The Procurement Process The Procurement Process

ObjectivesObjectives

­ Describe­the­basic­business­process­of­procuring­stock­materials­in­an­ERP­System.

­ Discuss­the­integration­points­in­procurement­to­Financial­Accounting­and­Inventory­Management.

­ Discuss­the­reporting­and­analysis­tools­used­by­R/3­in­the­procurement­cycle.

Hierarchical Enterprise StructureHierarchical Enterprise Structure

Client• highest­hierarchy­level,­e.­g.­group­with­its­daughter­companies

• Settings­made­will­affect­all­company­codesCompany Code (FI)• Org.­Unit­can­present­a­balance sheet­according to the

legal provisions­­legally­independent­enterprise• Settings­made­will­only­affect­the­respective­company­codePurchasing organization

• procures­material­or­services­for­the­assigned­plants

• negotiates­on­terms­&­conditions­with­vendors­­make­contracts

• is­responsible­for­all­the­purchase­processes• operative­purchasing­is­done­by­purchasing groupsPlant•Operational facility­within­a­company­code­(e.g.­factory,­store,­...)

• has­its­own­requirements planning­and­inventory managementStorage location

• a­space­for­logical­inventory­management

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Purchasing organizationPurchasing organization

purchasing­group­MG­0,­3purchasing­organization

purchasing­group­MG­1,­4

purchasing­group­MG­2,­5

purchasing­group­MG­7,­8,­9plantpurchasing­group­MG­6

material group

Inventory Management with a Inventory Management with a Warehouse Management SystemWarehouse Management System

client

0001plant

storage location

001warehouse number

001storage type

05-04-03

002

05-04-04

storage bin

MM

WM

company code

0001 – ABC inc.

0001 – Jones inc.

0002 – Model Ltd.

purchasing organization

0001

0001 0002 0003

0002 0003 0004 0001

0002 0003 0004

distrib.-center factory

(physical stock)

The Module MM – Main FunctionsThe Module MM – Main Functions

Maintenance­of­the­material­master record­(different­views)

Material­requirements planning Material­procurement:­handling­of­the­documents­for­ purchase­requisition­ request,­quotation­ vendor­selection­ purchase­order,­outline­agreement­ vendor­master­record

Inventory management­­ goods­movement,­material­valuation

Invoice verification­referringpurchase­orders,­goods­received­documents,­delivery­notes­etc.

MM – interdependencies to other MM – interdependencies to other modulesmodules

MM

material­masterpurchasing

requirements­plan.inventory­mgmt.

invoice­verification

SDsales­anddistrib.

PMplant

maintenance

QMquality

management

PPproductionplanning

Logistics

FIfinancial­acc.

COcontrolling

AMfixed­assets­mgmt.

Basic DataBasic Data

Master­records­-­include­information­about­1.vendors2.material­and­services­to­be­procured3.the­relation­between­1.­and­2.­(purchasing info

record)e.g.­prices­/­terms­and­conditions

bills­of­material­for­ production­planning­ purchasing­ sales­and­distribution­ withdrawal­of­Material

•invoice­entry•invoice­verification•payment­handling

•­request­for­quotation•­quotation­processing•­purch.­order­handling

Structure of the Vendor Master Structure of the Vendor Master RecordRecord

General­data• name• address• control­data

accounting­data• bank­account• acc.­maintenance• payment

purchasing• terms­and­cond.• partner­functions• currency

utilization

for­eachpurchasingorganization

client­wide­orfor­each

company­code

client­wide

area­of­validitysections

Views on the Material Master Views on the Material Master RecordRecord

each view is maintained by a certain user department of the firm

accounting: valuation- and calculation-specific information requirements planning: information about material

requirements planning (e. g. reorder point) purchasing: e. g. responsible purchasing group, order unit engineering: technical information storage: information about warehousing, material movements, ... forecast: information about the forecasting of the material

requirements S & D: informationen about sales orders and price determination

purchasing info recordpurchasing info record

info­recordpricesterms­&­cond.PO­

statisticstolerance­levelsdatequotation

order

outlineagreement

ProcurementProcurement

The­primary­SAP­R/3­application­modules­that­support­the­Procurement­process­are:­ Materials­Management

Purchasing Goods­Receipts Invoice­Verification

­ Production­Planning Purchase­

Requirements­ Financial­Accounting

Payment­Processing Materials­Valuation

Sales &Distribution

M aterialsM gm t.

ProductionPlanning

FinancialAccounting

Controlling

Fixed AssetsM gm t.

QualityM gm t.

PlantM aintenance

Hum anResources

W orkflow

IndustrySolutions

R/3Client / Server

ABAP/4 ProjectSystem

outline­agreem.

PO

Purchasing ProcessPurchasing Process

MM

X X X

X X

determination:­requirements

X X X

X X

determination:­source­of­supply

vendor 1

vendor 2

vendor­selection

vendor

POPO

purchase­order­processing

PO­monitoring

goods­received­&

inventory­mgmt.

PO invoice?=invoice­verification

?

Procurement CycleProcurement Cycle

The­procurement­cycle­may­consist­of­eight­processes:

8. Paym ent

3. Requisition assigned to a Vendor

5. Order follow -up

2. Source determ ination

1. Requirem ents determ ination

4. O rder processing

Purchase­OrderPurchase­Order6. G oods receipt and inventory m anagem ent

Purchase­OrderPurchase­Order

7. Invoice verification

Business Process Flow for Business Process Flow for ProcurementProcurement

The­main­documents­and­transactions­in­the­Procurement­process­are:

Planning, Reporting, and Analysis

Purchase Requisition

Purchase Order

GoodsReceipt

InvoicePosting

­ Note:­Payments­to­vendors­are­usually­made­at­specified­times­(e.g.­at­the­end­of­the­month).

­ Payment­amounts­are­determined­according­to­the­‘open’­invoices­posted­on­the­system.

Purchase Requisition ProcessingPurchase Requisition Processing

Material ResourcePlanning

Direct Entry

Determine source of supply

Purchase requisition Release strategy

Purchase­OrderPurchase­OrderPurchase­Order

Purchase order

or

Purchase OrdersPurchase Orders

A­purchase­order­is­a­formal­request­to­a­vendor­to­provide­certain­materials­or­services­under­specific­conditions­(quantity,­price,­delivery­date,­etc.)

Planning, Reporting, and Analysis

Purchase Requisition

Purchase O rder

GoodsReceipt

InvoicePosting

Create Purchase Order (PO)Create Purchase Order (PO)

1vendor­known

purch.­ordervendor 2

2vendor­not­known

terms­&­cond.

outlineagrement

source­list

vendor

info­record

3assigned­purchaserequisition­exists(from­user­department)

purch.­req.vendor 2

purch.­order

purch.­order

Purchase Order ProcessingPurchase Order Processing

Purchase­OrderPurchase­OrderPurchase­Req.

ServiceConsum able m aterial

Stock m aterial Account assignm ent(cost center, asset,

project… )

PurchaseO rder

• Standard• Sub contract• Consignm ent•Third-party

PurchaseO rder

• Standard• Sub contract• Consignm ent• Third-party

StatisticsO rder History

Direct Entryor PurchaseRequisition

Goods ReceiptGoods Receipt

When­goods­are­received­from­a­purchase­order,­the­item­data­is­copied­from­the­purchase­order­into­the­goods­receipt­document.

Planning, Reporting, and Analysis

Purchase Requisition

Purchase Order

GoodsReceipt

InvoicePosting

Goods Receipt for Stock MaterialGoods Receipt for Stock Material

Entering­the­goods­receipt­increases­the­inventory­level­of­a­material­that­is­procured­for­stock.

Inventory­Management­(MM­module)­controls­and­records­all­goods­movement,­form­purchase­order­receipt­through­the­plant,­to­consumption

PurchasingdocumentsItems1.2.3. Warehouse / storesGoods

Receipt

Vendor

Results of a Goods Receipt Results of a Goods Receipt PostingPosting

Transaction­documents­are­created­both­for­materials­management­and­finance.

Goods ReceiptPosting

Accountingdocument

Stock quantityConsumption statistics

Point of consumptionCost center Order

TransferOrder

Purchasing data:Order item, Order history

Goods receiptslip

Materialdocument

G/L accounts:Consumption account

GR/IR account

Posting an Order Entry (Goods Posting an Order Entry (Goods Receipt)Receipt)

MMLogistics

purchasingreq.­planning

inventorycontrolling

invoiceverification

goods­receipt

inventory­mgmt.

goods­issue. transferposting

SDsales­anddistrib.

PMplant

maintenance

QMquality

management

PPproductionplanning

FIfinancial­acc.

COcontrolling

AMfixed­assets­mgmt.

Invoice ProcessingInvoice Processing

This­last­step­in­the­procurement­process­includes­invoice­verification­and­updating­accounts­payable­in­the­FI­module.

Planning, Reporting, and Analysis

Purchase Requisition

Purchase Order

G oodsReceipt

InvoicePosting

­ Payment­will­then­be­made­later­based­upon­the­‘open’­invoices­posted­on­the­system

Invoice VerificationInvoice Verification

inputinformation invoice­verification output

information

ordersactions:

•enter­invoice•verify­invoice•post­invoice•updaterelevant­data

•(re-editinvoice)

goods­receipt

master data:materialvendorsaccounts

terms­&­cond.

financialaccounting

assetmanagement

cost­accounting

Invoice Verification EnvironmentInvoice Verification Environment

Invoice­verification­accesses­data­from­purchasing,­inventory­management,­material­master,­and­vendor­master­files.

PurchaseOrder

VendorInvoice

GoodsReceipt

Purchase­OrderPurchase­Order

Invoiceverification

G/L accounts

Assets

Cost centers

Projects

Orders

Material master

Vendor master

Posting an invoice in the R/3 System updates purchasing and accounting dataPosting an invoice in the R/3 System updates purchasing and accounting data

Vendor PaymentVendor Payment

Accounts­payable­reads­the­invoice­file­and­pays­all­posted­invoices­due.­(Payment­runs­can­be­automated­to­occur­at­specific­times.)

M otor Sports International1234­M ain­StreetNew­York,­NY­­10181

1 4 4 9Date­_______________

Pay­to:­_______________________________________________________________________________________________________________

12930­­39040­­2020­20202­­10923­­1449_________________

Vendor1000

Bank1000Paym ent

programPaym entprogram

ReleasedInvoice

FinancialAccounting

Procurement IntegrationProcurement Integration

Purchase Order

Goods Receipt

Invoice Verification

PP FI FI

MM

Purchase­Order

Invoice

Reporting and AnalysisReporting and Analysis

Standard­Reporting­provides­List­Displays­(pre-defined­programs)­by:­ Vendor­ Material­ Account­assignment­ Material­group­ Purchase­order­number­ Tracking­number

General­Analysis Order­Value­Analysis Inventory­Transaction­Analyses

Logistics Information System Logistics Information System (LIS)(LIS)

The­Logistics­Information­System­(LIS)­contains­several­information­systems­such­as:­ Purchasing­Information­System­ Inventory­Controlling­ Sales­Information­System­ Shop­Floor­Information­System

LIS­extracts­its­data­from­the­operative­applications;­it­offers­many­different­views­on­this­information.

Logistics Information System Logistics Information System (LIS)(LIS)

The­LIS­exists­for­the­entire­logistics­system­in­R/3

The­LIS­contains­several­information­systems­such­as:­ Sales­Information­System­ Purchasing­Information­System

The­LIS­extracts­data­from­the­operative­applications;­offering­it­in­many­different­views,­the­depth­of­which­is­determined­by­the­user.

­ Inventory­Controlling­ Shop­Floor­Info­System

SalesInformationSystem

PurchasingInformationSystem

InventoryControlling

Shop FloorInformationSystem

MaintenanceInformationSystem

Quality MgmtInformationSystem

Sales andDistribution

(SD)

MaterialsManagement

(MM)

ProductionPlanning

(PP)

PlantMaintenance

(PM)

QualityManagement

(QM)

Logistics Information Library

R/3

LogisticsInformation

Systems

LogisticsProcessingSystems

In Summary In Summary (important) (important)

The­basic­procurement­process­includes:­ Purchase­requisition­ Purchase­order ­

Procurement­master­data­includes­the­vendor­and­material­master­files.

At­various­times­during­the­Procurement­process,­integration­occurs­between­the­PP,­MM­and­FI­modules.

The­two­reporting­tools­used­in­the­procurement­environment­are:­ Standard­Reporting

List­Displays­­­­­­­­General­Analysis­­­­­­­­­Inventory­Analysis­ Logistics­Information­System­

Purchasing­Information­System­­­­­­­Inventory­Controlling­System

­ Goods­receipt­ Invoice­processing