P2P Cycle – SAP MM

PROCUREMENT TYPES
External Procurement and Internal procurement.
External procurement is obtaining the goods from outside the
organization.
Internal procurement is managing the requirement through
internal sources ie. Within the company.
Hence four scenarios possible
In house production (met through own production facilities)
No procurement (like Air and water which is abundantly
available free)
External procurement (Purchased from external vendors.
Both Internal & External (partly from own sources and partly
from outside vendors)
 PROCUREMENT STRATEGY
The purpose of procurement is to meet the requirements.
However we can partly estimate consumption by dividing in
to two categories ie. Known consumption and Unknown
consumption.

Consumption Known for all requirements arising out to meet

the Known production schedule, maintenance schedules,
Sales order, Project or Asset.

Consumption is unknown for all requirements arising out of

Break down maintenance or revised Order schedulings. But
we need to maintain stocks to meet the eventualities.
Purchase Definitions
 Stock Types
Stock Type Details

Unrestricted Use freely usable

Restricted use used for only specific requirements

Stocks when received from vendor or after process are inspected and cleared, when stocks are okay, it will be reflecting in
Quality Stock unrestricted use and when rejected, will be moved to blocked stock

when stocks are moved between plants or company code (inter plant) until receipt at intermediary stage
Transit Stock

Quality rejected or blocked for use

Blocked Stock

the stocks which are expected out of purchase orders placed to vendors
On Order Stock

vendor stocks at our premises (liablity for payment arises when we pick for our use)
Consignment stock

Subcont stock
Stocks transferred to sub contractor for job work(our stock at subcontractor)

Returns stock which is rejected and returned

Reserved normally production reserves stocks for future date use

Sales order stock specifically held for meeting a sales order

Project stock Stocks held at different project sites

 Movement Type
Materials are moved from one place to another in an organization with a
definite purpose. There are 3 types of movement namely, Receipt, Issue and
Transfer.

Further we can categorise receipts as receipt from Quality dept, regular

vendor, sub contracting vendor, receipt from another plant etc., Issues/
Transfer can be categorised as issues for production, Issue for Asset,
Issues for sub-contract etc., Transfer can be classified as Transfer of
material from one storage location to another storage location with in the
plant, from one plant to another and from one company to another company.

Each one of the movement types explained above is a material movement

in SAP and is assigned a movement type number. System executes the
required function with reference to the movement type number. All inventory
postings happen with movement type only.
 Movement Types
Receipts   101 to 200 101-GR against PO, t
122 - return delivery to vendor

201 Issue to cost center

Direct consumption (Inv book value
Issues 201 to 300
changes)
261 cons for prod order/maintenance order

321- Transfer Quality to unrest,

Transfer No Inv Value change 301 to 500
451 - Returns from customer

501 to 600 501 - without PO, 531 - Receipt of By product

Without PO/Prod order
Sales
Physical Inventory
Special or specific to company
movements
Direct receipts (Inv book value from order 561- Initial entry
changes)
601 - GD goods issue, delvy,
No value change 601 to 700
641 - Goods issue for STO
Inventory differences are posted.
Stock adjustment in books. 701 to 800 701 - add stock, 702 - Reduce stock
801 and above we can assign as required.

Special stock Indicators K Goods receipt for purchase order to consignment

E, K, M, O, Q, V, W stock
Goods receipt for purchase order to stock of
O
material provided to vendor
   
E GR for purchase order or order to sales order stock
   
Q GR for project stock.
   
 Contract & Scheduling Agreement
 The Outline agreement is of 2 types. ie. Contract & Scheduling
Agreement.

 Contract in SAP - A longer-term arrangement between a purchasing

organization and a vendor for the supply of materials or provision of
services over a certain period based on predefined price. The plants can
refer this document and procure through Purchase orders with their
terms and conditions. This can give the price advantage. There are two
types of contract namely Quantity contract or value contract.

 Scheduling Agreement is a form of outline purchase agreement (long

term) under which materials are procured on predetermined dates
(Schedule) within a certain time period. The delivery dates will be
maintained in ME38 ref the SA.This may help in reducing the number of
purchase orders and avoid unnecessary inventories. However it can be
used only when we are aware of the consumption pattern.
 Release Strategy
The requirement of materials exist in any organization and the individual department’s tendency is to hold maximum
stocks in order to avoid stock outs or production stoppages. But the management cannot provide this as it will lead to
high inventories which is the avoidable expenditure.

Release strategy is used in SAP MM is a control measure. The legitimate expenses should be allowed and high value
purchases need scrutiny at the initial stage itself. Hence the PR/RFQ/PO/Contract is to be approved/released by
competent authorities like Purchase manager, GM, Vice president etc according to the value of the intended purchase.

The release procedure can be set up in SAP for both individual line items or overall PR/PO. We can set the release
strategy for different doc types and mark a tick “Overall release of purchase requisitions (OverReqRel)” indicator. If we
don’t tick that indicator, it means that PR Document Type will be released with “Item-wise” procedure. The T code for Doc
type change is OMEB.

The next thing to do is determining the criteria/parameters of PR that must be approved/released by specific person. For
example:
PR of raw material that has value less than 50,000 can be released by operational manager. PR of that item that has value
50,000 or more must be approved by operational manager and operational director. PR for production equipment must be
approved by Asset Manager and operational director, whatever its cost.

SAP R/3 has provided a communication structure “CEBAN” that we can use to make criteria/parameters to determine the
PR approval process. Each field in “CEBAN” can be used as parameters. These parameters must be defined in SAP R/3
as a “Characteristic”. Some “characteristics” that are used as parameters to determine a release condition for a release
strategy can be grouped as “Classification”. Most commonly used parameters are, Value - & authority.
 MRP & Parameters
Materials requirement planning (MRP) is a tool used in SAP to ensure
material availability on time in a dynamically changing business
environment.

It has 4 views MRP 1, MRP2, MRP3 and MRP4.

MRP types :
Consumption based planning
Replenishment based planning
Manual or Automatic re-order point planning
Time phased planning
Forecast based planning

There are general parameters which can be maintained independent of MRP

like Procurement type, Purchasing group, Planned delivery time, GR processing
time, min and max stock level, Re-order level, Lot size, safety stock etc.,
Valuation category and Valuation Class
Valuation category to maintain your stocks and
valuations with different segregations.
The material stocks are divided according to valuation
category and valuation type.
 The valuation category determines how the partial stocks are divided,
that is, whether as one unit or partially.
 If you dont want to use valuation category for materials now onwards,
you can keep doing new inventory transactions under one category
(either Import or Domestic which one suits best for you) or else HAVE
TO REMOVE SPLIT VALUATION for material.
 Fixed valuation types are defined in the system for each valuation category
except valuation category X.
Both are mostly used altogether for split valuation
The valuation category specifies which criterion should be used
as the basis for differentiating between the various partial stocks.
 AUTOMATIC ACCOUNT DETERMINATION
In SAP MM, procurement process involves cost of goods and services that needs
to be paid to vendor by an organization. The cost being paid must be posted in
an organization necessarily in a general ledger (G/L) account. Every time during
procurement to remember the correct G/L account is an impossible thing. Hence
some configuration for account determination is done so that system will
automatically determine the correct G/L account that needs to be posted.

G/L account is posted when goods receipt and issue or consumption happens
and also during the clearing of invoice verification. The books of inventory and
financial accounting is integrated and serves the purpose of both.
 
Account determination deals with the following terms

Define Valuation Control

Group together Valuation Areas
Define Valuation Classes
Configure Automatic Posting
 Valuation areas can be grouped together and can be assigned to one grouping code if they
belong to same G/L account. For example different plants under one company code can be
Define Valuation Control(OMWM)

assigned same valuation grouping code and vice versa. Hence, valuation grouping code must be
activated and this can be done by following the below steps. Path to Activate ValGrouping
Code:
IMG => Materials Management => Valuation and Account Assignment => Account
Determination => Account Determination without Wizard => Define Valuation Control
In IMG screen select Define Valuation Control execute icon through the above path.
The valuation grouping code makes it easier to set automatic account determination. Within the
chart of accounts, you assign the same valuation grouping code to the valuation areas you want
to assign to the same account.
Valuation grouping codes either reflect a fine distinction within a chart of accounts or they
correspond to a chart of accounts.
Within a chart of accounts, you can use the valuation grouping code
to define individual account determination for certain valuation areas (company codes or plants)
to define common account determination for several valuation areas (company codes or plants)
Valuation grouping code is also called as Valuation modifier . You can assign the G/L accounts for automatic account determination (indirectly) dependant on the valuation area.
To minimize the necessary effort involved, valuation areas with the same account number assignment can be grouped together. This is done through the valuation grouping code.
The valuation grouping code is then used to assign the G/L account numbers.
The valuation grouping code (dependent on the valuation area) helps you to configure automatic account determination with the minimum possible effort.
Within a chart of accounts, valuation areas that are to be treated equally in terms of account assignment are assigned to the same valuation grouping code.
Valuation grouping codes are either used for fine differentiation within a chart of accounts or correspond exactly to a chart of accounts.
In contrast to the chart of accounts itself, you can specify for your company that automatic account determination is to be set up independently of the valuation grouping code,
either generally or only for individual transactions. In the former case, you deactivate the valuation grouping code. In the latter, you adjust the rules accordingly for individual
transactions .
Define Valuation Classes (OMSK)
 
Valuation class categorizes the G/L account on the basis of material type. For example raw material will have different
G/L account than the finished material as the cost will be different in both the cases. Account reference is also
maintained along with valuation class. Account reference and valuation class can be defined by following the below
steps.
Path to Define Account Reference and Valuation Class:
IMG => Materials Management => Valuation and Account Assignment => Account Determination > Account
Determination without Wizard => Define Valuation Classes
On Display IMG screen select Define Valuation Classes execute icon by following the above path.
We have to Sequentially select the below tabs one after another and update.
Select Acct category reference – New entries and give a code and description for the reference Eg. Reference for Raw materials.

Select Valuation Class tab and update and link the Valuation class and Acct category reference and their respective descriptions.

Select Material Type tab and map the Material type with Acct category reference. Eg. Raw material and Reference Raw material
acct.
Now the system is linked in such a way that it will link Material – Material type – Acct category reference – Valuation class.
 Every transaction or event of receipt, issue/consumption is denoted by a key in SAP MM like BSX,GBB, WRX etc., These are nothing but linking the
movement types. When these are linked to valuation class which is already defined by a GL account with respect to account category reference system can
identify the correct GL account for the transaction. This is what happens with the “Configure automatic postings”

Example : Stock poting -BSX - This transaction is used for all postings to stock accounts. Such postings are effected, for example:
In inventory management in the case of goods receipts to own stock and goods issues from own stock In invoice verification, if price differences occur in
connection with incoming invoices for materials valuated at moving average price and there is adequate stock coverage.
In order settlement, if the order is assigned to a material with moving average price and the actual costs at the time of settlement vary from the actual costs
at the time of goods receipt Because this transaction is dependent on the valuation class, it is possible to manage materials with different valuation classes in
separate stock accounts.