Procurement Processes EGN 5620 Enterprise Systems Configuration (Professional MSEM) Fall, 2011 Procurement Processes EGN 5620 Enterprise Systems Configuration (Professional MSEM) Fall, 2011

Procurement Processes Concepts & Theories EGN 5620 Enterprise Systems Configuration (Professional MSEM) Fall, 2011 Procurement Processes Concepts & Theories EGN 5620 Enterprise Systems Configuration (Professional MSEM) Fall, 2011

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.3 Procurement Process 1. Requirements Determination – Requisition request 2. Request for Quotation (RFQ) 3. Vendor Selection 4. Order Processing - Purchase Order 5. Order Tracking 6. Goods Receipt and Inventory Management 7. Invoice Receipt and Verification 8. Payment

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.4 Purchase Requisitions (Requests) Internal document Requesting a certain quantity of certain material (or service) on a certain date Are generated: ◦Manually ◦MRP (automatically), ◦Sales orders, etc. With optional request approval (& release) procedures

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.5 Purchase Requisitions Sources Specified manually by the user department for: ◦Office supplies, ◦Project-specific materials, and ◦Prototype materials Created automatically by a MRP/MPS planning mechanism for: ◦Plant Maintenance ◦Production Orders ◦Sales Orders

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.6 Purchase Requisitions 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

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.7 Quotations Process Request for Quotation (RFQ) Maintaining a Quotation Comparison of Prices Creating a Contract Creating a Release Order

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.8 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 service) by submitting a quotation Identifies the required material, quantity, and delivery dates

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.

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.10 Maintaining a Quotation 1. Enter each vendor's quotation in the associated Request for Quotation (RFQ) 2. Compare prices using the price comparison list 3. Store the best quote in an info record 4. Optionally, send rejection letters to the losing bidders

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.

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.12 Comparison of Prices 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

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.13 Creating a Release Order Purchase order that references a contract is called a release order, 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

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.14 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) ◦Manually ◦Automatically

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.15 Purchase Orders 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

Resource Requirements Planning Master Production Scheduling (MPS) Master Production Scheduling (MPS) Material Requirements Planning (MRP) Material Requirements Planning (MRP) Capacity Requirements Planning (CRP) Capacity Requirements Planning (CRP) AggregatePlanningAggregatePlanning ResourceRequirementsPlanning ProductionPlanning ResourcesPlanning

Material Requirements Planning (MRP)

Materials Requirements Planning (MRP) Only for dependent items Explodes Master Schedule (MPS) into required amounts of raw materials and subassemblies to support MPS Net requirements against current orders and inventories to develop production and purchased material ordering schedules Via use of a computer-based system

Objectives of MRP Improve customer service Reduce inventory investment Improve plant operating efficiency

Order Changes Order Order PlanningReportPlanningReport Elements of MRP MRPSystem Planned Order Schedule Schedule Inventory Transaction Data Inventory Bill of Materials File Materials File Bill of Materials File Materials File MasterProductionScheduleMasterProductionSchedule Inventory Status File Inventory Service-Parts Orders and ForecastsService-Parts Forecasts Performance Performance ExceptionReportsExceptionReports InputsOutputs

MRP Computer Program Begins with number of end items needed Add service parts not included in MPS Explode MPS into gross requirements by consulting bill of materials file Modify gross requirements to get net requirements: Net Requirements = Gross Requirements + Allocated Inventory + Safety Stock - Inventory On Hand Offset orders to allow for lead time

Outputs of MRP Planned order schedule - quantity of material to be ordered in each time period Changes to planned orders - modifications to previous planned orders Secondary outputs: ◦Exception reports ◦Performance reports ◦Planning reports

Example: Product structure LocoMopeds is a manufacturer of off- road mopeds. The following product structure diagram represents the bill of materials for its dual-carburetor Model 442 moped. MOPEDMOPED ENGINEASSEMBLYENGINEASSEMBLY MOTORMOTORCARBURETOR(2)CARBURETOR(2) GASTANKGASTANKWHEELASSEMBLY(2)WHEELASSEMBLY(2) HUBASSEMBLYHUBASSEMBLYTIRETIRE FRAMEFRAME Level 0 Level 1 Level 2

Example: MRP BOM Bill of Materials ParentComponentLevelCompon. CodeCodeCodeDescriptionReq’d 4420#442 Moped 442EA1Engine Assem.1 GT1Gas Tank1 WA1Wheel Assem.2 F1Frame1 EAM2Motor1 C2Carburetor2 WAHA2Hub Assem.1 T2Tire1

Example: MRP Schedule Inventory Status Report ItemCodeOn-HandSafetyStockLotSizeLeadTime Sched. Receipts Qnty. Week LFL1---- EA GT600200LFL WA F M2500LFL1---- C HA1000LFL T ,200011,12

Example: MPS Schedule The company is currently planning production for weeks 10 through 16. Based on existing orders and demand forecasts, the master production schedule is as follows: Master Production Schedule: #442 Moped Determine the MRP schedule required to support the master production schedule for the Model 442 moped in weeks WEEK QUANTITY

Example: MRP Schedule MRP Schedule for #442 Mopeds for Weeks , considering that: ◦Gross Requirements come from the moped MPS ◦There is an On-Hand balance of 500 mopeds at the end of week 9 ◦There are no Scheduled Receipts for mopeds ◦A lot-for-lot rule is used for ordering mopeds ◦Safety stock of 200 mopeds is desired ◦Lead time for mopeds is one week

Example: MRP Schedule MRP Schedule for #442 Mopeds... Initially GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 500) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: 442 MOPED LT: 1 ITEM: 442 MOPED LT: 1 LOT SIZE: LFL SS: 200 LOT SIZE: LFL SS: WEEK

Example: MRP Schedule MRP Schedule for #442 Mopeds... Completed GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 500) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: 442 MOPED LT: 1 ITEM: 442 MOPED LT: 1 LOT SIZE: LFL SS: 200 LOT SIZE: LFL SS: WEEK

Example: MRP Schedule MRP Schedule for Gas Tanks for Weeks , considering that: ◦Gross Requirements come from moped Planned-Order-Releases ◦There is an On-Hand balance of 600 gas tanks at the end of week 9 ◦There is a Scheduled Receipt for 900 tanks in week 10 ◦A lot-for-lot rule is used for ordering gas tanks ◦Safety stock of 200 gas tanks is desired ◦Lead time for gas tanks is two weeks

Example: MRP Schedule MRP Schedule for Gas Tanks... Initially GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 600) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: GAS TANK LT: 2 ITEM: GAS TANK LT: 2 LOT SIZE: LFL SS: 200 LOT SIZE: LFL SS: WEEK

Example: MRP Schedule MRP Schedule for Gas Tanks... Completed GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 600) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: GAS TANK LT: 2 ITEM: GAS TANK LT: 2 LOT SIZE: LFL SS: 200 LOT SIZE: LFL SS: WEEK

Example: MRP Schedule MRP Schedule for Frames for Weeks , considering that: ◦Gross Requirements come from moped Planned- Order-Releases ◦There is an On-Hand balance of 600 frames at the end of week 9 ◦There is a Scheduled Receipt for 2000 frames in week 10 ◦The firm uses a Lot Size (multiple) of 2000 for ordering frames ◦No safety stock of frames is desired ◦Lead time for frames is 3 weeks

Example: MRP Schedule MRP Schedule for Frames... Initially GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES PLANNED ORDER RELEASES ITEM: FRAME LT: 3 ITEM: FRAME LT: 3 LOT SIZE: 2000 SS: 0 LOT SIZE: 2000 SS: WEEK 600

Example: MRP Schedule MRP Schedule for Frames... Completed GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 600) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: FRAME LT: 3 ITEM: FRAME LT: 3 LOT SIZE: 2000 SS: 0 LOT SIZE: 2000 SS: WEEK

Example: MRP Schedule MRP Schedule for Engine Assemblies for Weeks , considering that: ◦Gross Requirements come from moped Planned-Order-Releases ◦There is an On-Hand balance of 300 engine assemblies at the end of week 9 ◦There is a Scheduled Receipt for 1000 engine assemblies in week 10 ◦The firm uses a Lot Size (multiple) of 500 for ordering engine assemblies ◦Safety Stock of 100 engine assemblies is desired ◦Lead time for engine assemblies is 1 week

Example: MRP Schedule MRP Schedule for Engine Assemblies... Initially GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 300) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: ENGINE ASSEM. LT: 1 ITEM: ENGINE ASSEM. LT: 1 LOT SIZE: 500 SS: 100 LOT SIZE: 500 SS: WEEK

Example: MRP Schedule MRP Schedule for Engine Assemblies... Completed GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 300) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: ENGINE ASSEM. LT: 1 ITEM: ENGINE ASSEM. LT: 1 LOT SIZE: 500 SS: 100 LOT SIZE: 500 SS: WEEK

Example: MRP Schedule MRP Schedule for Motors for Weeks , considering that: ◦Gross Requirements come from engine assembly Planned-Order-Releases ◦There is an On-Hand balance of 250 motors at the end of week 9 ◦There are no Scheduled Receipts for motors ◦A lot-for-lot rule is used for ordering motors ◦No Safety Stock of motors is desired ◦Lead time for motors is 1 week

Example: MRP Schedule MRP Schedule for Motors... Initially GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 250) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: MOTOR LT: 1 ITEM: MOTOR LT: 1 LOT SIZE: LFL SS: 0 LOT SIZE: LFL SS: WEEK

Example: MRP Schedule MRP Schedule for Motors... Completed GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 250) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: MOTOR LT: 1 ITEM: MOTOR LT: 1 LOT SIZE: LFL SS: 0 LOT SIZE: LFL SS: WEEK

Example: MRP Schedule MRP Schedule for Carburetors for Weeks , considering that: ◦Gross Requirements come from engine assembly Planned-Order-Releases (times 2) ◦There is an On-Hand balance of 150 carburetors at the end of week 9 ◦There are no Scheduled Receipts for carburetors ◦A Lot Size of 200+ is used for ordering carburetors ◦Safety Stock of 100 carburetors is desired ◦Lead time for carburetors is 2 weeks

Example: MRP Schedule MRP Schedule for Carburetors... Initially GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 150) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: CARBURETOR LT: 2 ITEM: CARBURETOR LT: 2 LOT SIZE: SS: 100 LOT SIZE: SS: WEEK

Example: MRP Schedule MRP Schedule for Carburetors... Completed GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 150) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: CARBURETOR LT: 2 ITEM: CARBURETOR LT: 2 LOT SIZE: SS: 100 LOT SIZE: SS: WEEK

Example: MRP Schedule MRP Schedule for Wheel Assemblies for Weeks , considering that: ◦Gross Requirements come from moped Planned-Order-Releases (times 2) ◦There is an On-Hand balance of 500 wheel assemblies at the end of week 9 ◦There is a Scheduled Receipt for 2000 wheel assemblies in week 10 ◦A Lot Size (multiple) of 500 is used for ordering wheel assemblies ◦Safety Stock of 400 wheel assemblies is desired ◦Lead time for wheel assemblies is 1 week

Example: MRP Schedule MRP Schedule for Wheel Assemblies... Initially GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 500) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: WHEEL ASSEM. LT: 1 ITEM: WHEEL ASSEM. LT: 1 LOT SIZE: 500 SS: 400 LOT SIZE: 500 SS: WEEK

Example: MRP Schedule MRP Schedule for Wheel Assemblies... Completed GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 500) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: WHEEL ASSEM. LT: 1 ITEM: WHEEL ASSEM. LT: 1 LOT SIZE: 500 SS: 400 LOT SIZE: 500 SS: WEEK

Example: MRP Schedule MRP Schedule for Hub Assemblies for Weeks , considering that: ◦Gross Requirements come from wheel assembly Planned-Order-Releases ◦There is an On-Hand balance of 100 hub assemblies at the end of week 9 ◦There is a Scheduled Receipt of 2400 hub assemblies in week 11 ◦A lot-for-lot rule is used for ordering hub assemblies ◦No Safety Stock of hub assemblies is desired ◦Lead time for hub assemblies is 1 week

Example: MRP Schedule MRP Schedule for Hub Assemblies... Initially GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE ON-HAND = 100) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: HUB ASSEM. LT: 1 ITEM: HUB ASSEM. LT: 1 LOT SIZE: LFL SS: 0 LOT SIZE: LFL SS: WEEK

Example: MRP Schedule MRP Schedule for Hub Assemblies... Completed GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 100) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: HUB ASSEM. LT: 1 ITEM: HUB ASSEM. LT: 1 LOT SIZE: LFL SS: 0 LOT SIZE: LFL SS: WEEK

Example: MRP Schedule MRP Schedule for Tires for Weeks , considering that: ◦Gross Requirements come from wheel assembly Planned-Order-Releases ◦There is an On-Hand balance of 500 tires at the end of week 9 ◦There are Scheduled Receipts for 3000 and 2000 tires weeks 11 and 12, respectively ◦A Lot Size (multiple) of 1000 is used for ordering tires ◦Safety Stock of 500 tires is desired ◦Lead time for tires is 3 weeks

Example: MRP Schedule MRP Schedule for Tires... Initially GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 500) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: TIRE LT: 3 ITEM: TIRE LT: 3 LOT SIZE: 1000 SS: 500 LOT SIZE: 1000 SS: WEEK

Example: MRP Schedule MRP Schedule for Tires... Completed GROSS REQUIREMENTS SCHEDULED RECEIPTS AVAILABLE (ON-HAND = 500) NET REQUIREMENTS PLANNED ORDER RECEIPTS PLANNED ORDER RELEASES ITEM: TIRE LT: 3 ITEM: TIRE LT: 3 LOT SIZE: 1000 SS: 500 LOT SIZE: 1000 SS: WEEK

Lot-Sizing in MRP Lot-size is the quantity ordered/produced at one time Large lots are preferred because: ◦Changeovers cost less and capacity greater ◦Annual cost of purchase orders less ◦Price breaks and transportation breaks can be utilized Small lots are preferred because: ◦Lower inventory carrying cost ◦Reduced risk of obsolescence ◦Shorter cycle time to produce customer order

Lot-Sizing Methods Typical MRP methods ◦Lot-for-Lot (LFL) ◦Economic Order Quantity (EOQ) ◦Period Order Quantity (POQ) Comments ◦LFL is the preferred MRP lot sizing method ◦EOQ and POQ do not consider quantity discounts, and do not always provide the most economical approach with lumpy demand

Procurement Processes SAP Implementation EGN 5620 Enterprise Systems Configuration (Professional MSEM) Fall, 2011 Procurement Processes SAP Implementation EGN 5620 Enterprise Systems Configuration (Professional MSEM) Fall, 2011

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.57 Business Process Integration FI MM SD Org Data Rules FI MM SD Master Data FI MM SD FISD MM

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.58 Business Process Integration Purchase Processes

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.59 Rules (review) 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

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.60 Rules (review) 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 All rights reserved.61 Transaction Data (review) 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

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.62 Purchasing in SAP R/3 (review) 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)

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.63 Procurement Process (Procure-to-Pay) Purchase Requisition Payment to Vendor Notify Vendor Shipment Invoice Receipt Goods Receipt Purchase Order 3-Way Match

Create & Save Purchase Order

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

Purchase Order Structure Purchase Order Header VendorCompany Purch. Org.Date Purch. Org. groupPO Price Item Overview MaterialsPrice/UofM QuantitiesCurrency Delivery DatePlant Line Item PO HistoryTolerances Line PriceStorage Delivery Schedule

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.67 Purchase Order Structure: Header Header - information specific to the entire purchase order ◦Vendor ◦Purchase organization data ◦Condition (total purchase price) ◦Partner ◦Payment process ◦Status

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.68 Purchase Order Structure: Line Items Line item – purchasing information required for the item ◦Item category ◦Material id and description ◦Materials or services quantity ◦Delivery date ◦Net price ◦Currency ◦Plant ◦Storage location ◦Measurement unit

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.69 Purchase Order Structure: Item Details ◦Material data for the item ◦Quantities/weights ◦Delivery schedule ◦Invoice ◦Conditions (Purchasing price for the item) ◦Delivery address ◦Confirmation ◦Condition control ◦Subcontracting

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.70 Purchase Order: Output Format Printed and mailed Electronic Data Interchange (EDI) Faxed (hardcopy or electronic) eXtensible Markup Language (XML)

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.71 Search Purchase Orders You can search for the purchase order number with ◦Material number, ◦Vendor number, etc.

MM: Goods Receipt Purchase Order Vendor Notify Vendor Shipment Receipt

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.73 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

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 reversal of goods receipt for purchase order into warehouse/stores 103 – goods receipt into GR blocked stock 122 – return delivery to vendor receipt w/o purchase order into unrestricted-use stock

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

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.76 Goods Receipt – Destinations 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.

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.77 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 the Warehouse Management module (if active)

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.78 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

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.79 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

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

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.81 Invoice Receipt Process 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

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.82 3-Way Match for Payment Purchase Order Goods Receipt Invoice Receipt Debit Credit Payment Program Verification

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 -

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.84 Invoice Verification - 3-way match 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

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

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.86 Accounts Payable Integration Increase to A/P (vendor’s credit) Increase to GR/IR (debit) Goods Receipt Balance Sheet Increase to Inventory (debit) Increase to GR/IR (credit) Invoice Receipt

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

Accounts Payable Reconciliation Account January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.88 Accounts Payable (AP) Reconciliation Vendor Vendor Vendor Vendor

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.89 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

January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.90 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

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

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

PEN, Inc. EGN 5620 Enterprise Systems Configuration (Professional MSEM) Fall, 2011 PEN, Inc. EGN 5620 Enterprise Systems Configuration (Professional MSEM) Fall, 2011 Procurement Processe s

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Check PO History (ME23) January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.96

Check PO History (continued) January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.97

Check Inventory January 2008 © SAP AG - University Alliances and The Rushmore Group, LLC All rights reserved.98

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 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