Procurement Processes EGN 5620 Enterprise Systems Configuration Spring, 2012

Procurement Process Concepts & Theories

Procurement Process Requirements Determination – Requisition request ECC 6.0 Procurement Process January 2008 Requirements Determination – Requisition request Request for Quotation (RFQ) Vendor Selection Order Processing - Purchase Order Order Tracking Goods Receipt and Inventory Management Invoice Receipt and 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 Requisition (Request) ECC 6.0 January 2008 Purchase Requisition (Request) Is an internal document Requests a certain quantity of certain material (or service) on a certain date Is generated: Manually MRP (automatically), or Sales orders, etc. With an optional request approval (or release) procedure 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 Requisition Sources ECC 6.0 January 2008 Purchase Requisition Sources Non-inventory items: manually specified by the user department for: Office supplies, Project-specific materials, and Prototype materials Inventory items: automatically created by a MRP/MPS planning mechanism for: 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 Requisition Data ECC 6.0 January 2008 Purchase Requisition Data Default data for line items (from the material master, vendor info record, & user preferences) Delivery dates, Plants, storage location Purchasing groups, etc. Individual line item data Material, Quantity, Delivery date Account assignment (if required) Cost center, General Ledger accounts, Project number, etc. Check data 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

Quotation Process Request for Quotation (RFQ) Maintaining a Quotation ECC 6.0 Quotation Process January 2008 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 Request for Quotation (RFQ) January 2008 Is an invitation to a vendor to indicate their terms and conditions (in particular, their price) for the supply of a material (or 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

Request for Quotation An RFQ is an invitation to a vendor by a Purchasing Organization to submit a bid for the supply of materials or services The accepted quotations will generate Purchasing Information Records Perform Quotation Price Comparisons Finally Select a Quotation Pur Req. generate RFQ Vendor 1 Vendor 2 Vendor 3 Quote P.O. 45…12 Reject Letter Eval. A quotation is legally binding on the vendor for a certain period. A quotation consists of items in which the total quantity and delivery date of an offered material or service are specified Determining which vendors to send RFQs to is the first step in the bidding process. The system can help you to choose which vendors are to receive an RFQ if some or all of the information set out below is available: Info records Source list

Maintaining a Quotation ECC 6.0 Maintaining a Quotation January 2008 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

Vendor Evaluation Evaluate vendors (for sourcing) with respect to: Price Price Level Price History Quality Goods Receipt Quality Audit Complaints/Rejection level Delivery performance On-time delivery Quantity reliability Compliance with shipping instructions Confirmation Date A scoring range (1 -100) may be used with weight factors to score each identified/qualified vendor. Price Level This sub-criterion compares relationship of a vendor's price to the market price. If the vendor's price is lower than the market price, he/she receives a good score; if it is higher than the market price he/she is assigned a poor score. On the basis of the subcriterion Price Level you can compare a vendor's price to the current market price at a certain point in time. Price History This subcriterion compares the development of the vendor's price with the market price. On the basis of the subcriterion Price History, you can determine whether the vendor's price has increased or decreased over a certain period in comparison with changes in the market price over the same period. Goods Receipt This subcriterion is used to evaluate the quality of the material that the vendor delivers. Quality inspection takes place at the time of goods receipt. Quality Audit This subcriterion is used to evaluate the quality assurance system used by a company in manufacturing products. Complaints/Rejection Level This subcriterion is used to evaluate whether the materials delivered by the vendor are regularly found to be faulty subsequent to incoming inspection (for example, on the shop-floor) leading to additional expense and loss of time (due to loss of production, reworking etc.). The score (QM key quality figure) is calculated in QM Quality Management and the data passed on to MM Vendor Evaluation. This key quality figure is converted for use in the Vendor Evaluation scoring system. On-Time Delivery Performance This subcriterion is used to determine how precisely a vendor has adhered to the specified delivery dates. Quantity Reliability This subcriterion is used to determine whether a vendor has delivered the quantity specified in the purchase order. “On-time delivery performance” and “Quantity reliability” always have to be seen in conjunction. You can specify for each material (in the material master record) or for all materials (in the system settings) the minimum quantity of the ordered materials that must be delivered in order for a goods receipt to be included in the evaluation. This enables you to avoid a situation in which a punctual goods receipt involving only a small quantity of ordered materials is included in the evaluation with a good score for “on-time delivery performance”. If this minimum quantity is not delivered, the vendor is not awarded a score. However, in this case the vendor receives a bad score for quantity reliability. Compliance With Shipping Instructions This subcriterion is used to determine how precisely a vendor complies with your instructions for the shipping or packing of a material. Confirmation Date This subcriterion is used to determine whether a vendor adheres to a previously confirmed delivery date (that is, whether the goods are actually received on the date previously confirmed by the vendor).

ECC 6.0 Comparison of Prices January 2008 Compares the prices from all quotations from the competitive bidding process using a price comparison list Ranks the quotations in the comparison list by item from the 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 Creating a Release Order January 2008 Release order is a purchase order that references a contract; it specifies: Number of the contract Quantity to be released Delivery date When a release order is created, release order documentation is automatically updated against the contract (including open quantity, quantity released to date, total value) 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 (2) ECC 6.0 January 2008 Creating a Release Order (2) 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 a MRP run (net requirements) Automatically Manually 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

Purchase Orders Purchase Orders are: Purchase Orders specify: ECC 6.0 Purchase Orders January 2008 Purchase Orders are: a formal request to a vendor to provide materials or services An internal planning and tracking tool Purchase Orders specify: Vendor Material and/or service Quantity and price Delivery dates Terms of payment A purchase order can be for variety of purposes: Standard Stock or Consumption Services Subcontracting Consignment 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

Procurement Processes SAP Implementation

Business Process Integration ECC 6.0 Business Process Integration January 2008 FI SD MM Transactions Org Data Master Data FI MM SD Rules FI MM SD FI In the Business Process Integration class we use the stool as a metaphor for the SAP structure. There are four basic components needed to run execute SAP. Three of these are the legs of the stool: org data, master data, and rules. These ‘hold up’ the transactions. Transactions cannot be run unless these are setup. The legs are typically configured during the implementation process. During BPI 1 we will setup the stool for Finance, Materials management and Sales and Distribution. MM SD January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Business Process Integration ECC 6.0 Business Process Integration January 2008 Purchase Process 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 Rules (review) January 2008 Rules define the parameters for Master Data and Transactions Rules determine functionality for Master Data and Transactions Rules are relatively fixed Rules change, when corporate policy changes Master data does not change very often Org data – should not change Transaction data (application data) – changes every transaction Rules are relatively fixed. January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Rules (review) Material Management Fiscal Periods Account Groups ECC 6.0 Rules (review) January 2008 Material Management Fiscal Periods Account Groups Material Types Plant Parameters Purc./Rec./Inv. Tolerances Automatic Account Assignment Reservations Material Group Loading Group January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2007. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Transaction Data (review) ECC 6.0 Transaction Data (review) January 2008 Transaction data are application data; each transaction is dynamic and unique, unlike master data and organization data which do not change very often. Transaction data use (is comprised of) organization data, master data, and rules Transaction data includes internal and external exchanges that describe business activities 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

Purchasing in SAP R/3 (review) ECC 6.0 Purchasing in SAP R/3 (review) January 2008 The purchasing process resides in the Materials Management (MM) module of SAP R/3 as well as the Finance (FI) module Master data for the purchasing process exists in the (MM) and (FI) modules The purchasing process may interface with the modules below: Production Planning (to plan for production), Quality Management (to check quality at receipt), and Warehouse Management (to put away) The execution of purchase order is primarily done in Materials Management, but parts of the procurement process are cross-module. A/P resides in finance, and receipt quality check in Quality Management. Putaway’s from receipt can interface with the Warehouse Management module. Org structure in MM and FI Master Data in MM and FI Rule and transaction Data interface with MM, FI, PP, WW, and QM 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 January 2008 Procurement Process (Procure-to-Pay) Purchase Requisition Purchase Order 3-Way Match Notify Vendor Payment to Vendor 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. Vendor Shipment 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

Create & Save Purchase Order 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. Depending on the movement type, additional updates are carried out in participating applications. All updates are based on the information contained in the material document and the financial accounting document. For example, in the case of a goods issue for a cost center, the consumption values of the items are also updated.

Purchase Order in SAP Three sections in a purchase order: Header Item overview Line item

Purchase Order Structure Header Vendor Company Purch. Org. Date Purch. Org. group PO Price Purchase Order 45......01 Item Overview Materials Price/UofM Quantities Currency Delivery Date Plant Line Item PO History Tolerances Line Price Storage Delivery Schedule

Purchase Order Structure: Header ECC 6.0 January 2008 Purchase Order Structure: Header Header - information specific to the entire purchase order Vendor Purchase organization data Condition (total purchase price) Partner Payment process Status 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 – purchasing information required for the item Item category Material ID and description Material or service quantity Delivery date Net price Currency Plant Storage location Measurement unit 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 Structure: Item Details ECC 6.0 January 2008 Purchase Order Structure: Item Details Material data for the item Quantity/weight Delivery schedule Invoice Conditions (Purchasing price for the item) Delivery address Confirmation Condition control Subcontracting 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: 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

Search Purchase Orders ECC 6.0 January 2008 Search Purchase Orders 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

MM: Goods Receipt Notify Vendor Vendor Receipt Shipment Purchase Order 45......01 Vendor Receipt Shipment

Goods Receipt – Movement Types ECC 6.0 Goods Receipt – Movement Types January 2008 Movement types - stock transactions Goods receipt (from a vendor or production) Goods issue (to customer or production/use) Stock transfer (from one SL to another) 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

Material Movements When a goods movement takes place it is represented by a Movement Type Movement types are three-digit keys used to represent a movement of goods 101 – goods receipt into warehouse 102 - reversal of goods receipt for purchase order into warehouse/stores 103 – goods receipt into GR blocked stock 122 – return delivery to vendor 501 - receipt w/o purchase order into unrestricted-use 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. 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

Goods Receipt Goods receipt is a goods movement activity in which we accept goods into our system. If materials are delivered against a purchase order we will reference that order and SAP can: retrieve data from the PO for us to verify: material, quantity, and so on Update inventory G/L account automatically Update purchase order history with the receipt Update physical inventory If a material is delivered for a purchase order, it is important for all of the departments involved that the goods receipt entry in the system references this purchase order, for the following reasons: 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.

Goods Receipt – Destinations ECC 6.0 Goods Receipt – Destinations January 2008 Goods receipt into (destined for) the warehouse SAP increases total valuated stock by the delivered quantity. SAP updates the stock value at the same time. Goods receipt into consumption SAP only updates the consumption statistics in the material master record SAP does not update the consumption statistics if the goods movement posting uses the special stock types: sales order stock type and project stock. Goods receipt posted into blocked stock SAP maintains the same stock level. SAP only records it in good receipt block stock of the purchase order history. Note: If goods receipt is being posted into a storage location where data does not yet exist for the material, SAP automatically creates a storage location data in the material master record. 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 – Effects ECC 6.0 Goods Receipt – Effects January 2008 Purchase Order (PO) history and Purchase Order (PO) updated Material Master - stock and value updated Notification of goods receipt issued (optional) Transfer request to the Warehouse Management module (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 the Quality Management (QM) module - 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

Goods Receipt – Account Postings ECC 6.0 Goods Receipt – Account Postings January 2008 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 – Account posting No impact on Financial Accounting (FI) Purchase requisition Purchase order Materials Management (MM) and Financial Accounting (FI) via automatic account assignment Goods receipt 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) Dr Cr Inventory (account) $100 Dr Cr GR / IR $100

Invoice Receipt Process ECC 6.0 Invoice Receipt Process January 2008 Tasks: Engage in 3-way match to validate the invoice. Enter PO number to retrieve the PO and view (verify) Open dollar amount. Quantity, Price, receiving date, Vendor name Enter the invoice number and the dollar amount to be paid Simulate invoice posting Post the invoice in SAP Rules for price differences and where are we going to post those. Materials Management, Logistics Invoice Verification has the following features: It completes the material procurement process, which started with the purchase requisition and resulted in a goods receipt. It allows invoices that do not originate in materials procurement (such as services, expenses, course costs) to be processed. It allows credit memos to be processed, either as invoice reversals or return deliveries. 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 3-Way Match for Payment January 2008 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

Invoice Processing - 3-Way Match Incoming Invoices are reference against a Purchase Order to verify their content, prices, and arithmetic. If discrepancies arise between the purchase order or goods receipt and the invoice the system with generate a warning or an error Depending on system configuration the difference could cause the system to Block the Invoice Purchase order - Target quantity - - Target price - Goods receipt - Actual quantity - Invoice receipt - Actual price - 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. An invoice can be processed in Logistics Invoice Verification in various ways: Invoice Verification Online Invoice Verification in the Background Automatic Settlements Invoices Received via EDI Activate display of the MM and FI document numbers using the user parameter IVFIDISPLAY, by entering the value X for the user. In the standard system, only the document number from Materials Management is displayed.

Invoice Verification - 3-way match ECC 6.0 Invoice Verification - 3-way match January 2008 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

Financial effects of Invoice Posting When an invoice is posted, SAP shifts the liability From the Goods Receipt/Invoice Receipt account (for the purchase order) To the vendor account Upon posting, SAP: Updates the Purchase Order Updates the Material Master Creates an Accounting Document Initiates the payment process within Financial Accounting

Invoice Receipt Reconciliation Account Amount owed is assigned and transferred to vendor account payable Invoice receipt Dr Cr GR / IR $100 Dr Cr Vendor $100 Dr Cr 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 automatic posting

Accounts Payable Reconciliation Account ECC 6.0 January 2008 Accounts Payable Reconciliation Account Accounts Payable (AP) Reconciliation 950 250 Vendor 100435 200 Vendor 100234 100 Vendor 100621 400 Vendor 100846 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 Invoice Payment January 2008 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

Accounts Payable Settlement Process ECC 6.0 January 2008 Accounts Payable Settlement Process Determines: Which open items to be paid When they will be paid Which bank to make payment 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

Payment to Vendor Can be done automatically or manually Post Outgoing Payment vs. Payment Program Elements of the Payment Transaction: Payment Method Bank from which they get paid Items to be Paid Calculate Payment Amount Print Payment Medium Process will create a financial accounting document to record the transaction

vendor and account payable is reduced Vendor Payment Amount owed is paid to vendor and account payable is reduced Bank Vendor’s A/P Bank’s 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 Dr Cr $100 $100 $100 automatic posting

(FI – MM) Integration Points Goods Receipt Invoice Receipt Payment Program Vendor Dr Cr Inventory GR / IR Bank $100 $100 Dr Cr Dr Cr Dr Cr $100 $100 $100 $100 automatic posting Goods Receipt Debit Inventory Credit GR/IR Invoice Receipt Debit GR/IR Credit AP Payment Program (A/P) Debit: AP Credit Bank AP Dr Cr $100 $100

Procurement Processes PEN, Inc. Procurement Processes

600 Cxxx Pxxx xxx xxx 3

Check PO History (ME23) ECC 6.0 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Check PO History (continued) ECC 6.0 January 2008 Check PO History (continued) January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Check Inventory ECC 6.0 January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved. © SAP AG and The Rushmore Group, LLC 2008

Exercises: 100. Create a Purchase order for Slick Pens 101. Create a purchase order for premier pens 102. Create a purchase order for Promotions Ltd. 103. Create receipts for the purchase orders 104. Create an invoice receipts from vendors 105. Post payments to vendors 106. Display vendor line items 107. Create purchase outline agreement (contract) for Stock item