Materials Management (MM) ECC 6.0 January 2008 Unit 12 Materials Management (MM) - Transactions - © SAP AG and The Rushmore Group, LLC 2008

Business Process Integration ECC 6.0 January 2008 Business Process Integration MM Transactions We are now going to run some material management transactions - Purchasing January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

ECC 6.0 January 2008 Transaction Data Includes internal and external exchanges that describe business activities Unlike master data, aggregate transactional data is dynamic – each transaction is unique Master data does not change very often Org data – should not change Transaction data (application data) – changes every transaction Transaction data uses/comprised of the master data, rules, and org data. Every transaction has an audit trail. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Materials Management (MM) ECC 6.0 Materials Management (MM) January 2008 R/3 FI Financial Accounting CO Controlling PS Project System WF Workflow IS Industry Solutions MM Materials Mgmt. HR Human Resources SD Sales and Distribution PP Production Planning QM Quality PM Plant Maintenance SM Service Client / Server Integrated Business Solution EC Enterprise AM Fixed Assets Green ones (and blue): Logistics Start out with sales and distribution Yellow HR was added later in SAP’s life (1990) Red: Tracking side of house. (Financials) Purple:Workflow is the least understood by faculty and students Allow the movement of information in the enterprise to the people who need it. (e.g. Credit limit – e-mails, updates) Industry Solutions: Each install is tracked by SAP and the configuration is monitored by industry. This way SAP knows the whole set of answer of how industries works with their best business practices. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Procurement Process (Procure-to-Pay) ECC 6.0 Procurement Process (Procure-to-Pay) January 2008 Purchase Requisition Purchase Order Notify Vendor 3-Way Match Payment to Vendor Vendor Shipment This is a standard view of the procure to pay process and the most common. It may vary significantly based upon the company procedures, the products/services purchases and other factors. SAP allow businesses to tailor it to their needs. Starts with a requisition or need that needs to be filled. This can come from Planning (MRP), manually or other The purchase order is the document to fill the need: usually includes the vendor, cost/price, quantity, terms and other pertinent information. [ part one of the 3-way match] Notifying the vendor The goods are shipped and brought to the organization The goods are received (typically at the dock) and then put away [ part two of the three way match] An invoice is received from the vendor [third part of the 3-way match] After the tolerances/verification of the 3-way match are met a payment is made according to the terms agreed to on the purchase order. Invoice Receipt Goods Receipt January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Basic Procurement Process ECC 6.0 January 2008 Basic Procurement Process Requirements Determination - Purchase Requisition Vendor Selection Order Processing - Purchase Order Order Tracking Goods Receipt and Inventory Management Invoice Verification Payment Determination of Requirements Materials requirements are identified either in the user departments or via materials planning and control. (This can cover 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 latter.) You can enter purchase requisitions yourself, or they can be generated automatically by the materials planning and control system. 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. ce Determination The Purchasing component helps you identify potential sources of supply based on past orders and existing longer-term purchase agreements. This speeds the process of creating requests for quotation (RFQs), which can be sent to vendors electronically via SAP EDI, if desired. Purchase Order Processing The Purchasing system adopts information from the requisition and the quotation to help you create a purchase order. As with purchase requisitions, you can generate Pos yourself or have the system generate them automatically. Vendor scheduling agreements and contracts (in the SAP System, types of longer-term purchase agreement) are also supported. Purchase Order Follow-Up The system checks the reminder periods you have specified and - if necessary - automatically prints reminders or expediters at the predefined intervals. It also provides you with an up-to-date status of all purchase requisitions, quotations, and purchase orders. 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 under deliveries of ordered goods. Invoice Verification The system supports the checking and matching of invoices. The accounts payable clerk is notified of quantity and price variances because the system has access to PO and goods receipt data. This speeds the process of auditing and clearing invoices for payment. Payment – Through A/P - Finance January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008 10

Purchase Requisitions ECC 6.0 January 2008 Purchase Requisitions Internal document Requesting a certain quantity of material or service on a certain date Can be created: Manually Automatically (Materials Requirements Planning (MRP), sales orders, etc.) Release approval procedures are optional You use this component if you wish to give notification of requirements of materials and/or external services and keep track of such requirements. Requisitions can be created either directly or indirectly. "Directly" means that someone from the requesting department enters a purchase requisition manually. The person creating the requisition determines what and how much to order, and the delivery date. "Indirectly" means that the purchase requisition is initiated via another SAP component. The creation indicator in the requisition shows whether the requisition was created directly or indirectly. It is displayed in analyses of requisitions and in the statistical data of a requisition item. Purchase requisitions can be subject to a release (clearance, or approval) procedure January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Purchase Requisitions Sources ECC 6.0 January 2008 Purchase Requisitions Sources Manually created by user department Office supplies Projects Prototype materials Automatically created by Planning (Material Requirements Planning (MRP), Master Production Schedule (MPS)) Plant Maintenance Production Orders Sales Orders Manually by user. This can be integrated with Controlling (BPI – II) 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. Requisitions are generated automatically from networks if: A material component with non-stock material or an external service component has been assigned to an operation and The indicator allowing automatic generation of requisitions immediately the network is saved has been set in the network. In this way, requisitions can be forwarded to Purchasing early in the planning phase. If the indicator has not been set, the system passes the data on to materials planning and control when the network is released. The latter component then creates the requisition. Via maintenance orders Requisitions are generated automatically from maintenance orders if: A material component with non-stock material has been assigned to an operation, or An operation with the control key for external services has been created. 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 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Purchase Requisitions Processing ECC 6.0 January 2008 Purchase Requisitions Processing Create purchase requisition (manually or automatically) Determine source of supply Release procedure (optional) Assign vendor and process Steps involved in the Purchase requisition process. Creation Who Releases (workflow) Vendor assignment January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Purchase Requisitions Creating ECC 6.0 January 2008 Purchase Requisitions Creating Default data for line items Delivery dates, plants, purchasing groups, etc. Maintain line item data Materials, quantities, delivery dates, etc. Maintain account assignment (if required) Cost center, General Ledger accounts, project number, etc. Check data Save The default data will come from the material master, vendor info record, vendor master, and User preferences. Update, change or supply the information for line items Maintain account assignment for controlling Verify January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Purchase Orders Purchase Orders are: Purchase Orders identify: ECC 6.0 January 2008 Purchase Orders Purchase Orders are: A formal request to a vendor to provide materials or services An internal planning and tracking tool Purchase Orders identify: Vendor Material and/or service Quantity and price Delivery dates Terms of payment The PO is a formal request, not a contract. They coordinate data and identify what, who, when, how much, and when to pay. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Purchase Order Structure Header ECC 6.0 January 2008 Purchase Order Structure Header Header - information specific to the entire purchase order Vendor Currency Payment terms The header contains information relevant to the whole document . The items specify the materials or services to be procured. For example, information about the vendor and the document number is contained in the document header, and the material description and the order quantity are specified in each item. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Purchase Order Structure Line Items ECC 6.0 January 2008 Purchase Order Structure Line Items Line item details Account assignment Delivery schedule Materials or services quantity Price Description Item category Account assignment – What cost center assigned to. Delivery Schedule – What, how much and when delivered The items specify the materials or services to be procured. For example, information about the vendor and the document number is contained in the document header, and the material description and the order quantity are specified in each item. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Purchase Order Request for Quotations Purchase Order ECC 6.0 January 2008 Purchase Order Request for Quotations Purchase Order Order Acknowledgment A purchase order can result in a quotation – To multiple vendors A purchase order itself – Printed, fax, sent, etc. to a vendor Order acknowledgement – Verification of order January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Purchase Order – Output Format ECC 6.0 January 2008 Purchase Order – Output Format Printed and mailed E-mail Electronic Data Interchange (EDI) Faxed (hardcopy or electronic) eXtensible Markup Language (XML) Any number of ways to communicate the PO to the vendor. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Goods Receipt Goods receipt with reference to a purchase order ECC 6.0 January 2008 Goods Receipt Goods receipt with reference to a purchase order Copy data from purchase order Delivery notification Invoice verification Updates purchase order history Inventory update Automatic update of General Ledger (G/L) accounts Goods receiving can check whether the delivery actually corresponds to the order. The system can propose data from the purchase order during entry of the goods receipt (for example, the material ordered, its quantity, and so on). This simplifies both data entry and checking (overdeliveries and underdeliveries). The delivery is marked in the purchase order history. This allows the Purchasing department to monitor the purchase order history and initiate reminder procedures in the event of a late delivery. The vendor invoice is checked against the ordered quantity and the delivered quantity. The goods receipt is valuated on the basis of the purchase order price or the invoice price. All pertinent accounts are updated January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Goods Receipt (continued) ECC 6.0 January 2008 Goods Receipt (continued) You can search for the purchase order number with Material number, vendor number, etc. If you have any information about the purchase order you look up or order for receipt. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Goods Receipt – Destinations ECC 6.0 January 2008 Goods Receipt – Destinations Stock - given a storage location, can be posted to three different stock statuses Unrestricted-use Quality inspection Blocked stock (valuated) Consumption - can be assigned a recipient or unloading point Goods receipt for blocked stock - updates inventory, but material is not valuated (conditional acceptance) Stock Update Which stocks are updated in the material master record depends on the destination of the goods: Goods receipt into the warehouse If the goods are destined for the warehouse, the system increases total valuated stock and the stock type (for example, the unrestricted-use stock) by the delivered quantity. The stock value is updated at the same time. Goods receipt into consumption If the goods are destined for consumption, only the consumption statistics are updated in the material master record. The system does not update the consumption statistics in the material master record, if you post goods movements using the special stock types Sales order stock and Project stock. Goods receipt into goods receipt blocked stock If the goods receipt is posted into goods receipt blocked stock (see also Goods Receipts Into Goods Receipt Blocked Stock), the stock level remains the same. The goods are recorded only in goods receipt blocked stock of the purchase order history. Goods receipt into a new storage location If you post goods into a storage location that does not yet exist for this material, the storage location data is automatically created in the material master record when the goods receipt is posted. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Goods Receipt – Movement Types ECC 6.0 January 2008 Goods Receipt – Movement Types Movement types - stock transactions Goods receipt Goods issue Stock transfer Movement type determines which Quantity fields are updated Stock types are updated General Ledger (G/L) stock or consumption accounts are updated Fields are displayed during document entry Goods receipt A goods receipt (GR) is a goods movement with which the receipt of goods from a vendor or from production is posted. A goods receipt leads to an increase in warehouse stock. Goods issue A goods issue (GI) is a goods movement with which a material withdrawal or material issue, a material consumption, or a shipment of goods to a customer is posted. A goods issue leads to a reduction in warehouse stock. Stock transfer A stock transfer is the removal of material from one storage location and its transfer to another storage location. Stock transfers can occur either within the same plant or between two plants. Transfer posting A transfer posting is a general term for stock transfers and changes in stock type or stock category of a material. It is irrelevant whether the posting occurs in conjunction with a physical movement or not. Examples of transfer postings are: Transfer postings from material to material Release from quality inspection stock Transfer of consignment material into company's own stock   When you enter a goods movement in the system, you must enter a movement type to differentiate between the various goods movements. A movement type is a three-digit identification key for a goods movement For example, the movement type plays an important role in updating of quantity fields updating of stock and consumption accounts determining which fields are displayed during entry of a document in the system When you enter a goods movement, you start the following chain of events in the system: A material document is generated, which is used as proof of the movement and as a source of information for any other applications involved. If the movement is relevant for Financial Accounting, one or more accounting documents are generated. The stock quantities of the material are updated. The stock values in the material master record are updated, as are the stock and consumption accounts. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Goods Receipt – Movement Types (continued) ECC 6.0 January 2008 Goods Receipt – Movement Types (continued) 101 - goods receipt for purchase order into warehouse/stores 102 - reversal of goods receipt for purchase order into warehouse/stores 122 - return delivery to vendor 501 - receipt w/o purchase order into unrestricted-use stock January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008 8

Goods Receipt – Account Postings ECC 6.0 January 2008 Goods Receipt – Account Postings Inventory account is debited at standard price Goods Receipt/Inventory Receipt (GR/IR) clearing account is credited at purchase order price Price difference account is debited (credited) with difference between standard price and purchase order price When you enter a goods movement, you start the following chain of events in the system: A material document is generated, which is used as proof of the movement and as a source of information for any other applications involved. If the movement is relevant for Financial Accounting, one or more accounting documents are generated. The stock quantities of the material are updated. The stock values in the material master record are updated, as are the stock and consumption accounts. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008 16

Goods Receipt – Effects ECC 6.0 January 2008 Goods Receipt – Effects Purchase Order (PO) history and Purchase Order (PO) updated Material Master - stock and value updated Notification of goods receipt issued (optional) Transfer request to Warehouse Management system (if active) A goods receipt has the following results in the system: Creation of a Material Document When you post a goods receipt, the system automatically creates a material document which serves as proof of the goods movement. Creation of an Accounting Document Parallel to the material document, the system creates an accounting document. The accounting document contains the posting lines (for the corresponding accounts) that are necessary for the movement. From the screen displaying the material document, you can display the accounting document. Creation of a Goods Receipt/Issue Slip When you enter the goods receipt, you can print the goods receipt/issue slip Sending a Mail Message to Purchasing If the GR message indicator has been set in the purchase order, the buyer automatically receives a message informing him of the delivery. Stock Update Which stocks are updated in the material master record depends on the destination of the goods: Goods receipt into the warehouse If the goods are destined for the warehouse, the system increases total valuated stock and the stock type (for example, the unrestricted-use stock) by the delivered quantity. The stock value is updated at the same time. Goods receipt into consumption If the goods are destined for consumption, only the consumption statistics are updated in the material master record. The system does not update the consumption statistics in the material master record, if you post goods movements using the special stock types Sales order stock and Project stock. Goods receipt into goods receipt blocked stock If the goods receipt is posted into goods receipt blocked stock, the stock level remains the same. The goods are recorded only in goods receipt blocked stock of the purchase order history. Goods receipt into a new storage location If you post goods into a storage location that does not yet exist for this material, the storage location data is automatically created in the material master record when the goods receipt is posted. Note, however, that this is only true if automatic creation of storage location data is allowed for both the plant and the movement type in question in the Customizing system. If automatic creation is not allowed, you must add the new storage location to the material master record before you post a goods receipt to it. Update of G/L Accounts When the goods receipt is posted, the system automatically updates the G/L accounts by the value of the goods receipt Updates can also occur in other related applications. In the case of a goods receipt to consumption, for example, the account assignment object (such as a cost center, order, asset, etc.) is debited. Updates in the Purchase Order When a goods receipt is posted, the following purchasing data is updated: Purchase order history During goods receipt posting, a purchase order history record is automatically created. This record contains data essential for Purchasing, such as: the delivered quantity, the material document number and item, the movement type, and the posting date of the goods receipt. Purchase order item If the "delivery completed" indicator is set in the material document, the order item is considered closed, and the open purchase order quantity is set to zero. Other Updates Depending on the characteristics of the material, movement, and components used, additional updates are carried out in other components. For example, a goods receipt is relevant for: Entries to be made in the planning file or independent requirements reduction in materials planning Statistical data in Inventory Controlling Vendor evaluation data in Purchasing Transfer requirements and quantity in the Warehouse Management System Inspection lots in Quality Management   January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008 17

Goods Receipt – Effects (continued) ECC 6.0 January 2008 Goods Receipt – Effects (continued) Material and financial documents created and/or updated Stock and consumption accounts updated Inspection notification in Quality Management (QM) - if active A goods receipt has the following results in the system: Creation of a Material Document When you post a goods receipt, the system automatically creates a material document which serves as proof of the goods movement. Creation of an Accounting Document Parallel to the material document, the system creates an accounting document. The accounting document contains the posting lines (for the corresponding accounts) that are necessary for the movement. From the screen displaying the material document, you can display the accounting document. Creation of a Goods Receipt/Issue Slip When you enter the goods receipt, you can print the goods receipt/issue slip Sending a Mail Message to Purchasing If the GR message indicator has been set in the purchase order, the buyer automatically receives a message informing him of the delivery. Stock Update Which stocks are updated in the material master record depends on the destination of the goods: Goods receipt into the warehouse If the goods are destined for the warehouse, the system increases total valuated stock and the stock type (for example, the unrestricted-use stock) by the delivered quantity. The stock value is updated at the same time. Goods receipt into consumption If the goods are destined for consumption, only the consumption statistics are updated in the material master record. The system does not update the consumption statistics in the material master record, if you post goods movements using the special stock types Sales order stock and Project stock. Goods receipt into goods receipt blocked stock If the goods receipt is posted into goods receipt blocked stock, the stock level remains the same. The goods are recorded only in goods receipt blocked stock of the purchase order history. Goods receipt into a new storage location If you post goods into a storage location that does not yet exist for this material, the storage location data is automatically created in the material master record when the goods receipt is posted. Note, however, that this is only true if automatic creation of storage location data is allowed for both the plant and the movement type in question in the Customizing system. If automatic creation is not allowed, you must add the new storage location to the material master record before you post a goods receipt to it. Update of G/L Accounts When the goods receipt is posted, the system automatically updates the G/L accounts by the value of the goods receipt Updates can also occur in other related applications. In the case of a goods receipt to consumption, for example, the account assignment object (such as a cost center, order, asset, etc.) is debited. Updates in the Purchase Order When a goods receipt is posted, the following purchasing data is updated: Purchase order history During goods receipt posting, a purchase order history record is automatically created. This record contains data essential for Purchasing, such as: the delivered quantity, the material document number and item, the movement type, and the posting date of the goods receipt. Purchase order item If the "delivery completed" indicator is set in the material document, the order item is considered closed, and the open purchase order quantity is set to zero. Other Updates Depending on the characteristics of the material, movement, and components used, additional updates are carried out in other components. For example, a goods receipt is relevant for: Entries to be made in the planning file or independent requirements reduction in materials planning Statistical data in Inventory Controlling Vendor evaluation data in Purchasing Transfer requirements and quantity in the Warehouse Management System Inspection lots in Quality Management January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

ECC 6.0 January 2008 Invoice Verification Matches the vendor’s invoice to the purchase order and the goods receipt (3rd part of 3-way match) Matches price and quantity Updates the purchase order and its history Updates accounting information Logistics Invoice Verification is a part of Materials Management (MM). It is situated at the end of the logistics supply chain that includes Purchasing, Inventory Management, and Invoice Verification. It is in Logistics Invoice Verification that Incoming Invoices are verified in terms of their content, prices and arithmetic. When the invoice is posted, the invoice data is saved in the system. The system updates the data saved in the invoice documents in Materials Management and Financial Accounting. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

ECC 6.0 January 2008 Invoice Payment Selects invoices for payment based on the payment terms in the vendor master or purchase order Generates payment for released invoices Updates accounting information Rules according to which it can determine the open items to be paid and, if expedient, group them together for payment. For example, you can specify grace periods for incoming items, which are taken into consideration when calculating the due date. Specifications for selecting the payee. You can enter an alternative payee in your customer/vendor's master record or in the document itself. Rules used by the payment program to select the payment methods. You can specify payment methods via your customer or vendor's master record or via the open items, or you can have the payment program select them using specified rules. Rules used by the payment program to select the house bank from which the payment is made. House banks are banks where your company (company code) maintains accounts. You can specify a house bank in your customer/vendor's master record or in the line item, or you can have the payment program select it using specified rules. Specifications for automatic postings. The payment program requires information such as document types, posting keys and accounts, in order to carry out the automatic postings. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

3-Way Match for Payment Purchase Order Payment Program Invoice Receipt ECC 6.0 January 2008 3-Way Match for Payment Purchase Order Debit Credit Payment Program Invoice Receipt Verification Purchase order is matched against the invoice against the amount of the goods receipt. This may vary vendor to vendor according to the vendor info record. If the 3-way match is within tolerance, the payment is sent to the payment program for processing. Goods Receipt January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Accounts Payable Settlement Process ECC 6.0 January 2008 Accounts Payable Settlement Process Determines: Open items to be paid When they will be paid Bank from which payment will be made Payment medium Who will get paid Payment process creates a financial accounting document to record the transaction It determines the open items to be paid and creates a proposal list. You can process the proposal list on-line. Among other things, you can change payment methods or banks, block items, or cancel payment blocks. The payment program carries out payment using the proposal list. The payment run includes only the open items contained in the proposal list. The payment program posts documents and provides the data for the form printout and for creating the data carriers, the payment advice notes and the payment summaries. It uses the print program to print the forms and create the data carriers. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008 9

Goods Receipt / Invoice Receipt Reconciliation Account ECC 6.0 Goods Receipt / Invoice Receipt Reconciliation Account January 2008 No impact on Financial Accounting (FI) Purchase requisition Purchase order Materials Management (MM) and Financial Accounting (FI) via automatic account assignment Goods receipt Dr Cr Inventory $100 Dr Cr GR / IR $100 Requisition – Nothing really happens unless we get the goods or pay for them The system does the transactions for you using the automatic account assignment When we receive these, it can match the receipt against the PO Debit Inventory (we now have additional inventory value) Credit GR/IR (we are going to owe/pay for that additional inventory) January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Goods Receipt / Invoice Receipt Reconciliation Account ECC 6.0 Goods Receipt / Invoice Receipt Reconciliation Account January 2008 Amount owed is assigned and transferred to vendor account payable Invoice receipt Dr Cr GR / IR $100 Dr Cr Vendor A/P $100 Once we get the receipt – Debit GR/IR – now a wash Vendor AP Credit – we owe Some companies book it as a liability right away (previous slides), but it really isn’t until you receive the goods Unique to SAP January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

vendor and account payable is reduced ECC 6.0 January 2008 Vendor Payment Amount owed is paid to vendor and account payable is reduced Bank Bank Vendor A/P Once we get the receipt – Debit GR/IR – now a wash Vendor AP Credit – we owe (it is debited: now a wash) Some companies book it as a liability right away (previous slides), but it really isn’t until you receive the goods Unique to SAP Credit bank account (paid, now we have less cash) Dr Cr Dr Cr $100 $100 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

(FI – MM) Integration Points ECC 6.0 (FI – MM) Integration Points January 2008 Goods Receipt Invoice Receipt Payment Program AP (Vendor) Inventory GR / IR Bank Dr Cr Dr Cr Dr Cr Dr Cr $100 $100 $100 $100 $100 $100 Goods Receipt Debit Inventory Credit GR/IR Invoice Receipt Debit GR/IR Credit AP Payment Program (A/P) Debit: AP Credit Bank January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Automatic Account Assignment ECC 6.0 Automatic Account Assignment January 2008 Debit posting $100 BSX - inventory posting to trading goods inventory account 201XXX Credit posting $100 WRX goods receipt posting to GR/IR account 310XXX VBR Goods Issue to Consumption (i.e., expense>revenue) 261 GI to Order Offsetting Entry for Inventory Postings January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Unit 12 – Exercises Create Purchase Order for Slick Pens ECC 6.0 Unit 12 – Exercises January 2008 Create Purchase Order for Slick Pens Create Purchase Order for Premier Pens Create Purchase Order for Promotions, Ltd. Create Goods Receipts for Purchase Orders Create Invoice Receipts from Vendors Post Payment to Vendors Display Vendor Line Items January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Materials Management (MM) ECC 6.0 January 2008 Unit 13 Materials Management (MM) - Transactions - © SAP AG and The Rushmore Group, LLC 2008

Business Process Integration ECC 6.0 January 2008 Business Process Integration MM Transactions January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

ECC 6.0 January 2008 Transaction Data Includes internal and external exchanges that describe business activities Unlike master data, aggregate transactional data is dynamic – each transaction is unique January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Materials Management (MM) ECC 6.0 Materials Management (MM) January 2008 R/3 FI Financial Accounting CO Controlling PS Project System WF Workflow IS Industry Solutions MM Materials Mgmt. HR Human Resources SD Sales and Distribution PP Production Planning QM Quality PM Plant Maintenance SM Service Client / Server Integrated Business Solution EC Enterprise AM Fixed Assets Green ones (and blue): Logistics Start out with sales and distribution Yellow HR was added later in SAP’s life (1990) Red: Tracking side of house. (Financials) Purple:Workflow is the least understood by faculty and students Allow the movement of information in the enterprise to the people who need it. (e.g. Credit limit – e-mails, updates) Industry Solutions: Each install is tracked by SAP and the configuration is monitored by industry. This way SAP knows the whole set of answer of how industries works with their best business practices. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

ECC 6.0 Unit 13 – Overview January 2008 A company may want to establish a long term purchasing relationship with a vendor Its is accomplished through a purchasing contract (outline agreement or blanket order) Purchases of that material from that vendor are then simplified and streamlined In the MM Purchasing component, a contract is a type of outline purchase agreement against which release orders (releases) can be issued for agreed materials or services as and when required during a certain overall time-frame. (In the literature and in practice, similar concepts may also be referred to by a number of other terms, such as "systems contract", "blanket order agreement", "blanket contract", and "period contract".) January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Buyer/Supplier Relationships ECC 6.0 January 2008 Buyer/Supplier Relationships Antagonistic – parties view each other as the enemy (lose/lose) Adversarial – each party attempts to maximize their gain (win/lose) Cooperative – parties understand the benefits of working together (win/win) Collaborative – parties look for opportunities to create value (win/win) Antagonistic: The two parties do not trust each other and work to undermine each other. Trust and belief in the other is typically in short supply. Adversarial: Low price mentality. Customer tries to get the lowest price possible and the vendor tries to get the highest price. Each tries to cut corners wherever possible to save money Cooperative: Good relationship with each other. They view each other as important to their business and try to do good business together. Try to move to collaborative – This is when the vendor and customer view each other as extensions of themselves. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Buyer/Supplier Relationships ECC 6.0 January 2008 Buyer/Supplier Relationships Long term partnerships are the objective of the supplier evaluation and selection process for contracts Traditional purchasing process Creates an environment of mistrust and low bidder mentality Leads to higher total purchasing costs The objective is to build a strong relationship with one another. Evaluations and purchase transactions are costly, so the objective is to do it well at the beginning and build a long term relationship. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Supplier Evaluation and Selection ECC 6.0 January 2008 Supplier Evaluation and Selection Identify need for long term supplier contract Determine specific sourcing requirements Identify potential suppliers Determine method of evaluating suppliers Select supplier for contract Negotiate and execute contract The vendor evaluation standard analysis enables you to evaluate the data from the vendor evaluation in Purchasing. The analysis is based on data that is updated. This standard analysis allows you to find out whether a certain vendor delivers material on time and in the correct quantity required. The key figures that can be evaluated are the scores for the criteria: quantity reliability, on-time delivery performance, deviation from shipping notification (keeping the confirmation date), shipping instructions, quality audit (is currently not updated). Once the data is compiled it must be evaluated. Based upon the evaluation supplier are selected, negotiations take place, and the contracts are executed. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Benefits of Managing the Supply Base ECC 6.0 January 2008 Benefits of Managing the Supply Base Contract with only world-class suppliers The fewer suppliers the lower the purchasing overhead Purchasing can pursue strategic sourcing issues, instead of clerical functions Streamline the supply chain Improved overall quality Improved delivery performance Less total costs Robust and accurate operations Streamline the supply chain will optimize the communication and accuracy of supply of goods January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Outline Agreement Long-term purchase agreements ECC 6.0 January 2008 Outline Agreement Long-term purchase agreements Outline agreements can be subdivided into the following types: Contracts Scheduling agreements Outline agreements can be subject to a release (approval or clearance) procedure An outline purchase agreement is a longer-term agreement between a purchasing organization and a vendor regarding the supply of materials or the performance of services within a certain period according to predefined terms and conditions. (Outside SAP, such agreements may be referred to by a number of terms, including "blanket", "master", "framework" or "umbrella" agreements) In the SAP System, such agreements are subdivided into: Contracts Centrally agreed contracts Distributed contracts Scheduling agreements Scheduling agreement referencing a centrally agreed contract January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Contract Process Overview ECC 6.0 January 2008 Contract Process Overview Step one is to identify and evaluate suppliers It may involve supplier development The goals are: Develop partnerships with good suppliers Reduce total cost of purchased materials and services Bottom line is we think we are going to save money with a relationship. Vendor evaluation and development The first step is partially outside the software. We must identify and evaluate potential suppliers. While some may be existing vendor, others may not. Existing suppliers will have transactions in the system which we can evaluate. Companies may also want to engage in vendor development. This is usually a continuous improvement program with the vendors. Often called a collaborative effort. The goals of developing a relationship is to weed out the poor suppliers and strengthen the relationship with good ones, and also reduce the cost of purchasing. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Contracting Questions ECC 6.0 January 2008 Contracting Questions How will potential suppliers be evaluated and selected? What procedures will be required to manage the contracts (and suppliers)? How will performance be measured? How many are too many suppliers? Too many suppliers cost money Supplier integration Collaborative agreements Supplier development Without material production shuts down What is the risk? A program definition has to be defined before the evaluation begins. Result must be measurable. Some of the most common evaluation measures: On-time delivery Quality Price Variance The key figures that can be evaluated in the standard analysis vendor evaluation, are scores for the following criterion: On-time delivery performance Quality audit (currently cannot be updated) Quantity reliability Shipping instructions Shipping notification deviation (keeping the confirmation date)   Xerox – 80’s benchmarking Thousands of supplier Dozens for the same component Reduced and saved money Sole source is a risk because if they falter in their supply to the company there is not alternative. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Contract Management Supplier performance metrics ECC 6.0 January 2008 Contract Management Supplier performance metrics On-time delivery Material and/or service quality Returned materials Expedite issues Pricing analysis Problem resolution procedures Improve or else Continuous improvement process When to end the contract You can determine the type and number of main criteria yourself. The system supports a maximum of 99 main criteria. You can specify the number of main criteria for each purchasing organization and decide which main criteria are to be covered by the overall score. The following five main criteria are available in the standard system: Price Quality Delivery Gen. service/support These four main criteria serve as a basis for evaluating vendors from whom you procure materials. External service provision This main criterion serves as a basis for evaluating those vendors you employ as external service providers. Reports on the performance metrics give the information necessary to make informed decisions about vendors Corrective action plans Dissolution of contracts for non-performance January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

ECC 6.0 January 2008 Creating a Contract Is a long-term agreement with a vendor to provide a material or service For an agreed upon period of time At a negotiated price or quantity Can be created manually or with reference to purchase requisition, Request for Quote (RFQ)/quotation etc. You can create a contract as follows: Manually You enter all data relating to the contract manually. Using the referencing technique As reference document (the document you copy from), you can use: Purchase requisitions RFQs/quotations Other contracts You can also combine the two options. For example, you can copy data from a reference document and then change or supplement this data as required. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

ECC 6.0 January 2008 Two Types of Contracts Quantity contracts are agreements with a particular vendor to purchase a specific quantity of materials. Example: Target quantity of 50,000 meters of electrical wire at $2/meter. (MK) Value contracts are similar to quantity contract except the agreement is to purchase an established monetary value of materials. Example: Target value of $100,000 for electrical wire. (WK) Quantity contracts Use this type of contract if the total quantity to be ordered during the validity period of the contract is known in advance. The contract is regarded as fulfilled when release orders totaling a given quantity have been issued. Value contracts Use this type of contract if the total value of all release orders issued against the contract is not to exceed a certain predefined value. The contract is regarded as fulfilled when release orders totaling a given value have been issued. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Quotations/Contracts Process ECC 6.0 January 2008 Quotations/Contracts Process Requirement for material is identified Process followed to select a vendor Request for Quotation (RFQ) Maintaining a Quotation Comparison of Prices Creating a Contract Creating a Release Order A request for quotation (RFQ) is an invitation extended to a vendor by a purchasing organization to submit a quotation (bid) for the supply of materials or performance of services. A quotation is legally binding on the vendor for a certain period. The quotation is the vendor’s response to a request for quotation issued by a purchasing organization. A quotation consists of items in which the total quantity and delivery date of an offered material or service are specified. An item of a quotation may contain a delivery schedule made up of a number of schedule lines in which the total quantity is broken down into smaller quantities to be delivered on the specified dates over a certain period. Issuing RFQs and Obtaining Quotations  You use this process if you wish to manage and compare RFQs issued to vendors and the quotations received from them. You can compare the prices from all quotations received as a result of a competitive bidding process using the price comparison list . The comparison list ranks the quotations by item from lowest to highest price. From there we can optionally create a contract or release an order as discussed earlier January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Request for Quotation (RFQ) ECC 6.0 January 2008 Request for Quotation (RFQ) Is an invitation to a vendor to indicate their terms and conditions (in particular, their price) for the supply of a material or the provision of a service by submitting a quotation Identifies the required material, quantity, and delivery dates A request for quotation (RFQ) is an invitation extended to a vendor by a purchasing organization to submit a quotation (bid) for the supply of materials or performance of services. Structure An RFQ consists of the RFQ header and the items. RFQ header Contains general information on the RFQ, such as the vendor’s address Items Contain the total quantities and delivery dates for the materials or services specified in the RFQ. An item of a quotation may contain a delivery schedule made up of a number of schedule lines in which the total quantity is broken down into smaller quantities to be delivered on the specified dates over a certain period. An item of the procurement type "external service" contains a set of service specifications. The latter can be hierarchically structured. The summary view of such a hierarchical structure is referred to as an outline. The outline comprises a number of levels, each representing a level of the service hierarchy. The RFQ quantities are set out in service lines, representing individual jobs or activities. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

ECC 6.0 January 2008 Quotation A quotation contains the vendor's pricing and conditions for providing the material or service stated in the Request for Quotation (RFQ) In the SAP component Materials Management (MM) Purchasing, the RFQ and quotation are the same document. You enter the vendor's pricing and conditions in the original RFQ. A quotation is an offer by a vendor to a purchasing organization regarding the supply of materials or performance of services subject to specified conditions. A quotation is legally binding on the vendor for a certain period. The quotation is the vendor’s response to a request for quotation issued by a purchasing organization. A quotation consists of items in which the total quantity and delivery date of an offered material or service are specified. An item of a quotation may contain a delivery schedule made up of a number of schedule lines in which the total quantity is broken down into smaller quantities to be delivered on the specified dates over a certain period. An item of the procurement type External service contains a set of service specifications. The latter can be hierarchically structured. The summary view of such a hierarchical structure is referred to as an outline. The outline comprises a number of levels, each representing a level of the service hierarchy. The quantities of the quotation are set out in service lines, representing individual jobs or activities. If services cannot be defined precisely, value limits are stipulated instead of service lines. Value limits can be set for certain contracts. Conditions can apply at various levels: To the entire quotation At item level, to the material to be supplied or to the planned procurement in the case of services At service line level for individual services (tasks or activities) January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Maintaining a Quotation ECC 6.0 January 2008 Maintaining a Quotation Enter each vendor's quotation in the associated Request for Quotation (RFQ) Compare prices using the price comparison list Store the best quote in an info record Optionally, send rejection letters to the losing bidders The answer to the RFQ is entered in the quotation and stored You can compare the prices from all quotations received as a result of a competitive bidding process using the price comparison list . The comparison list ranks the quotations by item from lowest to highest price. You use this component if you wish to store information on a vendor and a material as master data at purchasing organization or plant level. You can create purchasing info records for different procurement types (standard, subcontracting, pipeline, consignment). January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

ECC 6.0 January 2008 Comparison of Prices You can compare the prices from all quotations from the competitive bidding process using the price comparison list The comparison list ranks the quotations by item from lowest to highest price You can compare the prices from all quotations from the competitive bidding process using the price comparison list The comparison list ranks the quotations by item from lowest to highest price January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Creating a Release Order ECC 6.0 January 2008 Creating a Release Order Purchase order that references a contract is called a release orders, they specify: Number of the contract Quantity to be released Delivery date Release order documentation (open quantity, quantity released to date, total value) is automatically updated against the contract when a release order is created Release order and purchase order are the same thing. The release (order) documentation comprises details of ordering activities relating to a contract. The data supplies the following data on each release order: Number of the release order Order date Order quantity Order value If a contract with one of your principal vendors exists for a material, you can create purchase orders referencing this contract. Purchase orders created in this way are called contract release orders. (Outside the SAP System, in particular, these may also be referred to as "blanket releases", "contract releases", "call-off orders" or "call-offs".) Note on the term "release": In MM Purchasing, this term is used A) as a generic term covering various kinds of order document issued against outline agreements (these may be release orders issued against contracts - as here - or scheduling agreement releases, i.e. types of rolling delivery schedule issued against scheduling agreements) and B) in connection with an internal approval or expenditure authorization process for purchasing documents. In both cases, "releasing" can be regarded as equivalent to "giving the green light" to go ahead with a certain action (e.g. to the vendor to deliver a certain quantity of materials, or to Purchasing to create a PO for items requested by a user department). January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Creating a Release Order (continued) ECC 6.0 January 2008 Creating a Release Order (continued) The vendor data, price data, and the delivery terms and conditions are copied directly to the release order Release orders can be created from a proposed purchase requisition generated off an Materials Requirement Planning (MRP) run (net requirements) Manually Automatically If a contract with one of your principal vendors exists for a material, you can create purchase orders referencing this contract. Purchase orders created in this way are called contract release orders. The release order can be created automatically or Manually. In a fully integrated environment the majority of release orders are created automatically. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

ECC 6.0 Unit 13 – Exercises January 2008 Create Purchase Outline Agreement (Contract) for Stock Items Run Materials Requirements Planning – Single Item, Single Level Convert Proposed Purchase Requisition to Release Order Review Outline Agreements Create Goods Receipt Create Invoice Receipt from Vendor Post Payment to Vendor January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008