10 Purchasing Overview

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Section: Purchasing and Condition Technique

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Contents: Purchasing and ConditionsTechnique

Unit 10 Purchasing: Overview

Unit l 11 Purchase Requisitions

Unit 12 RFQ/Quatation

Unit 13 Purchase Orders and GR/IVwith Valuation

Unit 14 Limit Purchase Orders

Unit 15 Reporting in MM

Unit 16 Purchasing Info Records

Unit 17 Outline Agreements

Unit 18 Source Determination

Unit 19 Optimized Purchasing

Unit 20 Manufacturer Part Number

Unit 21 Condition Technique

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Purchasing: Overview

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Purchasing: Objectives

At the conclusion of this unit, participants will be ableto:

Outline the procurement process.

List the most important purchasing documents.

Explain the differences between the procurementof stock material and the procurement ofconsumable material.

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Requisition

Procurement Environment

ProcurementProcurement

6

4

27

18

3

10

20

30

Purchaseorder

10

20

30

Vendorinvoice

5

Purchaseorder

10

20

30

?

Source determination

Requirements determinationPayment

Vendor selection

Order processingPurchase order monitoring

Invoice Verification

Goods receipt

In the R/3 System, the external procurement process is structured in the following way: Determination of requirements: The user department responsible can pass a requirement for

materials to the Purchasing department manually, via a purchase requisition. If you have set a MRP procedure for a material in the material master, the R/3 System automatically generates a purchase requisition.

Determination of the source of supply: The R/3 System supports the buyer responsible in many different ways when determining sources of supply. You can use determination of the source of supply to create requests for quotation (RFQs) and then to enter the quotations.

Vendor selection: The system supports you during vendor selection by comparing the prices of the different quotations. By comparing quotations, you can establish, for example, the most favorable vendor. You can send rejection letters automatically.

Purchase order processing: When you enter purchase orders, the system helps you with the entries. Purchase order monitoring: The buyer can monitor the processing status of the purchase order at

any time online. The buyer can, for example, determine whether goods or an invoice have been received for the corresponding purchase order item. The system also supports dunning procedures.

Goods receipt: The system compares the goods receipt quantity with the purchase order quantity. Invoice Verification: Vendor invoices are checked for accuracy of prices and contents. Payment processing: Financial Accounting normally deals with vendor payments.

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The Procurement Process

Goodsreceipt

Goodsreceipt

Purchaseorder

Purchaseorder

Invoiceprocessing

Invoiceprocessing

Invoice receipt

Sourcedetermination

Sourcedetermination

RFQ/Quotation

10

20

30

PurchaseOrder

10

20

30

Planning, Reporting, and Analysis

You can create a request for quotation to determine the source of supply for a material or service. After sending the requests for quotation to the desired vendors, you can enter the quotations received.

You can compare the quotations received using a price comparison list. You can then select the most favorable quotation and convert it to a purchase order. If required, the R/3 System automatically generates rejection letters for quotations that were not accepted.

For goods receipts referencing a purchase order, the system compares the goods receipt quantity with the purchase order quantity. You can set underdelivery or overdelivery tolerances in the purchase order.

In Invoice Verification, you enter the vendor invoices received and check the contents and prices for accuracy. If a purchase order is referred to during verification, the system checks the accuracy of the contents using information in the purchase order and goods receipts.

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RFQ / QuotationPurchasing

Purchaserequisition

Quotation

Purchaseorder

Master data

Request forquotation

Source of supply

Vendor AVendor A

Vendor BVendor B

Vendor CVendor C

Rejection

After establishing that a material or service is required, the Purchasing department needs to convert the purchase requisition into a purchase order. The SAP R/3 System can support the Purchasing department using the requests for quotation in the source determination.

First, you enter a request for quotation for the appropriate material or the desired service. You can enter the request for quotation manually or with reference to a purchase requisition. The second option has the advantage that the information already in the purchase requisition is adopted directly in the request for quotation. Then you allocate the desired vendors to the request for quotation. The system determines the address from the data in the respective vendor master record.

Then you send the requests for quotation to the vendors, who send you quotations. You enter the quotations and the conditions contained in them for the associated requests for quotation.

You determine the most favorable quotation by means of a quotation comparison. You also have the option of saving the conditions of quotations in which you are interested as

purchasing info records.

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Purchase OrderPurchasing

Purchaserequisition

Purchaseorder

RFQ

Vendor

Another plant

Master data

A purchase order is a formal request to a vendor to supply certain goods or services under the stated conditions.

Purchase orders can be created without reference, or with reference to a purchase requisition, a request for quotation or another purchase order.

When you enter the purchase order data, the system suggests values to use. For example, the ordering addresses, as well as the terms of payment and freight (Incoterms) are suggested from the vendor master record. If you have maintained a material master for a certain material in the R/3 System, the material short text or the material groups, among other things, are suggested for you. If a purchasing info record already exists in the system, a default price is copied to the purchase order.

The purchase order is either sent to a vendor or you carry out a stock transport order in another plant belonging to your company or group. With a stock transport order, you can take into account the associated freight costs in the purchase order.Note: You can find more information about stock transport orders in the Materials Management documentation on the topic of Inventory Management: Special stocks and special forms of procurement in Materials Management.

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Materialdocument

Purchaseorder

Accountingdocument(s)

VendorAnother plant

GR area

Goods receipt

Posting a goods receipt to stock with reference to a purchase order has a number of advantages for you, including:

The goods receiving department can check whether the goods delivered are what was actually ordered.

The system suggests data in the purchase order when you enter the goods receipt (for example material ordered, quantity). This makes it easier to enter the goods receipt and check overdeliveries and underdeliveries when goods arrive.

The purchase order is automatically updated with the delivery. The Purchasing department can send a reminder about late deliveries.

When a goods receipt to the warehouse is posted, a material document is created that contains information such as the material delivered and the quantity delivered. The storage location in which you place the material into stock in the associated plant is also recorded.

In transactions relevant for material valuation, at least one accounting document is created which records the effects the material movement has on the value of the stock.

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Invoice Processing

Payment program

Invoicedocument

Purchaseorder

Invoice

Master data

Invoice Verification

Material documentfor goods receipt

In Materials Management, the procurement process is completed by Invoice Verification. There, invoices and credit memos are entered and checked for accuracy of the contents and prices. However, payment and evaluation of invoices is not part of Invoice Verification; the appropriate information for these tasks is passed on to other departments. Therefore, Invoice Verification creates a link between Materials Management and external or internal accounting.

When you enter an invoice with reference to a purchase order, the system suggests data from the purchase order and the goods receipts for the purchase order, for example, vendor, material, quantity still to be invoiced, terms of payment and so on.

If there are variances between the purchase order or goods receipt and the invoice, the system warns the user and blocks the invoice for payment, if necessary.

Posting the invoice completes the process of Invoice Verification. The purchase order history is updated and Financial Accounting can pay the open invoice item.

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Consumable Material

Consumable materials are materials orservices that are procured directly for anaccount assignment object.

Inventory Management is not carried out.

Examples of consumable material:

OfficeOffice material material:: assigned to a cost center

Computer Computer systemssystems:: assigned to an asset

The system automatically updatesconsumption of materials with a materialmaster record.

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Master Record for Consumable Material

Material

Material

Material type: NLAG

Basic dataPurchasingMaterials planningSales/distribution

Material type: DIEN

Basic dataPurchasingMaterials planningSales/distributionAccounting

Optimizedpurchasing

Optimizedpurchasing

When you create a material master record, you must assign the material to a material type. The latter defines certain attributes of the material and has important control functions.

The material type defines the procurement type for a material, for example. The procurement type indicates whether the material is produced in-house, procured externally, or both.

Together with the plant, the material type determines the inventory management requirement for a material. That is to say, it determines whether changes in quantities are updated in the material master record whether changes in the value of the material are also updated in the stock accounts of Financial

Accounting Furthermore, the material type determines which accounts are to be posted when a material enters or

leaves the warehouse or stores. The standard material types NLAG and DIEN are available for materials that cannot or are not

intended to be stored (kept in stock) and for simple services respectively: NLAG: Non-stock material is material that is not stored but is used or consumed immediately. DIEN: Services are procured externally. Since they obviously cannot be stored, they are also

regarded as being consumed immediately. A material master record belonging to this material type can always contain purchasing data.

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Purchasingdocument

1

2

A: Asset

K: Cost center

P: Project

F: Order

C: Sales orderAcct assgt cat.

Account Assignment Objects

Assignment to

Others

Consumable materials debit different account assignment objects depending on the account assignment category specified.

The account assignment category determines which category of account assignment is to be debited and which account assignmnent data you have to prepare.

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Stock Material <=> Consumable Material

Entry of material numberrequired

No account assignmentcategory

Posting to stock accounts

Quantity and value updated inmaterial master record

Moving average price isadjusted

Entry of material number notrequired, but is possible

Account assignment categorymandatory

Posting to consumption accounts

Consumption update (formaterials with material masterrecord only)

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Procurement for Consumption

with mat. master record

with mat. master record

Enter accountassignment cat.

Enter accountassignment cat.

Acct assgtautomatic

Data from materialmaster record

Acct assgtautomatic

Data from materialmaster record

Acct assgtmanual

Entries required from the user

Acct assgtmanual

Entries required from the user

Stock accountStock account Consumption acct Cost center

Asset...

Consumption acct Cost center

Asset...

without mat. master record

without mat. master record

with mat. Master record

with mat. Master record

Account assignmentAccount assignment withacct assgt cat.

withacct assgt cat.

Stock materialStock material Consumable materialConsumable material

When procuring consumable materials that do not have a material master record, you have to enter the following, as well as the account assignment category:

short text (description)

material group

order unit

When you create a purchase order with account assignment, depending on the account assignment category, you have to enter a cost center or asset number. Depending on the account assignment category, the system can use automatic account determination to suggest a G/L account number for the consumption account.

The standard configuration of the R/3 System contains the following consumable materials with material master record:-non-stock material (material type NLAG): Quantity and value are not updated - non-valuated material (material type UNBW): Quantity is updated, but value is not.

Consumable materials with a material master record must have an account assignment.

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General Business Scenario

PReq.MaterialQuantityDeliv. date(Source)

Materials planning

User dept.

Conversion

Approval ofrequisition

Pur. orderVendorMaterialQuantityDelivery datePrice

Source of supply

Inforecord

Contractitem

Schedulingagmt. item

Automaticsource

determin-ation

Source list

Quota arrangement

Vendorevaluation

Optimized Purchasing

Pur. orderTransmissionto vendor

Approval ofpurchase order

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Materials Planning ProcurementMaterials Planning

PurchaseRequisition

MaterialQuantityDue date

Plannedorder

MaterialQuantityDue date

Deliveryschedule

MaterialQuantityDue date

You can use a planning run to create planning orders, purchase requisitions, or delivery schedules for externally procured materials. Planning orders are procurement proposals that the MRP controller can change before converting purchase requisitions.

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Purchasing Overview: Summary (1)

You have received an overview of theprocurement cycle.

Purchase requisitions can be created withrespect to requirements that are to be coveredby procurement from external sources.

Among other things, SAP offers support inRFQ/quotation processing, sourcedetermination/vendor selection and themonitoring of purchase orders.

You can procure for stock or for consumption.

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Purchasing Overview: Summary (2)

Procurement for consumption takesplace with account assignment. Thetype of account assignment iscontrolled by the account assignmentcategory.

The goods receipt and invoiceverification processes take place withreference to the purchase order.

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