The Procurement Process

Objectives

- Describe the basic business process of procuring stock materials

in an ERP System.
- Discuss the integration points in procurement to Financial
Accounting and Inventory Management.
- Discuss the reporting and analysis tools used by R/3 in the
procurement cycle.

Hierarchical Enterprise Structure

Client
highest hierarchy level, e. g. group with its daughter companies
Settings made will affect all company codes
S

18.000

18.000

18.000

18.000

3.283

3.283

3.283

3.283

137

12.137

137

12.137

12.248

1.248

12.248

1.248

12121323

12121212

12121323

12121212

Company Code (FI)

Org. Unit can present a balance sheet according to the legal
provisions legally independent enterprise
Settings made will only affect the respective company code

Purchasing organization

procures material or services for the assigned plants

negotiates on terms & conditions with vendors make contracts
is responsible for all the purchase processes
operative purchasing is done by purchasing groups

Plant
Operational facility within a company code (e.g. factory, store, ...)
has its own requirements planning and inventory management

Storage location
a space for logical inventory management

Purchasing organization
material
group

purchasing organization

purchasing group MG 0, 3

purchasing group MG 1, 4
purchasing group MG 2, 5
purchasing group MG 6
plant

purchasing group MG 7, 8, 9

Inventory Management with a Warehouse

Management System
0001 ABC inc.

client

0001 Jones inc.

company code

purchasing organization
plant

distrib.center 0001

storage location

0001

0001

0002

0002

0003

0002

storage bin (physical stock)

0003
0004

0001

0003

MM
factory

0004

001

warehouse number

storage type

0002 Model Ltd.

001

WM

002
05-04-03

05-04-04

The Module MM Main Functions

Maintenance of the material master record (different views)

Material requirements planning
Material procurement: handling of the documents for
- purchase requisition
- request, quotation
- vendor selection
- purchase order, outline agreement
- vendor master record
Inventory management
- goods movement, material valuation
Invoice verification referring
purchase orders, goods received documents, delivery
notes etc.

MM interdependencies to other modules

Logistics
PP
production
planning

MM
material master

SD
sales and
distrib.

purchasing
requirements plan.

QM
quality
management

FI
financial acc.

inventory mgmt.
invoice verification

CO
controlling

PM
plant
maintenance

AM
fixed assets mgmt.

Basic Data

Master records - include information about

1. vendors
2. material and services to be procured
3. the relation between 1. and 2. (purchasing info record)
e.g. prices / terms and conditions

bills of material for

- production planning
- purchasing
- sales and distribution
- withdrawal of Material

Structure of the Vendor Master Record

sections

utilization

General data
name
address
control data

area of validity

client wide

purchasing
terms and cond.
partner functions
currency

request for quotation

quotation processing
purch. order handling

accounting data
bank account
acc. maintenance
payment

invoice entry
invoice verification
payment handling

for each
purchasing
organization

client wiede or
for each
company code

Views on the Material Master Record

each view is maintained by a certain user department of the firm

accounting: valuation- und calculation-specific information

requirements planning: information about material requirements
planning (e. g. reorder point)
purchasing: e. g. responsible purchasing group, order unit
engineering: technical information
storage: information about warehousing, material movements, ...
forecast: information about the forecasting of the material requirements
S & D: informationen about sales orders and price determination

purchasing info record

info record
prices
terms & cond.
PO statistics
tolerance levels

date
quotation

outline
agreement
order

Procurement

The primary SAP R/3

application modules that
support the Procurement
process are:

Sales &
Distribution

Materials
Mgmt.

Controlling

Production
Planning

Purchasing
Goods Receipts
Invoice Verification

- Production Planning

Purchase Requirements

- Financial Accounting

Payment Processing
Materials Valuation

Fixed Assets
Mgmt.

R/3

- Materials Management

Financial
Accounting

Client / Server
ABAP/4

Quality
Mgmt.
Plant
Maintenance

Human
Resources

Project
System

Workflow

Industry
Solutions

Purchasing Process

PO

?
=

invoice
X

X
X

invoice verification

X
X

determination: requirements
vendor
X

X
X

outline agreem.

determination: source of supply

MM
goods received &
inventory mgmt.

vendor 2
vendor 1

PO

vendor selection
PO

PO

PO monitoring
purchase order processing

Procurement Cycle

The procurement cycle may consist of eight processes:

Purchase Order
Purchase Order

8. Payment

1. Requirements
determination
2. Source
determination

7. Invoice verification

Purchase Order
Purchase Order

6. Goods receipt and

inventory management

5. Order follow-up

3. Requisition assigned
to a Vendor

4. Order processing

Business Process Flow for Procurement

The main documents and transactions in the Procurement

process are:

Purchase
Requisition

Purchase
Order

Goods
Receipt

Invoice
Posting

Planning, Reporting, and Analysis

- Note: Payments to vendors are usually made at specified

times (e.g. at the end of the month).
- Payment amounts are determined according to the open
invoices posted on the system.

Purchase Requisition Processing

or

Material Resource
Planning

Direct Entry

Purchase requisition

Determine source of supply

Purchase Order
Purchase Order
Purchase Order

Release strategy

Purchase order

Purchase Orders

A purchase order is a formal request to a vendor to provide

certain materials or services under specific conditions
(quantity, price, delivery date, etc.)

Purchase
Requisition

Purchase
Order

Goods
Receipt

Planning, Reporting, and Analysis

Invoice
Posting

Create Purchase Order (PO)

vendor 2

purch. order

1
vendor known

terms & cond.

2
vendor not known

source list

purch. order

outline
agrement info record

vendor
vendor 2

assigned purchase
requisition exists
(from user department)

purch. req.

purch. order

Purchase Order Processing

Purchase
Purchase
Order
Order
Direct Entry
or Purchase
Requisition

Standard
Standard
Sub
Subcontract
contract
Consignment
Consignment
Third-party
Third-party

Statistics
Order History

Purchase Order
Purchase Order
Purchase Req.

Stock material
Consumable material
Service

Account assignment
(cost center, asset,
project)

Goods Receipt

When goods are received from a purchase order, the item

data is copied from the purchase order into the goods
receipt document.

Purchase
Requisition

Purchase
Order

Goods
Receipt

Planning, Reporting, and Analysis

Invoice
Posting

Goods Receipt for Stock Material

Entering the goods receipt increases the inventory level

of a material that is procured for stock.
Purchasing
documents
Items
1.
2.
3.

Goods
Receipt

Vendor

Warehouse / stores

Inventory Management (MM module)

controls and records all goods movement,
form purchase order receipt through the
plant, to consumption

Results of a Goods Receipt Posting

Transaction documents are created both for materials

management and finance.
Accounting
document
G/L accounts:
Consumption account
GR/IR account
Material
document

Stock quantity
Consumption statistics

Goods Receipt
Posting

Goods receipt
slip
Purchasing data:
Order item, Order history

Point of consumption
Cost center Order

Transfer
Order

Posting an Order Entry (Goods Receipt)

Logistics
PP
production
planning

MM
purchasing req. planning
goods receipt

SD
sales and
distrib.

inventory mgmt.
goods issue.

QM
quality
management

FI
financial acc.

inventory
controlling

transfer
posting

invoice
verification

CO
controlling

PM
plant
maintenance

AM
fixed assets mgmt.

Invoice Processing

This last step in the procurement process includes invoice

verification and updating accounts payable in the FI module.

Purchase
Requisition

Purchase
Order

Goods
Receipt

Invoice
Posting

Planning, Reporting, and Analysis

- Payment will then be made later based upon the open

invoices posted on the system

Invoice Verification
input
information

orders
goods receipt

master data:
material
vendors
accounts
terms & cond.

invoice verification

output
information

actions:

enter invoice
verify invoice
post invoice
update
relevant data
(re-edit
invoice)

financial
accounting
asset
management
cost accounting

Invoice Verification Environment

Invoice verification accesses data from purchasing,

inventory management, material master, and vendor
master files.
G/L accounts

Purchase
Order

Assets
Purchase Order
Purchase Order

Cost centers
Vendor
Invoice

Goods
Receipt
Material master
Vendor master

Projects
Invoice
verification

Orders

Posting
Postingan
aninvoice
invoicein
inthe
theR/3
R/3System
System
updates
updatespurchasing
purchasingand
andaccounting
accountingdata
data

Vendor Payment

Accounts payable reads the invoice file and pays all posted
invoices due. (Payment runs can be automated to occur at
specific times.)
Vendor

Financial
Accounting

1000

Bank
Payment
Payment
program
program

1000

1449

Motor Sports International

1234 Main Street
New York, NY 10181

Date _______________

Pay to: ________________________________________

________________________________________________________
_______________

Released
Invoice

_________________
12930 39040 2020 20202 10923 1449

Procurement Integration
MM

PP

Purchase Order

Purchase Order

Goods Receipt

Invoice Verification

Invoice

FI

FI

Reporting and Analysis

Standard Reporting provides List Displays (pre-defined

programs) by:
- Vendor
- Material
- Account assignment
- Material group
- Purchase order number
- Tracking number
General Analysis
Order Value Analysis
Inventory Transaction Analyses

Logistics Information System (LIS)

The Logistics Information System (LIS) contains several

information systems such as:
- Purchasing Information System
- Inventory Controlling
- Sales Information System
- Shop Floor Information System
LIS extracts its data from the operative applications; it
offers many different views on this information.

Logistics Information System (LIS)

The LIS exists for the entire logistics system in R/3

The LIS contains several information systems such
as:
- Inventory Controlling
- Sales Information System
- Shop Floor Info System
- Purchasing Information System
The LIS extracts data from the operative applications;
offering it in many different views, the depth of which
Logistics
is determined by the user.

Information
Systems

Logistics Information Library

Sales
Information
System

Purchasing
Information
System

Inventory
Controlling

Shop Floor
Information
System

Maintenance
Information
System

Quality Mgmt
Information
System

R/3
Sales and
Distribution
(SD)

Materials
Management
(MM)

Production
Planning
(PP)

Plant
Maintenance
(PM)

Quality
Management
(QM)

Logistics
Processing
Systems

In Summary

The basic procurement process includes:

- Goods receipt
- Purchase requisition
- Invoice processing
- Purchase order
Procurement master data includes the vendor and material
master files.
At various times during the Procurement process,
integration occurs between the PP, MM and FI modules.
The two reporting tools used in the procurement
environment are:
- Standard Reporting

List Displays

General Analysis

Inventory Analysis

- Logistics Information System

Purchasing Information System

Inventory Controlling System