MM - Purchasing

Target Group Purchase department Notes to the user The training materials are not teach-yourself programs. They complement the course instructor’s explanations. Your material includes space for notes.

Introduction Contents Purchasing overview Purchase requisitions Request for quotations Outline agreements Exercises Solutions

Course Objectives At the conclusion of this course you will be able to: To understand the concepts in SAP - Purchasing component To Create or change PRs To create, change or compare RFQs To create contracts

Purchasing - overview The Purchasing component has the following tasks: external procurement of materials and services determination of possible sources of supply for a requirement identified by the materials planning and control system determination of possible sources of supply for a requirement arising directly within a user department monitoring of deliveries and payments to vendors

Purchasing - integration with other modules Controlling (CO) Purchase orders for materials intended for direct consumption They can be directly assigned to a cost center or a production order. Financial Accounting (FI) Vendor master is maintained by both accounting and purchasing departments. Through PO account assignment, Purchasing can also specify which G/L accounts are to be charged in the financial accounting system.

Purchasing - integration with other modules Sales and Distribution (SD) Within the framework of materials planning and control, a requirement that has arisen in the Sales area can be passed on to Purchasing. When a requisition is created, it can be directly assigned to a sales order.

Process flow in purchasing Determination of Requirements Materials requirements are identified either in the user departments or via materials planning and control. It includes both MRP proper and the demand-based approach to inventory control. The regular checking of stock levels of materials defined by master records, use of the order-point method, and forecasting on the basis of past usage are important aspects of the demand management. You can enter purchase requisitions yourself, or they can be generated automatically by the materials planning and control system.

Process flow in purchasing Source Determination The Purchasing component helps in identifying potential sources of supply based on past orders and existing longer-term purchase agreements. This speeds the process of creating requests for quotation (RFQs) Vendor Selection and Comparison of Quotations The system is capable of simulating pricing scenarios, allowing you to compare a number of different quotations. Rejection letters can be sent automatically.

Process flow in purchasing Purchase Order Processing The Purchasing system adopts information from the requisition and the quotation to help you create a purchase order. You can generate Pos yourself or have the system generate them automatically. Vendor scheduling agreements and contracts are also supported. Purchase Order Follow-Up The system checks the reminder periods you have specified System automatically prints reminders or expediters at the predefined intervals. It provides you with an up-to-date status of all purchase requisitions, quotations, and purchase orders.

Process flow in purchasing Goods Receiving and Inventory Management Goods Receiving personnel can confirm the receipt of goods simply by entering the Po number. By specifying permissible tolerances, buyers can limit over- and underdeliveries of ordered goods. Invoice Verification The system supports the checking and matching of invoices. Invoice verification can be based on purchase orders or GR documents or directly to a vendor without any document reference.

Std. Menu options in Purchasing Create Use this option to create a purchasing document . Enter the required information and save the document . The document is then stored under a unique number. Change Use this option to change a purchasing document . You need the document number in order to access the document.

Std. Menu options in Purchasing Display Use this option to display a purchasing document . You cannot change or add any information to the document that is displayed . You need the document number in order to access the document. List displays/reporting You can use these options to generate reports analyzing purchasing documents Example List of all purchase orders for Vendor ABC

Std. Menu options in Purchasing Follow-on functions This option allows you to perform tasks related to (following on from) but not included in the purchasing functionality. Example Entering a goods receipt or an invoice in the system. Messages This option enables you to print or transmit documents in message form Transmission via fax, Printouts etc

Purchasing Documents Definition Types of purchasing documents A purchasing document is an instrument used by Purchasing to procure materials or services. Types of purchasing documents Request for quotation (RFQ) Transmits a requirement defined in a requisition for a material or service to potential vendors . Quotation Contains a vendor's prices and conditions It is the basis for vendor selection.

Purchasing Documents Contract Purchase order (PO) The buying entity’s request or instruction to a vendor (external supplier) to supply certain materials or render/perform certain services/works, It formalises a purchase transaction . Contract In the SAP Purchasing component, a type of "outline agreement", or longer-term buying arrangement . The contract is a binding commitment to procure a certain material or service from a vendor over a certain period of time.

Purchasing documents Structure Each purchasing document is subdivided into two main areas: The header The header contains information relevant to the whole document . Example, information about the vendor and the document number is contained in the document header The individual items . The items specify the materials or services to be procured . Example, The material description and the order quantity are specified in each item.

Purchasing documents Classification of Purchasing Documents The additional data It provides extra information about the item, and has no direct connection with the item procurement data. Example, account assignment data PO history for an item, which contains information on already recorded goods and invoice receipts relating to the item. Classification of Purchasing Documents Purchasing documents are differentiated in the SAP system via the document type . Example, relevant number range depends on document types

Purchasing documents Numbering of purchasing documents Document types are defined for RFQs, purchase orders, and contracts Numbering of purchasing documents Each document is assigned a unique number . This number can be assigned internally or externally , depending on the policy . Internal number assignment means that the system assigns the number. External number assignment means that the person creating the document must supply it. Alphanumeric assignment is only possible in the latter case.

Purchase requisitions Definition A purchase requisition is a request or instruction to Purchasing to procure a certain quantity of a material so that it is available at a certain point in time. It is an internal document. Requisitions can be created in the following ways: Directly: Someone from the requesting department enters a purchase requisition manually. Indirectly: The purchase requisition is created via another SAP component. Purchase requisitions can be subject to a release procedure.

Purchase requisitions - integration Requisitions can be created indirectly in the following ways: via materials planning and control The component Consumption-Based Planning suggests materials that need to be ordered on the basis of past consumption or usage figures and existing stock levels. The order quantity and the delivery date are determined automatically. Materials planning and control can stipulate that a purchase requisition is to be resubmitted to the purchasing department if it has not been processed after a predefined period of time.

Purchase requisitions - integration Requisitions are generated automatically from production orders if They contain an external processing operation (e.g. subcontracting work) A precondition is that the control key for the operation allows or prescribes external processing. they contain non-stock components

Purchase requisitions Procurement types Standard Subcontracting Components to be provided can be entered. Consignment Stock transfer External service Service specifications can be entered

Manual creation of PR Things to remember Item category Account assignment category Purchasing organization Purchasing group Requirement tracking number Delivery date Item with or with out material master record Order quantity

Creating Request For Quotation Automatically from PR Manually With reference to PR With out reference to PR Delivery address Address of the company asking for quotation, by default it is the address of E+L. But it can be changed. vendor address Just enter the codes of the vendor, System will take other details from vendor master. Quotation dead line Delivery date

RFQ (contd…) Printing RFQ Send the Printed RFQ to the vendors Receive the quotation from the vendor Maintain the RFQ Enter the net price quoted by the vendor Enter the pricing conditions Terms of payment Update the info record if reqd

Quotations Compare the quotations Maintain the collective number in the RFQs Quotations can be compared based on price Discounts and delivery costs can be included Comparison can be based on effective price also System compares and gives the ranking list Percentage basis for comparing quotations Mean value equals 100% Maximum value equals 100% Minimum value equals 100%

Outline agreements with the vendor To Setup longer-term purchasing arrangements with vendors regarding the supply of materials or the performance of services. Outline agreements can be subject to a release (approval or clearance) procedure. Agreement types Quantity contract Value contract

Outline agreements Structure Document header: containing information relating to the entire agreement. For example, the vendor information and header conditions are in the document header Items: containing the information specific to the relevant material or service. statistics on ordering activities for the item quantity or price of the item conditions, such as quantity discounts and surcharges

Outline agreements Texts in Outline Agreements Header texts Item texts You can create your own text types Creating a outline agreement Outline agreement can be created with reference to a RFQ or without any reference Important terms Purchasing organization Purchase group

Outline agreements Target quantity Target Value Pricing conditions Validity starting and ending date Vendor address Delivery address Remainders