PROCUREMENT CYCLE

BY V.V.S.SUBRAHMANYAM

PROCUREMENT CYCLE

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The basic procurement cycle has the following stepsDetermination Of Requirements Determination Of The Source Of Supply. Vendor Selection. Raising Of Purchase Order. Goods Receipt Invoice Verification Payment Processing

1)DETERMINATION OF REQUIREMENT

There is a requirement of material or service, which must be procured externally, from the user. The requirement must be recorded as Purchase Requisition (PR) document in SAP MM Purchase Requisition (PR) is an internal purchasing document used to give notification to responsible department about the requirement of material/service and to keep track of such requirement. PR can be created directly in SAP MM module with ME51N.
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2)DETERMINATION OF SOURCE OF SUPPLY

The buyer of the procurement department must determine the possible sources of supply of the material/service specified in the PR. With ME57 , the buyer can check in the SAP whether the material/service needed can be obtained from the existing outline agreement (contract or scheduling agreement) documents or not. If there is no existing outline agreement, the buyer can also check whether there is an existing info record documents (which contain information about the price and delivery conditions of the material/service agreed with vendor in the last Purchase Order/PO) that still can be used (valid) as a reference to create new PO to the same vendor
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2)DETERMINATION OF SOURCE OF SUPPLY

The buyer can create Request For Quotation (RFQ) documents to one or some prospective vendors. Request For Quotation (RFQ) is an external purchasing document that usually used as bidding process invitation. RFQ is sent by a company to the prospective vendor to request the vendor to provide a quotation which contains information about the price and delivery conditions, terms of payment, etc that the vendor formally agree in case it is appointed to provide the material/service to the company. In the RFQ, the buyer must include the information about the material/service needed from the vendors (can be copied from the PR), the latest submission date of the quotation, the preferred term of delivery, term of payment, currency, etc.
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3)VENDOR SELECTION

The vendors will send their quotations which include the information about the price, delivery terms, terms of payment, etc that they offered to the company The buyer can input that information into SAP with ME47. With ME49,the buyer can compare the offering of all vendors that have sent their quotation. The comparison can be used to determine which vendor should be appointed to provide the material/service to the company.
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4)RAISING OF PURCHASE ORDER (MM)

In this step, the buyer creates a Purchase Order (PO) based on the PR. Purchase Order (PO) is a legally binding document that issued by a company to a vendor which contains information about description, quantity, delivery date, agreed prices, terms of delivery, and terms of payment for material or service the vendor will provide to the company
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5)GOODS RECEIVED FROM VENDOR ( MM AND FI )

When the vendor delivers the material or perform the service, the responsible person of the company must perform the goods receipt (GR) or service acceptance (SA) transaction. The GR/SA will update the PO history. If the PO item is an inventory material, the GR will increase the stock level of the material.

5)GOODS RECEIVED FROM VENDOR ( MM AND FI )

When we perform the GR for the PO item for the first time, SAP will propose the quantity to be GR as the PO order quantity Depending on the delivery terms agreed with the vendor, the vendor might deliver the material partially. We can post the GR partially too, so when the next material delivery is received, SAP will propose the quantity to be GR as the remaining quantity that has not been GR yet.
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5)GOODS RECEIVED FROM VENDOR ( MM AND FI )

The following will be the entry which will appear in FI Raw Material Inventory a/c Dr. GR/IR clearing a/c Cr.

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6)Invoice verification and quality assurance (FI and MM)

After the vendor delivered the material/service, he will send the invoice to the person responsible in the company. Invoice is a formal document issued by a vendor to the company to request the payment for the material or service that the vendor has already supplied to the company according to the terms of payment agreed in the PO. An invoice is usually attached with the delivery note (goods receipt) document.

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6)Invoice verification and quality assurance (FI and MM)

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The person responsible will perform the three way matchesHe will check whether the invoice (IR) information (such as price, terms of payment, etc) is the same with the PO. Whether the PO item has been received (GR/SA) If yes, then he will post the Invoice Receipt (IR) transaction in MM module
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6)Invoice verification and quality assurance (FI and MM)

The following will be the entry which will appear in FIGR/IR clearing a/c Dr Vendor a/c Cr

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7)PAYMENT PROCESSING

After the IR transaction has been posted, the vendors account payable will increase and the company must process the payment to that vendor as stated in the terms of payment of the PO The following will be the entry which will appear in FIvendors account payable Dr cash or bank account Cr
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