2011-1-Training Manual On Material Management

HPPCL-MM-TRG-V2
Training Manual Materials Management
Agenda
Section 1. 2. 3. 4. 5 6 7 8 9 10
Topics Material Management Overview Organizational Elements Master Data Procurement Cycle Inventory Management Invoice Verification Valuation Price Control Managing Supplier Relationship Material Requirement Planning
Page No.
Page 2
Agenda Day 1
Section 1. 2. 3. 4. 5 6 7 8 9 10
Page No.
Page 3
Materials Management Overview
Materials Management
External procurement of materials and services , Determination of sources of supply for a requirement Monitoring of deliveries Invoice Verification of Invoices submitted by vendors Inventory Management function
Page 4
What is Materials Management ?

MM Master Data
Procurement
Inventory Management
Requisition Planning Purchase Requisitions RFQs Contracts Purchase Orders
Materials Vendors Information Records
Receiving Disbursement Physical Inventory (Raw Material, Semi Finished Goods, Finished Goods)
The Material Management module comprises of procurement and the inventory management functions .
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The processes of Material Management are based on various types of Master Data which are stored in Master Records.
MASTER DATA
Vendor
Materials
Purchasing Info Records
Master Records
Page 6
This diagram illustrates a typical SAP-supported procurement cycle.
Page 7
Agenda
Material Management Overview Organizational Elements Master Data Procurement Cycle
Invoice Verification Valuation Price Control Managing Supplier Relationship Material Requirement Planning
Page 8
Organizational Elements in MM
In the SAP R/3 System, organizational levels are structures that represent the legal or organizational views of a company. n A client is the highest organizational level, representing, for example, a corporate group.
n Balance sheets and Profit and Loss statements, required by law, are created at company code level. n You can set up several company codes in one client in order to manage various separate legal entities simultaneously, each with their own balance sheet of financial books.
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Materials Management Organizational Elements
Group
Client
Company
Purchasing Org.
Subsidiary
Company Code Purchasing Organization
Plant Storage location Storage location

Purchasing Group
Plant Storage location Storage location
Plant
Storage Location
Purchasing Group
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Plant
Plant is an organizational unit that structures the enterprise from the perspective of production, procurement, plant maintenance, and materials planning. Plant can be for example

Regional sales office Manufacturing facility Corporate headquarters
Central distribution center

Maintenance plant
Plant is assigned to a company. Material is usually valuated at plant level. A physical location within a company, where materials are stored, manufactured, purchased or sold.
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Storage Location
Storage location is an organizational unit that allows differentiation of material stocks within a plant. Physical inventory is carried out at storage location level in the plant. A subdivision of a plant representing locations where materials are physically stored.
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Purchasing Organization and Group
Purchasing organization subdivides an enterprise according to the requirements of Purchasing. Purchasing organization procures materials and services, negotiates conditions of purchase with vendors, and bears legal responsibility for such transactions.
Purchasing group is the key for a buyer or group of buyers responsible for certain purchasing activities.
Usually the principal channel for a company's dealings with its vendors
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Organisational Elements in MM Purchasing:
Purchasing Organization: An organizational unit responsible for procuring materials or services for one or more plants and for negotiating general conditions of purchase with vendors. The purchasing organization assumes legal responsibility for all external purchase transactions.
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Centralized Vs Decentralized Purchasing
You can organize your purchasing function in the following ways: Centralized purchasing, with just one purchasing organization Distributed purchasing, with a number of different purchasing organizations each responsible for different plants
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Purchasing Group
The purchasing organization is further subdivided into purchasing groups (buyer groups), which are responsible for day-to-day buying activities. A purchasing group can also act for several purchasing organizations. It is internally responsible for the purchase of a material or a class of materials. SAP Characteristics Key for a buyer of group of buyers responsible for certain purchasing activities Usage Purchasing groups can represent the buying responsibility groups such as: Raw Materials, Packing Materials, Capital Goods, A&SP procurement, Services - Admin, Finished Goods, Indirect Material- Plant, Indirect Material- HO Advantages Reporting can be consolidated at Purchasing group level. Purchase document release procedures based on value limits can be implemented.
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Agenda
Page 17
Material Management : Master Data
Objectives
Understand the concept of Master Data as it relates to the Materials Management module in SAP Be able to identify the different types of Master Data used in Materials Management Create and display Master Data in an SAP system
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Contents
1. 2. 3. 4. 5. 6. 7. 8.
Material Master Vendor Master Service masters Purchasing Info Records Source Lists Price Conditions Vendor Evaluation Bills of Materials (BOMs)
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Master Data
Master Data is a shared source of information that all departments can access and utilize to perform their jobs. Master Data
Finance/ Controlling
Materials Management
Page 20
Master Data
The processes of Material Management are based on various types of Master Data which are stored in Master Records.
MASTER DATA
Vendor
Materials
Purchasing Info Records
Master Records
Page 21
Material Master Data
Basic Data 1 Basic Data 2 Classification Sales: Sales Org. Data 1 Sales: Sales Org. Data 2 Sales: General/Plant Data Foreign Trade: Export Data Sales Text Purchasing Foreign Trade: Import Data Purchase Order Text MRP 1 MRP 2 MRP 3 MRP 4 Forecasting General Plant Data / Storage 1 General Plant Data / Storage 2 Warehouse Management 1 Warehouse Management 2 Quality Management Accounting 1 Accounting 2 Costing 1 Costing 2
Material Master
Material Type Material Group
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Material master in SAP.
The material master contains information on all the materials that a company procures, produces, stores, and sells. The material master is used by all components in the SAP Logistics System Different departments in a company work with the same material, so data in a material master record is subdivided in the form of user departments. Material description and Base unit of measure appear in all user departments.
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Use of material master in SAP logistics system functions.
In Purchasing for ordering materials.
In Inventory Management for goods movement postings and physical

inventory In Logistics Invoice Verification for posting invoices In FI for maintaining value of material.
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Material Numbers
Definition Number uniquely identifying a material master record, and thus a material. Use For every material that your company uses, you must create a material master record in the material master. This record is uniquely identified by a material number. Internal and External number assignment.
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Material Master Key points
The Material Master is used by several areas of the system in addition to Inventory. Some of these are Purchasing, Manufacturing, and Despatch.
Material masters must be created for all stocked materials, and can optionally be created for some non-stocked items (eg. Services). Raw Materials, Stocked Intermediates, Spare Parts and Maintenance Spares will definitely be in the SAP material master database.
Services and other non-inventoried items could be part of the SAP material master database. These will be confirmed as part of the BBP phase of the project.
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Material Master Views
SALES
BASIC DATA *
Description Unit of measure
STORAGE
Picking area Storage bin (fixed)
Basic data1 Purchasing Purchase order text Storage 1 Storage 2 Accounting 1
Product hierarchy Shipping details
PURCHASING
Purchasing group Delivery tolerance
WORK SCHEDULING
Production controller Prodn. Tolerances
MRP
MRP Type, or MPS MRP Controller Lot size key
ACCOUNTING
Valuation class Price control
Accounting 2
Company Level *
Plant Level
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User departments using same material master
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Industry Sector
It determines type of industry . Eg. mechanical industry,chemical industry,pharmaceutical etc. The industry sector you specify determines Which screens appear and in what sequence Which industry-specific fields appear on the individual screens
Code C M P A R Industry sector Chemicals Mechanicals Pharmaceuticals Plant Engineering & Construction Retail
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Material Types
Materials with the same basic attributes are grouped together and assigned to a material type. When creating a material master record, you must assign the material to a material type. The material type determines certain attributes of the material and has important control functions. Material Type Description Example
FERT
PIPE ROH HALB DIEN ERSA
Finished Products
Pipeline Materials Raw material Semi finished Services Spare Parts
Power
Gas, Oil, Electricity, Water, Utility supplies
Legal, Consulting, Construction services Nuts, gears, motors

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Vendor Master Data
General Data Address Control Payment transactions Company Code Data Accounting info Payment transactions Correspondence Withholding tax Purchasing Organisation Data Purchasing data Partner functions
Vendor Master
Company Code Purchasing Organisation
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Concept of vendor master in SAP
vendor master record is maintained by both Accounting and Purchasing.
A vendor can be a one time vendor or regular vendor

A vendor master record contains the vendors name and address, as well as data such as:
the currency used for ordering from the vendor

terms of payment names of important contact persons (sales staff)
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Vendor master
A Vendor Master Record stores information pertinent to a companys vendors. It contains 3 different types of Data which are used to support both Materials Management and Finance activities in SAP.
Vendor
Master Record
General Data
for all clients
Account Number Description Address
Purchase Data
for purchasing organization
Order Currency Incoterms (terms of shipping)
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Account Data
for company code
Control account Terms of payment Bank Details
Maintaining Partners
The business partner "vendor" can assume different roles in its dealings with another enterprise. Accordingly, in a procurement transaction, the vendor is first the order recipient, then the supplier of goods, then the invoicing party, and finally the payee. One or more of these roles may involve different vendor master records. The following partner roles are defined in the standard system: Vendor Order recipient Goods supplier Invoicing party Payee
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Service Master Record
Contains the description of a service Serves as a source of data when creating service specifications Contains the following: Service number and service category Descriptive texts Base unit of measure Material group Valuation class
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Info Records
Material Master
Vendors current price
Vendor Master
Info Record
To allow the assignment of product requirements to sources of supply, specific product and supplier information is combined and stored as one Purchasing Info Record.
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Concept of Purchasing info Record
An info record represents a material-vendor relationship.
The info record contains concise information about a vendor and a material that you already procure from that vendor.
Info records are created automatically when you order a material. You can also create, change, and delete info records. Use of Purchasing info record in PO creation Net price for the item will be defaulted in PO All the pricing conditions will be defaulted
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Info Records- Key points
Purchasing Info Records contain information on a specific material and vendor supplying the material including: Prices and conditions for the relevant purchasing organization or plant Tolerance limits for over deliveries and under deliveries. The info record allows buyers to quickly determine: Which materials have been previously offered or supplied by a specific vendor. Which vendors have offered or supplied a specific material. Used as default data in documents Can be valid for all plants or a single plant Can be created manually or automatically Ordering data updated automatically in the info record
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Concept of source list in SAP
A source list specifies the possible sources of supply for a material over a given period of time It shows the time period in which a material may be ordered from a given vendor Source list can be created automatically using generate source list option Source list can also be maintained manually. Uses of source list Fixed vendor Vendor blocking Auto PO creation
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Condition Technique
The most important elements in price determination are the following: Condition Type: Condition types represent price factors in the system. Condition Table: A condition table consists of one or more condition keys and a data part.
Access Sequence: An access sequence is a search strategy by means of which the system searches for valid records in various condition tables. Calculation Schema : A calculation schema groups together all condition types that play a part in calculating the price.
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Agenda:Day 2
Section 1. 2. 3. 4. 5 6 7 8 9 10
Page No.
Page 41
Procurement
Objectives
Understand the concept of Procurement as it relates to the Materials Management module in SAP
Be able to identify the key SAP procurement documents used in the Materials Management module
Execute key procurement transactions in the Materials Management Module
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Contents
1. 2. 3.
Procurement Cycle Purchase Requisitions RFQ/Quotation
4.
5. 6. 7.
Purchase Order
Release Strategy Procurement of Consumable Material Account Assignment
8.
Special Procurement Processes

Consignment Sub-contracting
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Procurement Cycle
Determine requirements and potential sources; negotiate with suppliers to set up agreements; create supply plans
Convert requisitions to Purchase Orders or create replenishment orders
Logistics Invoice Verification and payment
Goods delivered
Invoice receipt
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Purchasing - overview
The Purchasing component has the following tasks: external procurement of materials and services
determination of possible sources of supply for a requirement identified by the materials planning and control system
determination of possible sources of supply for a requirement arising directly within a user department monitoring of deliveries and payments to vendors
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Integrated Business Process Overview
FI
G/L Inventory / GRIR G/L GRIR/ Expense AP Invoice Vendor
Payment
MM
Requirement for Goods / Services Purchase Order Goods Receipt Invoice Verification
Financial and Managerial Reporting and Analysis
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Project Materials Planning
Procurement
Erection
Requirements
WBS
From Project or Project Stock Indicator
Commissioning
2 MM DMS 1 PS
Purchasing
Materials Planning
Purchase Requisition Design Document Goods Issue Cables PO-1 Generator PO-2 Purchasing Order
Goods Receipt
Page 47
Purchasing Documents
= Enquiries
Request for Quotations
Suppliers
Quotations
Blanket POs
Scheduling Agreements
Purchase Orders
Purchase Requisitions Material Reservations Contracts Info Records
Page 48
A purchasing document is an instrument used by Purchasing to procure materials or services. Types of purchasing documents Purchase Requisition Request for Material Procurement from user departments Or System generated as Output of MRP run Request for quotation (RFQ) Transmits a requirement defined in a requisition for a material or service to potential vendors . Quotation Contains a vendor's prices and conditions It is the basis for vendor selection.
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Purchase order (PO) The buying entitys request or instruction to a vendor (external supplier) to supply certain materials or render/perform certain services/works, It formalizes a purchase transaction . Contract In the SAP Purchasing component, a type of "outline agreement", or longer-term buying arrangement . The contract is a binding commitment to procure a certain material or service from a vendor over a certain period of time. Scheduling agreement Another type of "outline agreement", or longer-term buying arrangement. Scheduling agreements provide for the creation of delivery schedules specifying purchase quantities, delivery dates, and possibly also precise times of delivery over a predefined period .
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Release Strategy
A release strategy defines the approval levels through which a purchase document should be released
The release code determines who is authorized to release the document
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Release Procedures Procurement Cycle Overview and Terminology
Release procedures: Allow a company to maintain control over what is purchased. Can be defined for requisitions, purchase orders, contracts, and request for quotations. Employ a release strategy that defines what qualifications the purchasing document must have in order to be assigned the release strategy. Release strategies are based upon attributes of the purchasing documents that the company desires to implement control over such as value. Once a release strategy is assigned, it must be released by someone with the authorization to use the specified release code. (Segregation of Duties)
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52
Release Strategy - Example
Conditions
Releases Strategies Defined

Strategy Release Codes Team Lead 1 Team Lead 2 Project Manager
PO Value < 10000, approval by Team Lead
S1 S2
PO Value > 10000, approval by Team Lead
Release Strategy Applicable
Purchase Order Value = 4050
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The Types of procurement Cycles
Procurement of External Services
Standard Procurement Cycle

Subcontracting Procurement Cycle Consignment Cycle Pipeline Procurement Cycle Stock transfer Cycle Project Purchase Cycle
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Agenda: Day 3
Section 1. 2. 3. 4. 5 6 7 8 9 10
Page No.
Page 55
External Service Management
1. 2. 3. 4. 5. 6.
Service Procurement Cycle Service Master Record Service Purchase Order Service Entry Sheet Release Procedure Invoice Verification
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Services : Procurement Cycle
Page 57

Service no. 1540 - Texts - Units of measure
Service conditions 200
Service master record
PM
Plant Maintenance
Plant maintenance order
PS
Project System
Network
MM
Procurement
Purchase order
1
PReq.
Specs
Applications
SAP AG 1999
A service master record contains a service description and a unit of measure, for example, hour. You can assign a price to each service master record via the conditions. This data can be obtained from various SAP applications.
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Purchase Order for Service

Stock Material <=> Services
Purchase order # 12345 Jan. 27 Item 10 Material : Steel - 01 Order quantity : 250 pcs
Purchase order # 12345 Jan. 27 Item 10 Repair printing press
- Detailed description of service - Order quantity - Acct assgmt
? ? ?
Specs
Cost control via limits
!
Feb. 3
Service entry sheet Item 10
Oil filter changed M Cctr 123
Feb. 3
GR for PO 12345, item 10
Limit adhered to Release procedure
Acceptance
n Stock materials are subject to inventory management, whereas services are procured for direct consumption. n As well as the other account assignment categories, you can use the account assignment category U (unknown) for service items, as the account assignment is often not yet definite when the goods are ordered.
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SAP AG 1999
Materials are procured at item level.

n
Services are procured below item level. The item type D activates the service functions and controls or allows you to create service specifications.
An item contains a short text, which is a general description of what you intend to procure. The service specifications are an exact description of the service.
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The system stores services that have been performed in service entry sheets. The relevant postings are made in Financial Accounting and Cost Accounting when the service entry sheets are signed off. Service entry sheets can be entered and signed off in one transaction or in two steps. When entering services, you reference the purchase order. You can copy planned services directly from the purchase order into the service entry sheet. You do not give an exact description of unplanned services or their quantity and price details until you enter them. The system checks whether the unplanned services adhere to the limit defined in the purchase order. You can set up release procedures for service entry sheets.
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n The Logistics Invoice Verification procedure is carried out with reference to the purchase order. n This means that all service entry sheets signed off for this purchase order are suggested for invoice verification. n The system compares the prices on the invoice with the prices from the service entry sheets. n If there are no discrepancies, you can enter and post the invoice. n If the system finds any discrepancies, it blocks the invoice for payment.
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Service Entry Sheet
When entering services performed, you reference the purchase order. Planned services These can be adopted directly in the service entry sheet. Unplanned services In this case, a precise description, quantity, and price data are not provided until the services actually performed are entered into the system. The system checks whether the unplanned services conform to the limit set in the purchase order
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Agenda
Page 64
Objectives
MM Master Procurement Data
Inventory Managemen
Understand the concept of Inventory Management as it relates to the Materials Management module in SAP Be able to identify the key SAP Inventory Management activities and documents used in the Materials Management module Map PCBL Inventory Management Activities to SAP Execute key inventory management transactions in the Materials Management Module
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Contents
1. 2.
Overview Stock Types
3.
Material Movement
Movement Types Material Document Goods Receipt
4. 5.
Goods Issue
Transfer Posting Consignment Stock Subcontracting Stock Physical Count Cycle counting
Special Stocks
Physical Inventory
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Inventory Management Overview
Goods movements
Stock types
Movement types Material & accounting documents
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Inventory Management Overview
Inventory management involves the receipt, storage, control and disbursement of materials and supplies.
Goods are physically received
Goods are stored and movements are tracked
Goods are controlled (physical inventory)
Goods are either consumed or dispersed
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What is inventory management ?
SAP's Inventory Management system allows you to manage your stocks on a quantity and value basis The stocks are managed not only on a quantity basis but also by value - a prerequisite for cost accounting. With every goods movement, the following values are updated: the stock value for inventory management the account assignment for cost accounting the corresponding G/L accounts for financial accounting via automatic account assignment
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Integration with other modules
Integration in Materials Management (MM) As a component of Materials Management, Inventory Management is directly linked with Material Requirements Planning , Purchasing, and Invoice Verification. Inventory Management forms the basis for material requirements planning, which takes into account not only physical stocks but also planned movements (requirements, receipts). Quantities and values from the purchase order and the goods receipt document are checked to ensure conformity with those in the invoice.
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Stock Types
Indicate what quantities of the material are in what types of stock
Three main (frequently used) types: Unrestricted-use stock Stock in Quality inspection Blocked stock
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Stock Types
In Inventory Management, there are three stock types that indicate a materials usability. Unrestricted-use stock: A companys own stock that is physically located in the warehouse, is valuated, and is not subject to any restrictions on usage. Quality inspection stock: A companys own stock that is in quality inspection. Quality inspection stock is not valuated(in SPD) and is not for unrestricted use. Blocked stock: This refers to the quantity which is pending quality decision or excess supplies. It is not for unrestricted use in Inventory Management and it is not valuated.
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Stock Types in Goods Receipt
Goods Receipts
Unrestricteduse stock
Stock in Quality Inspection
Blocked stock
Scrapping / Sampling
Consumption
Transfer
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Documents for Goods Movement
Storage Location
Entry
Material Goods movement
Exit
When posting any transaction for goods movement, two types of documents are created:
Material document
Accounting document
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Material Movement
Documents for Goods Movements
The document principle also applies in IT-based Inventory Management. A document is the proof that a transaction involving stock changes has taken place. Documents are stored in the system. n A material document is created in the SAP System as proof of a transaction involving stock changes.
Warehouse Warehouse
Goods movements
Receipts
Material document
Accounting document
As soon as a goods movement is posted, the quantities, material, movement SAP AG 1999 type and organization level can no longer be changed. You can only change the text. If you want to correct errors, you must create a new document. You can reverse or cancel the incorrect document.
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Goods Movements
Vendor
Goods receipt
Storage Loc 2
Transfer posting
Storage Loc 1 Goods issue
Scrapping
Consumption
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Goods Movements
Definition of Goods Movement A goods movement is an event that causes a change in stock.
Stock Transfer Transfer of material from one plant to other plant or from one storage location to other storage location (Within same plant or belonging to two different plants) or one company code to another company code
Transfer Posting Changes in stock type or stock category of a material Not necessarily occur in conjunction with physical movement, e.g. transfer from quality inspection to unrestricted Examples of transfer postings are: Transfer Postings From Material to Material Release from quality inspection stock Transfer of consignment material into company's own stock
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Material Movement
A movement type is a three-digit identification key for a goods movement. A movement type must be entered to differentiate between the various goods movements.
Mov. type
101 102 301 309 321 349 311 551
Description
Goods receipt for Purchase Order into warehouse Goods receipt for Purchase Order into warehouse - reversed Transfer from one plant to another plant. Transfer posting from material to material Transfer Posting from QI to Unrestricted Stock Transfer posting from blocked stock to QI stock Transfer from storage location to another storage location. Withdrawal for scrapping
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Physical inventory
Every company must carry out a physical inventory of its warehouse stocks at least once per fiscal year to balance its inventory Stocks that can be inventoried unrestricted-use stock in the warehouse quality inspection stock Blocked stock
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Physical Inventory Process
The process of physical inventory can be divided into three phases: Physical inventory preparation Create a physical inventory document. Block materials for posting. Print and distribute the physical inventory document. Physical inventory count counting stocks entering the result of the count on the physical inventory document printout Physical inventory analysis entering the result of the count into the system initiating a recount, if necessary posting inventory differences If the difference is accepted, it is posted and stock is corrected.
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Physical Inventory Process Flow
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Types of Physical Inventory
Periodic Inventory In a periodic inventory, all stocks of the company are physically counted on the balance sheet key date. Continuous Inventory In the continuous inventory procedure, stocks are counted continuously during the entire fiscal year. In this case, it is important to ensure that every material is physically counted at least once during the year. Cycle Counting Cycle counting is a method of physical inventory where inventory is counted at regular intervals within a fiscal year. These intervals (or cycles) depend on the cycle counting indicator set for the materials. Inventory Sampling In MM Inventory Sampling [Ext.] randomly selected stocks of the company are physically counted on the balance sheet key date. If the variances between the result of the count and the book inventory balance are small enough, it is presumed that the book inventory balances for the other stocks are correct.
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Cycle Counting
Cycle Counting
n
Cycle counting is a method of physical inventory whereby material is counted at regular intervals within a fiscal year. These intervals (or cycles) depend on the cycle counting indicator set for each material.
Cycle counting allows fastmoving items to be counted more frequently than slowmoving items, for example.
Physical inventory
Cycle counting
Stock: Plant 0001
Stock
Indicator:
B B B C A
...
A B C D
Inventory frequency: 12 x 6x 4x 1x ...n x
SAP AG 1999
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Cycle Counting Setting the indicator

Setting the Indicator
All materials to be included in the cycle counting inventory are classified. This is done either manually, using a cycle counting indicator in the material master record (storage data), or automatically, by means of an ABC analysis. The cycle counting indicator allows you to classify materials into individual cycle counting categories (e.g.: A, B, C, D) In Customizing, you can then set different time intervals for inventory of different materials.
Memory
1.
Manually
Material Material master master record record Consumptionbased analysis
cc- A
2.
Via report (RMCBIN00)
Requirementsbased analysis
Analysis Material Text Value $ PP-001... 21,500 PP-008... 20,330 PP-015... CC CC Quantity new old Pc.
Plant 0001 No. Text CC CC 19,850 Material new old PP-001.. A 15,100 PP-008 A A PP-015 B B B A C A C C
...
SAP AG 1999
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Agenda Day 4
Section 1. 2. 3. 4. 5 6 7 8 9 10
Page No.
Page 85
Logistics Invoice Verification
Objectives
Understand the concept of LIV (3 way matching) as it relates to the Materials Management module in SAP Be able to identify the key SAP LIV options, activities and documents used in the Materials Management module Map PCBL Invoice Verification Activities to SAP LIV Cycle Execute key LIV transactions in the Materials Management Module
Page 86
Contents
1.
2. 3.
Logistics Invoice Verification Invoice Entry Invoice Posting Invoices with Variances Blocking Invoices Releasing Blocked Invoices Automatic Settlement Credit Memos and Reversals
Page 87
Logistics Invoice Verification : Overview
An incoming invoice can be posted with reference to a purchase order, goods receipts, or vendor. The invoice items are created automatically; the corresponding account postings are carried out automatically. After the invoice has been posted, the document appears as an open item on the vendor account (payment proposal list).
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Invoice Verification
Logistics Invoice Verification in Materials Management serves the following purposes: It completes the materials procurement process It allows invoices that do not originate in materials procurement (for example, services, expenses, course costs, etc.) to be processed It allows credit memos to be processed, either as invoice cancellations or discounts Logistics Invoice Verification does not handle the payment or the analysis of invoices.
The information required for these processes is passed on to A/C department.
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Invoice Entry
When an invoice is received at the Accounts Payable department, its details are entered into the SAP system to match the details of the Purchase Order and Goods Receipt Tolerance levels can be set for matching invoices in MM Unmatched invoices can be blocked for payment and trigger warnings and activities for the purchasing department
Purchase Req.
PURCHASE ORDER
No. 890 ORDER PURCHASE
Vendor No. 1304
Purchase Order
PURCHASE ORDER
No. 890
Vendor No. 1304
No. 890 ORDER PURCHASE

Vendor No. 1304 Item No. 27
No. 890 ORDER PURCHASE No. 890 ORDER PURCHASE No. 890
Vendor No. 1304 Item No. 27 SUBSTITUTE ITEM Item No. 27 SUBSTITUTE ITEM SUBSTITUTE ITEM SUBSTITUTE ITEM SUBSTITUTE ITEM
Item No. 27
SUBSTITUTE ITEM
Goods Receipt
Invoice Verification
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Invoice Entry
n If there are discrepancies between the purchase order or goods receipt and the invoice, the system warns the user, and depending on how the system is configured, blocks the invoice for payment. The posting of the invoice completes the Logistics Invoice Verification process. The system updates the purchase order history and Financial Accounting initiates payment for the open invoice items. Logistics Invoice Verification creates a link between Materials Management and external or internal accounting.
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Preliminary Posting
When an invoice is parked, the data entered is saved (even when the entries do not balance). However, no postings are made. A parked document can be changed as often as you like. The actual checks are only made within the function Post parked document. Account postings are made when a parked document is posted. Parked documents are recorded in the purchase order history. Preliminary posting is linked to Workflow. You can branch directly from Logistics Invoice Verification to Preliminary Posting.
Preliminary Posting
Invoice
Park
Doc. 51000123 Change Vendor 100 GR/IR 100 + Post Document Vendor 100 GR/IR 100 +
SAP AG
GR/IR Account Vendor Account
Purchase Order History Goods receipt Invoices Parked invoices
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Posting an Invoice
When an invoice is posted, the following occurs: the individual items are posted to the corresponding accounts a document is created the material master is updated the purchase order history is updated
Posting an Invoice
Invoice for purchase order Posting
A
XX
GR/IR Account Vendor Account
B
XX
Doc. no. 51000123 Vendor GR/IR 100 100 +
Material master Moving Avg Pr value
Purchase order history goods receipts down-payments invoices
UNIT 7.PPT 11/28/97 / 1
SAP AG, 1997
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Blocking the invoice
When an invoice is blocked, Financial Accounting cannot pay the invoice. The invoice must first be released in a separate step before it can be processed. Variance Variances in an Invoice Item
Quantity variance (M) Price variance (P) Variance in order price quantity (G) Schedule variance (T) Quality inspection (I)
Invoice GR 40
Goods receipt
Quantity
50 pcs Invoice
Purchase order $ 5.00
Price
@ $ 6.00 Invoice 10 pcs = 250 g
Goods receipt 10 pcs = 200g
Purchase order price quantity Invoice = 2 kg 10 pcs = 2.5 kg
Purch.Order 10 pcs @ $20/kg Purch.Order
Invoice Date 12.11.96

UNIT 7.PPT 11/28/97 / 1
Planned delivery date 12.21.96

SAP AG, 1997
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Credit memos
The term credit memo always refers to a credit memo from the vendor. Posting a credit memo always leads to a debit posting to the vendor account. Two types of credit memos are possible: Credit memos that refer to a purchase order or goods receipt Credit memos that do not refer to a transaction. Processing of credit memos is same as invoice verification
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Credit Memos and Reversals

Credit Memos
n You usually receive a credit memo from a vendor if you were overcharged. n A credit memo can be entered with reference to a purchase order or a goods receipt. n If you enter a credit memo for a purchase order item because the vendor has invoiced you at too high a price, you must post the credit memo as a subsequent debit/credit. The total quantity invoiced for the purchase order item remains the same; the total value invoiced is reduced.
Purchase order
4151599035 100 pcs 10.00 UNI/pc.
Invoice
PO 4151599035
Credit memo
PO 4151599035
80 pcs 800 UNI
30 pcs 300 UNI
Create credit memo

PO 4151599035
Goods receipt 50 pcs
Invoice
PO 4151599036
Credit memo
PO 4151599036
Purchase order
4151599036 100 pcs 10.00 UNI/pc.
50 pcs 800 UNI
50 pcs 300 UNI
Create subsequent credit

PO 4151599036
SAP AG 1999
Page 96
Agenda
Material Management Organizational Elements Master Data Procurement Cycle
Page 97
Material Valuation
Objectives
Understand Material Valuation concepts used in the MM module. Understand the Valuation Structure such as Valuation Level Valuation Class Split Valuation Valuation Category Valuation Type Understanding the Valuation Procedure & Price Control Understand the Logic of Account Determination
Page 98
Transactions Involved in Material Valuation
Transactions in Inventory Management that affect Accounting are goods receipts, goods issues and transfer postings (for example, a stock transfer between two plants or a transfer posting from one material to another). These transactions can change the valuation price of the material, depending on the type of price control. Postings in Logistics Invoice Verification can also affect Material Valuation.
Transactions Involved in Material Valuation

Requirements determined in requirements planning
External procurement Purchasing
Internal procurement Production
Master data Invoice Verification Invoice receipt Inventory Management

A
Goods receipt
Warehouse Management
Goods issue
Transfer posting
Material Batch Vendor G/L account Customer Storage locations . . .

R
Internal and external accounting

SAP AG
SD
Page 99
Material Valuation Levels
Inventory management for values and quantities always takes place at the level of the valuation area.

Valuation area = Company code: You create valuation data for a material for each company code. The price control and price of a material are valid per company code. This ensures that a material is valuated at the same price in all the plants belonging to a company code. Valuation area = Plant: You create valuation data for a material per plant. The price control and price of a material are valid per plant. This enables the same material to have different values in different plants.
0001
Company code Valuation area
Plant
SAP AG
Page 100
Valuation Class
You can use the valuation class to combine materials for assigning G/L accounts so that you do not have to manage a separate stock account for each material. You maintain the valuation class in the Accounting view of the material master record. The valuation class allowed for a material depends on the material type, and can be configured in Customizing. In automatic account determination, the R/3 System works with valuation classes. The valuation class is used to determine which stock account is to be updated upon goods movements.
Page 101
Split Valuation
For certain materials, it is necessary to valuate the various stocks in a particular valuation area separately. Reasons for this include: Different origins of the material Different grades of quality for the material Different statuses for the material Differentiation between in-house production and external procurement Differentiation between different deliveries Features If a material is subject to split valuation, the material is managed as several partial stocks, each partial stock is valuated separately. Each transaction that is relevant for valuation, be it a goods receipt, goods issue, invoice receipt or physical inventory, is carried out at the level of the partial stock. When you process one of these transactions, you must always specify which partial stock is involved. This means that only the partial stock in question is affected by a change in value, the other partial stocks remain unaffected. Alongside the partial stocks, the total stock is also updated. The calculation of the value of the total stock results from the total of the stock values and stock quantities of the partial stocks.
Page 102
Split Valuation
The valuation category indicates whether the stocks of the material are subject to joint or split valuation. The valuation category is a key that defines the criteria used to differentiate between sub-stocks. It also defines the valuation types that are allowed. The valuation type is a key that identifies stocks of a material that are subject to split valuation. It defines the form of a sub-stock. You enter the valuation category in the material master accounting data for each company code in which the stock is subject to split valuation.
You define valuation categories and valuation types in Customizing. You also define the assignment of valuation types to a valuation category, the valuation categories that are allowed in a company code, and special indicators according to the requirements of your company.
Page 103
Valuation Procedure and Price Control
In the R/3 System, material valuation can be carried out according to the moving average price procedure (V price) or the standard price procedure (S price).
In the standard price procedure (price control S), the system carries out all stock postings at a price defined in the material master. Variances are posted to price difference accounts. In the moving average price procedure (price control V), the system valuates goods receipts with the purchase order price and goods issues with the current moving average price. The system automatically calculates the latter upon every goods movement by dividing the total value by the total stock quantity. Differences between the purchase order price and the invoice are posted directly to the relevant stock account if there is sufficient stock coverage.
Page 104
Valuation Procedure and Price Control
You set the material valuation procedure you want to use in the accounting view of the material master record. In the R/3 System, you can carry out material valuation using the standard price procedure or moving average price procedure.
Irrespective of the valuation procedure set in the material master record, the system increases the stock quantity by the relevant goods receipt quantity when you post a goods receipt into stock.
Page 105
Managing Supplier Relationship
Objectives
Understand the concept of MSR as it relates to the Materials Management module in SAP Identify and map the key criteria for Vendor Evaluation Execute key procurement transactions in the Materials Management Module
Page 106
Contracts
Contracts
Contracts are outline agreements. They do not contain details of the delivery dates for each of the items. To inform vendors of which quantities you need for which date, you enter contract release orders for a contract. A release order is a purchase order that references a contract.
Manual
PReq.
10 20 30
RFQ
10 20 30
Contract
10 20 30
Contract
10 20 30
Info record 5300007152 Vendor: 1234 Material: Nail A21 3000 PurchOrg: Conditions Price/UoM 6 UNI / kg Freight 2% Discount 5% Last purch. order: 4500019324
Vendor
Release documtn
Contr. rel. ord.

...
SAP AG 1999
Page 107
Contracts
A contract is a longterm agreement with a vendor concerning the supply of material or performance of services. You can create contracts manually. When doing so, you can reference other contracts, purchase requisitions, and RFQs or quotations. One of the things you define in the contract header is the validity period. For each item in a quantity contract, you define the target quantity and purchase order conditions.
Page 108
Contracts
Plant Contract/Centrally Agreed Contract
Contract items can relate to a single plant or to all plants covered by a purchasing organization (centrally agreed contract). All the plants of a purchasing organization can order against a centrally agreed contract.
Contract 1
Plant 1000 Item Mat. 10 1 Plant
Plant 2000
Contract 2
Item Mat. 10 2 Plant 3000
An enterprise working with a central purchasing organization covering several Plant 3000 plants can negotiate better conditions at a high level. Centrally agreed contracts can be entered into with a vendors entire corporate group. The individual contract release orders can be issued to different individual companies belonging to the vendor corporate group. This is made possible by the partner functionality.
SAP AG 1999
Page 109
Contracts
Plant Conditions in Centrally Agreed Contracts
Items of a centrally agreed contract do not relate to just one specific receiving plant. All the plants covered by a purchasing organization can order against a centrally agreed contract.
Contract
Vendor Period Material Total qty. Price :A : 01.01.12.31. :1 : 10,000 pcs. Plant conditions : 100.00 Plant 1000: surcharge 5%
Release order
Vendor Material Plant Qty. Price :A :1 : 1000 : 100 pcs. : 105.00
Plant 2000: surcharge 3% Plant 5000: surcharge 3%
An enterprise that works with a central purchasing organization covering several plants can negotiate better conditions at a high level.
SAP AG 1999
Using the Plant conditions function, the centrally agreed contract allows you to stipulate separate prices and conditions for each receiving plant. Among other things, you can take account of differing transport costs for different supply routes.
Page 110
Function of Vendor Evaluation
The vendor evaluation functionality supports you in optimizing the procurement process. It facilitates the process of source selection and the ongoing surveillance of existing supply relationships.
Function of Vendor Evaluation

Price Price simulation simulation for for material material 1 1 Vendor Vendor A A Vendor Vendor C C Vendor Vendor B B 10.20 10.20 9.90 9.90 11.80 11.80
General General vendor vendor evaluation evaluation

Overall Overall Price Price Qual. Qual. Deliv. Deliv. Service Service Vendor Vendor B B Vendor Vendor A A Vendor Vendor C C 90 84 81 92 75 90 90 92 76 93 88 74 85 81 84
Evaluation Evaluation for for material material 1 1

Overall Overall Price Price Qual. Qual. Deliv. Deliv. Service Service 88 90 80 81 94 85 93 92 82 92 88 79 86 86 74
SAP AG
Page 111
Scoring Level in Vendor evaluation
The evaluation of a vendor is reflected in the latters overall score. This is a combination of the scores the vendor achieved for each of the main criteria. The scores for main criteria and subcriteria reflect a vendors performance more accurately than the overall score. The scores achieved by a vendor for the individual criteria may be of varying significance to you. The weighting factor takes account of this fact. Sub-criteria are divided into manual, semi-automatic, and automatic criteria, according to the method by which the scores awarded for them are determined.
Scoring Levels in Vendor Evaluation

Overall score
Weighted Scores for main criteria
Weighted Scores for subcriteria
Individual scores
SAP AG
Page 112
Evaluation Criteria
Overall Performance
Overall score for vendor

Weighted
Price
Quality
Delivery
Support
External Service
Score for main criteria

Weighted
Price level Price history
Goods receipt Quality audit Rejection level
On-time delivery Quantity reliability Shipping instruct. Confirmation date Sub-criteria with automatic scoring
Score for sub-criteria
Page 113
Analyses of Vendor evaluation
The ranking list sorts your vendors in descending order according to their overall scores. This gives you an overview as to which vendors rank among the best, which perform moderately well, and which are below average. The list of evaluations per material or material group provides you with a ranking list based on a certain material or material group. This analysis enables you to determine which vendors of a particularly important material have performed well, moderately well, or poorly. The evaluation comparison is an analysis that compares the general evaluation of a vendor with the latters evaluation in respect of a certain material.
Analyses in Vendor Evaluation

Ranking Ranking list list General vendor evaluation General vendor evaluation
Overall Overall Price Price Qual. Qual. Deliv. Deliv. Service Service Vendor B Vendor A Vendor C 90 84 81 92 75 90 90 92 76 93 88 74 85 81 84
Evaluation per material/material group General General vendor vendor evaluation evaluation
Overall Overall Price Price Qual. Qual. Deliv. Deliv. Service Service Vendor A Vendor C 84 81 75 90 92 76 88 74 81 84
General vendor evaluation

Vendor A 84 75
Evaluation Evaluation comparison comparison Evaluation Evaluation for for material material 1 1
92 88 81 88 81 93 92 86
Overall Price Qual. Deliv. Service Overall Overall Price Price Qual. Qual. Deliv. Deliv. Service Service
SAP AG
Page 114
Material Requirement Planning Overview
Materials Requirements Planning The main function of SAP Material Requirements Planning is to guarantee material availability, it is used to procure or produce the requirement quantities on time both for internal purposes . This process involves the monitoring of stocks and, in particular, the automatic creation of procurement proposals for purchasing .
Page 115
Reorder Point Planning
Reorder Point Planning Variables > Safety Stock Expected average material consumption Replenishment Lead time Types Manual Automatic A Manual Reorder Point Planning Input Reorder Point Safety stock B Automatic Reorder Point planning System Calculates Reorder Point Safety stock
Page 116
Re-order point planning

Reorder Point Planning
n The manual reorder point procedure uses the MRP indicator VB. n The reorder point procedure is based on a comparison between the warehouse stock and the reorder point. If the available warehouse stock is less than the reorder point, the system initiates requirements calculation.
Stock
Lot size
Reorder point Safety stock
Reorder point
Delivery time
Time
Replenishment lead time
n The reorder point comprises the expected average material requirements during the replenishment lead time and the safety stock. The following values have to be taken into account when the reorder point is defined: The safety stock. Prior consumption or future requirements. The replenishment lead time. n The safety stock is used to cover unplanned excess consumption during the replenishment lead time and additional requirements in the case of delivery holdups.
SAP AG 1999
Page 117
Re-order point planning
n In reorder point planning, the available warehouse stock is calculated from the following: Warehouse stock + order quantity (purchase orders, firm planned orders, and firm purchase requisitions). n If the available warehouse stock is less than the reorder point, there is a shortage of materials. n The shortage quantity is the difference between the reorder point and the available warehouse stock. The purchase order quantity is derived from the lotsizing procedure in the material master record. The system bases the requirement date on the planning date
Page 118
Thank You
Page 119

2011-1-Training Manual On Material Management

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HPPCL-MM-TRG-V2

Training Manual Materials Management

Materials Management Overview

Materials Management Overview

What is Materials Management ?

Requisition Planning Purchase Requisitions RFQs Contracts Purchase Orders

Materials Vendors Information Records

Materials Management Overview

Purchasing Info Records

Materials Management Overview

This diagram illustrates a typical SAP-supported procurement cycle.

Material Management Overview Organizational Elements Master Data Procurement Cycle

Materials Management Organizational Elements

Company Code Purchasing Organization

Plant Storage location Storage location

Plant Storage location Storage location

Regional sales office Manufacturing facility Corporate headquarters

Central distribution center

Purchasing Organization and Group

Organisational Elements in MM Purchasing:

Centralized Vs Decentralized Purchasing

Material Management Overview Organizational Elements Master Data Procurement Cycle

Material Management : Master Data

Purchasing Info Records

Material Master Data

Material Type Material Group

Material master in SAP.

Use of material master in SAP logistics system functions.

In Purchasing for ordering materials.

In Inventory Management for goods movement postings and physical

Material Master Key points

Material Master Views

Basic data1 Purchasing Purchase order text Storage 1 Storage 2 Accounting 1

Product hierarchy Shipping details

User departments using same material master

Legal, Consulting, Construction services Nuts, gears, motors

Vendor Master Data

Company Code Purchasing Organisation

Concept of vendor master in SAP

vendor master record is maintained by both Accounting and Purchasing.

A vendor can be a one time vendor or regular vendor

the currency used for ordering from the vendor

Service Master Record

Vendors current price

Concept of Purchasing info Record

An info record represents a material-vendor relationship.

Info Records- Key points

Concept of source list in SAP

Execute key procurement transactions in the Materials Management Module

Procurement Cycle Purchase Requisitions RFQ/Quotation

Special Procurement Processes

Convert requisitions to Purchase Orders or create replenishment orders

Logistics Invoice Verification and payment

Integrated Business Process Overview

Financial and Managerial Reporting and Analysis

Project Materials Planning

From Project or Project Stock Indicator

Purchase Requisitions Material Reservations Contracts Info Records

Release Procedures Procurement Cycle Overview and Terminology

Release Strategy - Example

Releases Strategies Defined

PO Value < 10000, approval by Team Lead

PO Value > 10000, approval by Team Lead