The Procurement Process The Procurement Process

ObjectivesObjectives

­ Describe­the­basic­business­process­of­procuring­stock­materials­in­an­ERP­System.

­ Discuss­the­integration­points­in­procurement­to­Financial­Accounting­and­Inventory­Management.

­ Discuss­the­reporting­and­analysis­tools­used­by­R/3­in­the­procurement­cycle.

Hierarchical Enterprise StructureHierarchical Enterprise Structure

Client• highest­hierarchy­level,­e.­g.­group­with­its­daughter­companies• Settings­made­will­affect­all­company­codes

Company Code (FI)• Org.­Unit­can­present­a­balance sheet­according to the legal

provisions­­legally­independent­enterprise• Settings­made­will­only­affect­the­respective­company­code

Purchasing organization• procures­material­or­services­for­the­assigned­plants• negotiates­on­terms­&­conditions­with­vendors­­make­contracts• is­responsible­for­all­the­purchase­processes• operative­purchasing­is­done­by­purchasing groups

Plant• Operational facility­within­a­company­code­(e.g.­factory,­store,­...)• has­its­own­requirements planning­and­inventory management

Storage location• a­space­for­logical­inventory­management

S H

18.000

3.283

137

12.248

18.000

3.283

12.137

1.248

12121323 12121212

S H

18.000

3.283

137

12.248

18.000

3.283

12.137

1.248

12121323 12121212

S H

18.000

3.283

137

12.248

18.000

3.283

12.137

1.248

12121323 12121212

S H

18.000

3.283

137

12.248

18.000

3.283

12.137

1.248

12121323 12121212

Purchasing organizationPurchasing organization

purchasing­group­MG­0,­3purchasing­group­MG­0,­3purchasing­organization

purchasing­group­MG­1,­4purchasing­group­MG­1,­4

purchasing­group­MG­2,­5purchasing­group­MG­2,­5

purchasing­group­MG­7,­8,­9purchasing­group­MG­7,­8,­9plantplant

purchasing­group­MG­6purchasing­group­MG­6

material group

Inventory Management with a Warehouse Inventory Management with a Warehouse Management SystemManagement System

client

00010001plant

storage location

001001warehouse number

001001storage type

05-04-0305-04-03

002002

05-04-0405-04-04storage bin

MMMM

WMWM

company code

0001 – ABC inc.0001 – ABC inc.

0001 – Jones inc.0001 – Jones inc. 0002 – Model Ltd.0002 – Model Ltd.

purchasing organization

00010001

00010001 00020002 00030003

00020002 00030003 00040004 00010001

00020002 00030003 00040004

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 modulesMM – interdependencies to other modules

MM

material­master

purchasing

requirements­plan.

inventory­mgmt.

invoice­verification

MM

material­master

purchasing

requirements­plan.

inventory­mgmt.

invoice­verification

SDsales­anddistrib.

SDsales­anddistrib.

PMplant

maintenance

PMplant

maintenance

QMquality

management

QMquality

management

PPproductionplanning

PPproductionplanning

Logistics

FIfinancial­acc.

FIfinancial­acc.

COcontrolling

COcontrolling

AMfixed­assets­mgmt.

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

• invoice­entry• invoice­verification• payment­handling

• ­request­for­quotation• ­quotation­processing• ­purch.­order­handling

• ­request­for­quotation• ­quotation­processing• ­purch.­order­handling

Structure of the Vendor Master RecordStructure of the Vendor Master Record

General­data• name• address• control­data

General­data• name• address• control­data

accounting­data• bank­account• acc.­maintenance• payment

accounting­data• bank­account• acc.­maintenance• payment

purchasing• terms­and­cond.• partner­functions• currency

purchasing• terms­and­cond.• partner­functions• currency

utilizationutilization

for­eachpurchasingorganization

for­eachpurchasingorganization

client­wide­orfor­each

company­code

client­wide­orfor­each

company­code

client­wideclient­wide

area­of­validityarea­of­validitysectionssections

Views on the Material Master RecordViews on the Material Master Record

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

info­recordinfo­record

pricesterms­&­cond.PO­statisticstolerance­levels

date

pricesterms­&­cond.PO­statisticstolerance­levels

date

quotation

order

outlineagreement

ProcurementProcurement

The­primary­SAP­R/3­application­modules­that­support­the­Procurement­process­are:­ Materials­Management

Purchasing Goods­Receipts Invoice­Verification

­ Production­Planning Purchase­Requirements

­ Financial­Accounting Payment­Processing Materials­Valuation

Sales &Distribution

MaterialsMgmt.

ProductionPlanning

FinancialAccounting

Controlling

Fixed AssetsMgmt.

QualityMgmt.

PlantMaintenance

HumanResources

Workflow

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 1vendor 1

vendor 2vendor 2

vendor­selection

vendor

PO

PO

purchase­order­processing

PO­monitoring

goods­received­&inventory­mgmt.

PO invoice?=

invoice­verificationinvoice­verification

?

Procurement CycleProcurement Cycle

The­procurement­cycle­may­consist­of­eight­processes:

8. Payment

3. Requisition assigned to a Vendor

5. Order follow-up

2. Source determination

1. Requirements determination

4. Order processing

Purchase­OrderPurchase­Order

6. Goods receipt and inventory management

Purchase­OrderPurchase­Order

7. Invoice verification

Business Process Flow for ProcurementBusiness Process Flow for Procurement

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 Order

GoodsReceipt

InvoicePosting

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

1

vendor­known

purch.­ordervendor 2vendor 2

2

vendor­not­known

terms­&­cond.

outlineagrement

source­list

vendor

info­record

3

assigned­purchaserequisition­exists(from­user­department)

purch.­req.vendor 2vendor 2

purch.­order

purch.­order

Purchase Order ProcessingPurchase Order Processing

Purchase­OrderPurchase­OrderPurchase­Req.

ServiceConsumable material

Stock material Account assignment(cost center, asset,

project…)

PurchaseOrder

• Standard• Sub contract• Consignment•Third-party

PurchaseOrder

• Standard• Sub contract• Consignment• Third-party

Statistics

Order 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

Purchasingdocuments

Items1.2.3. Warehouse / storesGoods

Receipt

Vendor

Results of a Goods Receipt PostingResults of a Goods Receipt Posting

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 Receipt)Posting an Order Entry (Goods Receipt)

MMMM

Logistics

purchasing req.­planning

inventorycontrolling

invoiceverification

goods­receipt

inventory­mgmt.

goods­issue. transferposting

SDsales­anddistrib.

SDsales­anddistrib.

PMplant

maintenance

PMplant

maintenance

QMquality

management

QMquality

management

PPproductionplanning

PPproductionplanning

FIfinancial­acc.

FIfinancial­acc.

COcontrolling

COcontrolling

AMfixed­assets­mgmt.

AMfixed­assets­mgmt.

Invoice ProcessingInvoice Processing

This­last­step­in­the­procurement­process­includes­invoice­verification­and­updating­accounts­payable­in­the­FI­module.

Planning, Reporting, and Analysis

Purchase Requisition

Purchase Order

GoodsReceipt

InvoicePosting

­ Payment­will­then­be­made­later­based­upon­the­‘open’­invoices­posted­on­the­system

Invoice VerificationInvoice Verification

inputinformationinput

information invoice­verificationinvoice­verification outputinformationoutput

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 data

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

Vendor PaymentVendor Payment

Accounts­payable­reads­the­invoice­file­and­pays­all­posted­invoices­due.­(Payment­runs­can­be­automated­to­occur­at­specific­times.)

Motor Sports International1234­Main­StreetNew­York,­NY­­10181

1 4 4 9

Date­_______________

Pay­to:­________________________________________

________________________________________________________

_______________

12930­­39040­­2020­20202­­10923­­1449

_________________

Vendor

1000

Bank

1000Paymentprogram

Paymentprogram

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 (LIS)Logistics Information System (LIS)

The­Logistics­Information­System­(LIS)­contains­several­information­systems­such­as:­ Purchasing­Information­System­ Inventory­Controlling­ Sales­Information­System­ Shop­Floor­Information­System

LIS­extracts­its­data­from­the­operative­applications;­it­offers­many­different­views­on­this­information.

Logistics Information System (LIS)Logistics Information System (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

LogisticsProcessing

Systems

In Summary In Summary (important) (important)

The­basic­procurement­process­includes:­ Purchase­requisition­ Purchase­order ­

Procurement­master­data­includes­the­vendor­and­material­master­files. At­various­times­during­the­Procurement­process,­integration­occurs­between­the­PP,­MM­and­FI­modules.

The­two­reporting­tools­used­in­the­procurement­environment­are:­ Standard­Reporting

List­Displays­­­­­­­­General­Analysis­­­­­­­­­Inventory­Analysis­ Logistics­Information­System­

Purchasing­Information­System­­­­­­­Inventory­Controlling­System

­ Goods­receipt­ Invoice­processing