Procurement Process

Procurement
Processes
EGN 5620 Enterprise Systems Configuration
Spring, 2012
Procurement Process
Concepts & Theories
Procurement Process
1.
2.
3.
4.
5.
6.
7.
8.
Requirements Determination Requisition

request
Request for Quotation (RFQ)
Vendor Selection
Order Processing - Purchase Order
Order Tracking
Goods Receipt and Inventory Management
Invoice Receipt and Verification
Payment
January 2008
SAP AG - University Alliances and

The Rushmore Group, LLC 2008. All
rights reserved.
Purchase Requisition (Request)

Is
an internal document
Requests a certain quantity of certain
material (or service) on a certain date
Is generated:
Manually
MRP (automatically), or
Sales orders, etc.
With
an optional request approval (or

release) procedure
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rights reserved.
Purchase Requisition Sources

Non-inventory
items: manually specified

by the user department for:
Office supplies,
Project-specific materials, and
Prototype materials
Inventory
items: automatically created by

a MRP/MPS planning mechanism for:
Plant Maintenance
Production Orders
Sales Orders
January 2008

rights reserved.
Purchase Requisition Data

Default
data for line items
(from the material

master, vendor info record, & user preferences)
Delivery dates,
Plants, storage location
Purchasing groups, etc.
Individual
line item data
Material,
Quantity,
Delivery date
Account
assignment (if required)
Cost center,
General Ledger accounts,
Project number, etc.
Check
data
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rights reserved.
Quotation Process
1.
2.
3.
4.
5.

Maintaining a Quotation
Comparison of Prices
Creating a Contract
Creating a Release Order
January 2008

rights reserved.

Is
an invitation to a vendor to indicate

their terms and conditions (in particular,
their price) for the supply of a material (or
service) by submitting a quotation
Identifies the required material, quantity,
and delivery dates
January 2008

rights reserved.
Request for Quotation
An RFQ is an invitation to a vendor by a Purchasing

Organization to submit a bid for the supply of materials or
services
The accepted quotations will generate Purchasing
Information Records
Perform Quotation Price Comparisons
Finally Select a Quotation
P.O.
4512
Quote
Vendor 1
Pur
Req.
generate
RFQ
Vendor 2
Quote
Vendor 3
Quote
Eval.
Reject
Letter
Maintaining a Quotation
1.
2.
3.
4.
Enter each vendor's quotation in the

associated Request for Quotation (RFQ)
Compare prices using the price
comparison list
Store the best quote in an info record
Optionally, send rejection letters to the
losing bidders
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10
Vendor Evaluation
Evaluate vendors (for sourcing) with respect to:
Price
Price Level
Price History
Quality
Goods Receipt
Quality Audit
Complaints/Rejection level
Delivery performance
On-time delivery
Quantity reliability
Compliance with shipping instructions
Confirmation Date
A scoring range (1 -100) may be used with weight factors to
score each identified/qualified vendor.
Comparison of Prices
Compares
the prices from all quotations

from the competitive bidding process using
a price comparison list
Ranks the quotations in the comparison list
by item from the lowest to highest price
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12
Creating a Release Order

Release
order is a purchase order that

references a contract; it specifies:
Number of the contract
Quantity to be released
Delivery date
When
a release order is created, release

order documentation is automatically
updated against the contract (including
open quantity, quantity released to date,
total value)
January 2008

rights reserved.
13
Creating a Release Order (2)

The
vendor data, price data, and the

delivery terms and conditions are copied
directly to the release order
Release orders can be created from a
proposed purchase requisition generated
off a MRP run (net requirements)
Automatically
Manually
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14
Purchase Orders
Purchase
Orders are:
Purchase
Orders specify:
a formal request to a vendor to provide materials or services

An internal planning and tracking tool
Vendor
Material and/or service
Quantity and price
Delivery dates
Terms of payment
purchase order can be for variety of purposes:

Standard Stock or Consumption
Services
Subcontracting
Consignment
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15
Procurement Processes
SAP Implementation
Business Process Integration

FI
MM
SD
Data
Master
Rules
FI
MM
SD
FI
FI
MM
MM
SD
SD
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17
Business Process Integration

Purchase Process
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18
Rules (review)
Rules
define the parameters for Master

Data and Transactions
Rules determine functionality for Master
Data and Transactions
Rules are relatively fixed
Rules change, when corporate policy
changes
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Rules (review)
Material Management
Fiscal Periods
Account Groups
Material Types
Plant Parameters
Purc./Rec./Inv.
Tolerances
Automatic Account
Assignment
Reservations
Material Group
Loading Group
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20
Transaction Data (review)

Transaction
data are application data; each

transaction is dynamic and unique, unlike
master data and organization data which
do not change very often.
Transaction data use (is comprised of)
organization data, master data, and rules
Transaction data includes internal and
external exchanges that describe business
activities
January 2008

rights reserved.
21
Purchasing in SAP R/3 (review)

The
purchasing process resides in the Materials

Management (MM) module of SAP R/3 as well as
the Finance (FI) module
Master
data for the purchasing process exists in

the (MM) and (FI) modules
The
purchasing process may interface with the

modules below:
Production Planning (to plan for production),

Quality Management (to check quality at receipt), and
Warehouse Management (to put away)
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22
Procurement Process (Procure-to-Pay)

Purchase
Requisition
Purchase
Order
Notify
Vendor
3-Way
Match
Payment
to Vendor
Invoice
Receipt
January 2008
Vendor
Shipment
Goods
Receipt
SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights
reserved.
23
Create & Save Purchase Order
Purchase Order in SAP

Three sections in a
purchase order:
Header
Item overview
Line item
Purchase Order Structure

Header
Vendor
Purch. Org.
Purch. Org. group
Company
Date
PO Price
Item Overview
Purchase
Order
45......01
Materials
Quantities
Delivery Date
Price/UofM
Currency
Plant
Line Item
PO History
Line Price
Delivery Schedule
Tolerances
Storage
Purchase Order Structure:

Header
Header
- information specific to the entire

purchase order
Vendor
Purchase organization data
Condition (total purchase price)
Partner
Payment process
Status
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27

Line Items
Line item purchasing information
required for the item
Item category
Material ID and description
Material or service quantity
Delivery date
Net price
Currency
Plant
Storage location
Measurement unit
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Item Details
Material data for the item
Quantity/weight
Delivery schedule
Invoice
Conditions (Purchasing price for the item)
Delivery address
Confirmation
Condition control
Subcontracting
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29
Purchase Order: Output Format

Printed
and mailed
E-mail
Electronic
Data Interchange (EDI)

Faxed (hardcopy or electronic)
eXtensible Markup Language (XML)
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30
Search Purchase Orders

You
can search for the purchase order

number with
Material number,
Vendor number, etc.
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31
MM: Goods Receipt
Notify Vendor
Purchase
Order
45......01
Vendor
Receipt
Shipment
Goods Receipt Movement Types

Movement
types - stock transactions
Goods receipt (from a vendor or production)

Goods issue (to customer or production/use)
Stock transfer (from one SL to another)
Movement
type determines which
Quantity fields are updated

Stock types are updated
General Ledger (G/L) stock or consumption
accounts are updated
Fields are displayed during document entry
January 2008

rights reserved.
33
Material Movements
When
a goods movement takes place it is

represented by a Movement Type
Movement types are three-digit keys used to
represent a movement of goods
101 goods receipt into warehouse
102 - reversal of goods receipt for purchase
order into warehouse/stores
103 goods receipt into GR blocked stock
122 return delivery to vendor
501 - receipt w/o purchase order into
unrestricted-use stock
Goods Receipt
Goods
receipt is a goods movement

activity in which we accept goods into our
system.
If materials are delivered against a
purchase order we will reference that
order and SAP can:
retrieve data from the PO for us to verify:
material, quantity, and so on
Update inventory G/L account automatically
Update purchase order history with the receipt
Update physical inventory
Goods Receipt Destinations

Goods
receipt into (destined for) the warehouse
Goods
receipt into consumption
Goods
receipt posted into blocked stock
SAP increases total valuated stock by the delivered quantity.

SAP updates the stock value at the same time.
SAP only updates the consumption statistics in the material
master record
SAP does not update the consumption statistics if the goods
movement posting uses the special stock types: sales order
stock type and project stock.
SAP maintains the same stock level.

SAP only records it in good receipt block stock of the purchase
order history.
Note:
If goods receipt is being posted into a storage location where

data does not yet exist for the material, SAP automatically
creates a storage location data in the material
master
record.
SAP
AG - University
Alliances and
January 2008

rights reserved.
36
Goods Receipt Effects

Purchase
Order (PO) history and Purchase

Order (PO) updated
Material Master - stock and value updated
Notification of goods receipt issued
(optional)
Transfer request to the Warehouse
Management module (if active)
January 2008

rights reserved.
37
Goods Receipt Effects

(continued)
Material
and financial documents created

and/or updated
Stock and consumption accounts updated
Inspection notification in the Quality
Management (QM) module - if active
January 2008

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38
Goods Receipt Account Postings

Inventory
account is debited at standard
price
Goods Receipt/Inventory Receipt (GR/IR)
clearing account is credited at purchase
order price
Price difference account is debited
(credited) with difference between
standard price and purchase order price
January 2008

rights reserved.
39
Goods Receipt Account posting

Purchase requisition
Purchase order
Goods receipt
Inventory (account)
Dr Cr
$100
No impact on
Financial Accounting (FI)
Materials Management (MM)
and Financial Accounting (FI)
via automatic account
assignment
GR / IR
Dr
Cr
$100
Invoice Receipt Process

Tasks:
Engage
in 3-way match to validate the invoice.

Enter PO number to retrieve the PO and view
(verify)
Open dollar amount.

Quantity,
Price,
receiving date,
Vendor name
Enter
the invoice number and the dollar amount to

be paid
Simulate invoice posting
Post the invoice in SAP
January 2008

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41
3-Way Match for Payment

Purchase
Order
Payment
Program
Invoice
Receipt
Debit Credit
Verification
Goods
Receipt
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42
Invoice Processing - 3-Way Match

Incoming Invoices are reference against a Purchase Order to
verify their content, prices, and arithmetic.
If discrepancies arise between the purchase order or goods
receipt and the invoice the system with generate a warning
or an error
Depending on system configuration the difference could cause the
system to Block the Invoice
Purchase order
- Target quantity - Target price -
Invoice receipt
- Actual price -
Goods receipt
- Actual quantity -
Invoice Verification - 3-way match

Matches
the vendors invoice to the

purchase order and the goods receipt (3rd
part of 3-way match)
Matches price and quantity
Updates the purchase order and its
history
Updates accounting information
January 2008

rights reserved.
44
Financial effects of Invoice Posting

When an invoice is posted, SAP shifts the
liability
From the Goods Receipt/Invoice Receipt
account (for the purchase order)
To the vendor account
Upon posting, SAP:
Updates the Purchase Order
Updates the Material Master
Creates an Accounting Document
Initiates the payment process within
Financial Accounting
Invoice Receipt Reconciliation

Account
Amount owed is
assigned and transferred to
vendor account payable
Invoice receipt
GR / IR
Vendor
Dr
Dr
$100
Cr
Cr
$100
A/P
Dr
automatic
posting
Cr
$100
Accounts Payable
Reconciliation Account
Vendor 100234
200
Vendor 100435
250
Accounts Payable (AP)

Reconciliation
950
Vendor 100621
100
Vendor 100846
400
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47
Invoice Payment
Selects
invoices for payment based on the

payment terms in the vendor master or
purchase order
Generates payment for released invoices
Updates accounting information
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48
Accounts Payable Settlement

Process
Determines:
Which open items to be paid

When they will be paid
Which bank to make payment
Payment medium
Who will get paid
Payment
process creates a financial

accounting document to record the
transaction
January 2008

rights reserved.
49
Payment to Vendor
Can be done automatically or manually
Post Outgoing Payment vs. Payment Program
Elements of the Payment Transaction:
Payment Method
Bank from which they get paid
Items to be Paid
Calculate Payment Amount
Print Payment Medium
Process will create a financial accounting
document to record the transaction
Vendor Payment
Amount owed is paid to
vendor and account payable
is reduced
Bank
Vendors
Dr
$100
A/P
Dr Cr
Cr
$100
automatic
posting
Banks
Dr Cr
$100
(FI MM) Integration Points

Goods
Receipt
Invoice
Receipt
Payment
Program
Vendor
Dr
Inventory
Dr
$100
GR / IR
Cr
Dr
$100
Cr
Cr
$100
$100
Bank
Dr
$100
Cr
$100
AP
Dr
$100
automatic
posting
Cr
$100
Procurement Processes
PEN, Inc.
600
Cxxx
Pxxx
xxx
xxx
Check PO History (ME23)
January 2008

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55
Check PO History (continued)
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56
Check Inventory
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57
Exercises:
100.
101.
102.
103.
104.
105.
106.
107.
Create a Purchase order for Slick Pens

Create a purchase order for premier pens
Create a purchase order for Promotions Ltd.
Create receipts for the purchase orders
Create an invoice receipts from vendors
Post payments to vendors
Display vendor line items
Create purchase outline agreement (contract) for Stock item

Procurement Process

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Procurement Process

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Procurement

Requirements Determination Requisition

SAP AG - University Alliances and

Purchase Requisition (Request)

an optional request approval (or

SAP AG - University Alliances and

Purchase Requisition Sources

items: manually specified

items: automatically created by

SAP AG - University Alliances and

Purchase Requisition Data

data for line items

(from the material

line item data

assignment (if required)

SAP AG - University Alliances and

Request for Quotation (RFQ)

SAP AG - University Alliances and

Request for Quotation (RFQ)

an invitation to a vendor to indicate

SAP AG - University Alliances and

Request for Quotation

An RFQ is an invitation to a vendor by a Purchasing

Enter each vendor's quotation in the

SAP AG - University Alliances and

the prices from all quotations

SAP AG - University Alliances and

Creating a Release Order

order is a purchase order that

a release order is created, release

SAP AG - University Alliances and

Creating a Release Order (2)

vendor data, price data, and the

SAP AG - University Alliances and

a formal request to a vendor to provide materials or services

purchase order can be for variety of purposes:

SAP AG - University Alliances and

Business Process Integration

SAP AG - University Alliances and

Business Process Integration

SAP AG - University Alliances and

define the parameters for Master

SAP AG - University Alliances and

SAP AG - University Alliances and

Transaction Data (review)

data are application data; each

SAP AG - University Alliances and

Purchasing in SAP R/3 (review)

purchasing process resides in the Materials

data for the purchasing process exists in

purchasing process may interface with the

Production Planning (to plan for production),

SAP AG - University Alliances and