaints/Rejection level as sub-criteria. For Delivery as a criterion, On-
time Delivery Performance, Quantity Reliability, Compliance with Shipping Instructions, and Confirmation
Dates are the sub-criteria
Purchase Order
It is a formal request to a vendor for a specific material or service under stated conditions. It can also be
created manually and automatically.
It can be used for various purposes, such as the item category (procurement type) defined in the Purchase
Order will dictate the use of the order and the process that the order will follow, whether Standard, Services,
Subcontracting, Third-Party, or Consignment.
Some forms that aid in the purchasing process and are generated from the Purchase Order include Purchase
Order Output, Order Acknowledgement Forms, Reminders, and Schedule Agreements.
Goods Receipt
It deals with the goods movement wherein goods are accepted into the system.
When a goods movement takes place, it is represented by a movement type. Movement Types are three-digit
keys used to represent a movement of goods. For example:
o 101 – goods receipt into the warehouse
o 103 – goods receipt into Goods Receipt blocked stock
o 122 – return to delivery vendor
o 231 – consumption for a sales order
o 561 – initial entry of stock
The destinations for Receipts of Goods include a warehouse, quality, and goods receipt blocked stock.

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A series of events occur when a Goods Movement for the receipt of goods takes place. It includes the
following:
o Material Document is created
o Accounting Document is created
o Stock Quantities are updated
o Stock Values are Updated
o Purchase Order is Updated
o Output can be generation in Goods Receipt slip or pallet label
Invoice Processing
These are references against a Purchase Order to verify their content, prices, and arithmetic. If discrepancies
arise between the purchase order or goods receipt and the invoice, the system will generate a warning or an
error. A discrepancy will cause the system to block the invoice depending on the system configuration.
When an invoice is saved, it applies the liability from the Goods Receipt of the Purchase Order to a Vendor.
Upon verification, the purchase order and the material master are updated, and the account document is
created.

Once the invoice has been posted, the verification process is completed, and the payment process is initiated
within Financial Accounting.
Payment to Vendor
It can be done automatically (post outgoing payment) or manually (payment program). The process will create
a financial accounting document to record the transaction.
Elements of the Payment Transaction
o Payment Method
o Bank from which they get paid
o Items to be paid
o Calculate payment amount
o Print payment medium

References:
Figueiredo, M. (2022). SAP HANA cloud in a nutshell: Design, develop, and deploy data models using SAP HANA cloud.
Apress.
Partner (2022 SAP SE/SAP UCC Magdeburg from Academic Competency Centre)

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