The Procurement Process Chapter 4 The Procurement Process Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Learning Objectives Describe the major organizational levels associated with the procurement process. Discuss the four basic categories of master data that are utilized during the procurement process. Explain the key concepts associated with the procurement process Identify the key steps in the procurement process and the data, documents, and information. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Learning Objectives (Continued) Effectively use SAP ERP to execute the key steps in the procurement process Utilize SAP ERP to extract meaningful information about the procurement process Magal and Word | Integrated Business Processes with ERP Systems | © 2011

A Basic Procurement Process Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Outline Organizational data Master data Key concepts Process Reporting Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Organizational Data Client Company code (CC) Plant Storage location (S Loc) Purchasing organization (P Org) Purchasing group Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Plant Many definitions or uses. A location That holds valuated stock (for distribution) Where production planning is carried out Where products and services are created That contains service or maintenance facilities Factory, warehouse, distribution center Can be assigned to one CC only A CC can have many plants Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Storage Location A place, within a plant, where materials are stored Areas designated for different types of material (raw material, work-in-process, finished goods) More sophisticated divisions including storage bins, cabinets, trays A plant must have at least one storage location A storage location can belong to only one plant Magal and Word | Integrated Business Processes with ERP Systems | © 2011

GBI Storage Locations Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Purchasing Organization Identify and select vendors Negotiate general conditions of purchase and contracts for one or more plants or companies. Determine pricing conditions Typically three models for Purchasing Organization Enterprise-Level Company-Level Plant-Level Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Enterprise-Level Purchasing Organization Also known as cross-company code model One Purchasing Organization assigned to all CC in a client Purchasing for all plants across all CC Highly centralized – corporate Purchasing Org Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Enterprise-Level Purchasing Organization Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Company-Level Purchasing Organization Also known as cross-plant model Different Purchasing Organizations are assigned to each CC Purchasing for all plants in one or more CC Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Company-Level Purchasing Organization Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Plant-Level Purchasing Organization Also known as plant-specific model Each plant has its own Purchasing Organization Highly decentralized Changed this “Purchasing for one or more plant” to each plant has its own PO Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Plant-Level Purchasing Organization Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Reference Purchasing Organization One centralized Purchase Org for high-level decisions across the enterprise Multiple CC-specific and plant-specific Purchase Org Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Purchasing Group A buyer or group of buyers responsible for certain materials or groups of materials Can be internal to the company or external Decide to purchase land, but use a realtor (external purchasing group) to execute the purchase Not assigned to or related to purchasing org Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Master Data Material Master Vendor Master Purchasing info record Conditions The order of this material types do not match the book. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Material Master Data needed to execute transactions related to materials (along with org data) Data are grouped by different user areas (views) Data are specific to (defined for) for different organizational levels Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Material Master – Views Basic data Purchasing Accounting Forecasting Sales Plant / Storage Work Scheduling MRP Classification Warehouse Management Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Material Master – Views Basic data Description, unit of measure, weight, material group Purchasing Purchasing group, GR processing time, delivery (under / over) tolerances Accounting Currency, valuation class (link to G/L), price control (moving price, standard price, future price) Plant / Storage Storage requirements (hazard, temperature, etc.) Shelf life Weight, volume Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Material Master - Views Views for other processes Forecasting (Material Planning process) Sales (Fulfillment process) Work Scheduling (Production process) MRP (Production process) Classification (PLM process) Warehouse Management (WM process) Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Material Master - Views Different material types have different required views Examples: Raw material: no sales view Finished Goods: no purchasing view Trading goods: no production related views Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Material Master – Org Levels Defines the level at which the master data is maintained Can have different data for different combinations of Org data Purchasing: Plant, storage location Sales: Sales Area (Sales Org, Distribution Channel) Warehouse: Warehouse #, storage type Example: SHRT1000 + MI00+ TG00 SHRT1000 + SD00+ TG00 SHRT1000 + US00 + Wholesale channel SHRT1000 + US00 + Internet channel Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 4-1: Review Material Master Review some of the data included in a material master. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Vendor Master Data needed to do business with vendors Data needed to execute transactions related to vendors (along with org data) Data are specific to (defined for) different organizational levels. The three segments are: Client level data (General) Company code level data (Accounting) Purchasing organization level data (Purchasing) Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Vendor Master Segments Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Data in the Vendor Master May want to include Table 5-1: List of vendors for GBI Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Vendor – General Data Client-level data Valid across all CC in a client Examples Name, Address Communication (phone, fax) Search term Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Vendor – Accounting Data Company code specific data Valid for the entire company code across purchasing areas Examples Account information Bank information Reconciliation account Payment terms and methods Communication (dunning) Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Vendor – Purchasing Data Separate for each Purchasing Organization Applies to the specified Purchase Org Examples Partner functions (vendor, invoicing party, payment recipient) InCoTerms: defines responsibilities and costs of shipment Freight, insurance, customs clearance, locations Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 4-2: Review Vendor Master Review some of the data included in a vendor master. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Purchasing Info Record Relates vendors and materials. One info record per combination of vendor and material (or material group) General data Conditions: pricing, discounts, free goods (current and future) Vendor data Texts (notes) Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Purchasing Info Record Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Purchasing Info Record Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Conditions Pricing Conditions Obtained from Gross price Discounts and surcharges Freight / shipping Obtained from Purchasing info records Contracts and agreements Other sources Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 4-3: Review Purchasing Info Records Review data in a purchasing info record. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Key Concepts Item categories Account determination Stock type/status Goods movement Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Item Categories Defines the process used to procure the item Standard Subcontracting Components provided; finished product received Consignment Liability only when withdrawn from stock Service Stock transfer Third party order Ship to third party; bill to us (drop shipment) Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 4-4: Review Item Categories Review various item categories used in the purchasing process. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Account Determination Which GL account to assign to PO? Defined in material master (valuation class) Account assignment categories Used when purchasing material without material master Assets, Production Order, Cost Center, Sales, Order, Project Automatic GL account determination based on category Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Purchase for Stock vs. Consumption Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Stock Types / Status Based on usability of material Unrestricted use In quality inspection Blocked stock (damaged, unusable; wrong delivery) Stock in transit Deleted “Stock in transit” as a type. Its not stated in the book Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Goods Movement A transaction that causes a change in stock (value or status) Categories of Goods Movement Specific Movement types Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Structure of a Material Document Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 4-5: Review a Material Document Review data included in a material document. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Goods Movements Goods Receipt Goods Issue Stock Transfer From vendor or production process Increase in quantity and value of stock Goods Issue To sales order or internal consumption Decrease in warehouse stock Stock Transfer Physical movement of material between storage locations Sloc to Sloc Plant to Plant CC to CC Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Goods Movements Transfer Posting Results in a change in material status In-quality inspection/ blocked/ unrestricted use One material type to another May or may not include a change in location (Sloc, plant) Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 4-6: Review Goods Movements and Movement Types Review various goods movements and movement types Magal and Word | Integrated Business Processes with ERP Systems | © 2011

A Detailed Procurement Process Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Process Steps Trigger Data Task details Outcomes Magal and Word | Integrated Business Processes with ERP Systems | © 2011

GBI Story Inventory of t-shirts (SHRT1000) is low (<=50) in the Miami plant Therefore it is necessary to procure more t-shirts Spy Gear is the only supplier of t-shirts Quantity purchased is 500 Purchase price is $15 per t-shirt Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Elements of the Purchase Requisition Step Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Purchase Requisition Trigger Data Task details: none Output Other processes Manually Data User input: Dates, materials, quantities Master data: Material master, Vendor, Info record Organizational data: Client, CC, P Group Task details: none Output Document: Purchase requisition Subsequent steps Purchase Order RFQ Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Data in a Purchase Requisition Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Converting a Purchase Requisition to a Purchase Order Magal and Word | Integrated Business Processes with ERP Systems | © 2011

GBI Scenario Material planning process has determined Re-order point = 50 Order quantity = 500 Miami plant employee reviews inventory report and determines that it is necessary to reorder Requisition: 500 SHRT1000 to be delivered at the Miami plant by a specified date Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Demo 4-7: Create a Purchase Requisition Create a purchase requisition for stock material. Magal and Word | Integrated Business Processes with ERP Systems | © 2011

Elements of the Purchase Order Step Magal and Word | Integrated Business Processes with ERP Systems | © 2011