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The Procurement Process
Chapter 4 The Procurement Process Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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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
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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
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Team up in groups Collect all answers from last sessions Multiple Choice Questions Select a group leader Go through all questions / answers together Back in 10 min Together we will go through the questions Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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A Basic Procurement Process
Lageret / pakhuset opretter en inkøbsrekvisition Indkøbsafdelingen opretter og sender indkøbsordre Lageret modtager materialer Regnskabsafdelingen modtager faktura Regnskabsafdelingen sender betalingen Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Outline 1. Organizational data 2. Master data 3. Key concepts
4. Process 5. Reporting Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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1. 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
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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 (company code) only A CC can have many plants Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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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
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GBI Storage Locations Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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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
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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
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Enterprise-Level Purchasing Organization
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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
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Company-Level Purchasing Organization
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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
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Plant-Level Purchasing Organization
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Reference Purchasing Organization
One centralized Purchase Org for high-level decisions across the enterprise Multiple CC-specific and plant-specific Purchase Org Disadvantages: No advantage of local practices Lack of quick reactions to changes in local conditions Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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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
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2. 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
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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
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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
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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
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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
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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
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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: SHRT MI00+ TG00 SHRT SD00+ TG00 SHRT US00 + Wholesale channel SHRT US00 + Internet channel Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Demo 4-1: Review Material Master
Review some of the data included in a material master. View demo 4-1 Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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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
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Vendor Master Segments
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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
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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
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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
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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
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Demo 4-2: Review Vendor Master
Review some of the data included in a vendor master. View demo 4-1 Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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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
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Purchasing Info Record
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Purchasing Info Record
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Conditions Pricing Conditions Obtained from Gross price
Discounts and surcharges Freight / shipping Obtained from Purchasing info records Contracts and agreements Other sources Based on the overall agreements and contracts in place with vendors Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Demo 4-3: Review Purchasing Info Records
Review data in a purchasing info record. View demo 4-3 Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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3. Key Concepts Item categories Account determination
Stock type/status Goods movement Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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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
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Demo 4-4: Review Item Categories
Review various item categories used in the purchasing process. View demo 4-4 Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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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
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Purchase for Stock vs. Consumption
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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
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Goods Movement A transaction that causes a change in stock (value or status) Categories of Goods Movement Specific Movement types Materials from a vendor Shipping materials to a customer 4 common goods movement: Goods receipt Goods issue Stock transfer Transfer position Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Structure of a Material Document
Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Demo 4-5: Review a Material Document
Review data included in a material document. View demo 4-5 Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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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
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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
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Demo 4-6: Review Goods Movements and Movement Types
Review various goods movements and movement types View demo 4-6 Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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A Detailed Procurement Process
Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Process Steps Trigger Data Task details Outcomes
Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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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
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Elements of the Purchase Requisition Step
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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 (request for quotations) Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Data in a Purchase Requisition
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Converting a Purchase Requisition to a Purchase Order
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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
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Demo 4-7: Create a Purchase Requisition
Create a purchase requisition for stock material. View demo 4-1 Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Elements of the Purchase Order Step
Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Purchase Order Creation Data Manually or automatically
With or without reference to other documents Data Documents: Purchase requisition, Purchase order, RFQ, Quotation Master data: Material (characteristics) Vendor (terms) Info record (pricing) Conditions (pricing) Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Data in a Purchase Order
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Purchase Order Tasks Outcomes
Data automatically included from input sources Source determination using info records, agreements and contracts, and source lists Outcomes Purchase order Purchase requisition history – PO added Communicate with vendor (external procurement) using messages: fax, EDI, print Plant (internal procurement) using transfer orders Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Purchase Order Structure
Header Document number, dates Vendor, currency, terms PO total Line items Material number, description Quantity, price, item total Delivery date Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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The Structure of a Purchase Order
Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Communicating with vendors
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GBI Scenario Create purchase order Material: SHRT1000 Quantity: 500
Vendor: Spy Gear (from source list or manual entry) Receiving plant: Miami Reference document: purchase requisition Price: $15 each (from info record) Total PO value: $7500 Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Demo 4-8: Convert Purchase Requisition to Purchase Order
Convert a previously created purchase requisition into a purchase order Review data in the purchase requisition View demo 4-8 Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Elements of the Goods Receipt Step
Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Goods Receipt Data Task Outcomes
Documents: PO (purchase order), Delivery document (packing list) Master data Task Verify materials receipt Create GR document Outcomes Material documents Header: Document number, date, reference Details (items): Material, quantity, location, movement type Financial Accounting documents Header: Document number, date, reference, currency Details (Items): GL accounts, description, amount Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Goods Receipt (continues)
Outcomes Notifications Material master: stock and value GL (general ledger) accounts (Stock/Consumption, GR/IR) PO history – Material document added Quality management Quality inspection lot Warehouse management Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Data In The Goods Receipt Step
Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Financial Impact of Goods Receipt
GR/IR = Goods receipt / Invoice receipt Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Material and Accounting Documents from a Goods Receipt
Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Demo 4-9: Receive goods against a Purchase Order
Record the receipt of materials for the purchase order previously created. Review data in the associated purchase requisition. Review data in the associated purchase order. View demo 4-9 Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Elements of the Invoice Verification Step
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Invoice Verification Data Tasks Outcomes Vendor invoice Purchase order
Material document Tasks Three-way match (purchase order – goods receipt/delivery document – invoice) To ensure that quantities and price are consistent in all 3 documents Outcomes Financial Accounting documents Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Demo 4-10: Receive and Verify an Invoice
Verify and record an invoice received from a vendor. Review data in the associated purchase order View demo 4-10 Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Elements of the Payment Step
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Payment Processing Creation: manually or via automatic payment program
Data Three-way match (or other process) Payment method, account, items to pay, Tasks Calculate payment amount (discounts) Post payment document (accounting document) Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Payment Processing Outcomes Financial Accounting Documents
Payments (checks, EFT, notifications) Updates GL accounts Material master :Moving average price (if using moving price vs. standard price) Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Data needed for Vendor Payment
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Financial Impact of Vendor Payment
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Demo 4-11 Make payment to Vendor
Record payment made to a vendor for previously recorded invoices. View demo 4-11 Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Integration With Other Processes
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Reporting Source of data Instance level reporting (status)
Process level reporting Lists and reports Purchasing Information System Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Reporting - Sources Organizational data Master data
Transaction data (documents) Purchasing documents Material documents Accounting documents Invoice documents Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Reporting - Instance Status of a Requisition, Purchase Order
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List of Invoices Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Work List – List of Requisitions
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Demo 4-12: Display a List Report
Retrieve and display a list of invoices (online list) Retrieve and display a list of open purchase requisitions (work list) View demo 4-12 Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Reporting - Standard Process level reporting
Standard reports / List displays Logistics Information System Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Reporting – Logistics Information System
Components Purchasing Information System Sales Information System Quality Management Information System Inventory Control Transportation Information System Shop Floor Information System Plant Maintenance Information System Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Reporting – Logistics Information System
Information Structures Special tables of statistics from various modules that is constantly updated Selection criteria (types of information) Key figures: variables of interest Quantitative values on measurable facts Numbers (of orders, deliveries) Quantities (of material) Cost, delivery time Characteristics: used to organize key figures Vendors, material, organizational levels Timeframe: day, week, month, etc. Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Standard Analysis Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Demo 4-13: Display a report using the Purchasing Information System
Generate a standard report using the purchasing information system for the US00 Purchasing Organization. Drill down to several levels of information in the report. View demo 4-13 Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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Flexible Analysis Magal and Word | Integrated Business Processes with ERP Systems | © 2011
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