Material Classification SAP:

Background:
We have created around 1500 materials in SAP since implementation. These include various
types like Consumables, Spares, Project Materials, Non Gas Items, Returnable packaging
(Cylinders), Services etc.,
The classification of Non-Gas materials was basically done into two major categories like Spares
& Consumables and Project Items.

All the Operations materials were under the Spares & Consumables (7XXXX)
All Technical materials which are to be used under Project Systems were under Project
Materials.

Spares and Consumables were procured and maintained as Inventory in our designated plants
and were used for internal and external purposes and accounted under Inventory stock.
All Project materials were to be procured through Project systems and no inventory was
maintained in our Plants. These were procured based on the requirement of a project and
consumed in that project. They were accounted under Capital Work in Progress.
With the introduction of Project Services, we have started using the materials which are either
under Project materials or Spares & Consumables. We have narrowed down the line between
Spares & Consumables and Project items as replacement of materials were required either in our
SGS Installations or Customer Installations.
In SAP we were still able to handle the accounting part by a single material code using SAP PS
(Project systems) through Project Profiles. The accounting was totally dependent on the Project
Profiles or configured for a specific plant (Like Centralized Storage of Sarigam Plant). If there is no
project system in place, all the project items procured for various plants shall be under CWIP and
not under Inventory (except Sarigam).
New Projects:
All the materials used by Technical (Project materials) or Operations shall be under Spares and
Consumables or Tools.

If these materials are to be used for SGS Projects, we shall issue these items from
Inventory to those SGS projects and capitalize them under the SGS Project.
If these materials are to be used for Project Services, we shall issue these items from
Inventory to those projects and bill them to the Customer through Project Services.

Maintenance of existing Projects:

If these materials are to be used as replacement it shall be done through Notifications and
consumed for the Project without billing it to the Customer.
If these materials are to be billed to the Customer, we shall route it as a Non Gas sale to
the Customer for accounting the revenue.

Hence all the non-gas materials which are required for selling are to be identified by Technical
and extended for Sales to be billed from SAP.

Material Creation in SAP:

With the understanding of the above concept we need to make a Standard Process to create
materials in SAP.

There shall be no bifurcation of Operations or Project Materials if a material is required to

be used for Technical and Operations processes.
However if there is a clear identification of a material, current process of creating a
material under Project item or Spares & consumables shall continue and hold good.

Basis for creating a material code in SAP:

Should consider a minimum value. For example Rs. XXX

Should be machine critical equipment irrespective of the value and to be stored as
Inventory.
All OEM related materials which are not available in the market and to be stored as
Inventory.
Proper grouping of materials to be done for easy identification. This shall help in updating
the taxation easily.

Points for discussion:

Should we create different materials of same type based on the Vendor Part/Serial
Number?
SAP allows maintaining Vendor specific Part number, specifications for same material
either in the PO or Vendor Info record. However this is a one to one relation.
For example: I have a regulator defined as 7XXXX in SAP. If the same regulator is supplied
by Hindustan, I can maintain a record in SAP for this Vendor as materials number 88888
and his specifications. If the same regulator is supplied by Kosan, we shall be able to
maintain his material number as 99999 along with his specifications. These specifications
shall be updated in the PO depending upon the Vendor.
However we cannot use this for a generic product like O-Rings or Generator Spares. This
requires a manual maintenance of the Vendor number and his specifications at the time of
creating a PR or a PO.

Reports:

How do we track the materials if they are clubbed together? We need to drill down to the
transaction level for that material to identify the exact make and model of the material. A
new report to be designed to achieve this.