Purchasing/procurement process

Step #1 Determination of
Requirements
In this step, 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 in SAP ERP that is used to
give notification to responsible department about
the requirement of material/service and to keep
track of such requirement.
 PR must contain clear information about the
description and quantity of the material/service,
the required date, and other information.
PR can be created directly in SAP MM module
with ME51N t-code, or indirectly by another SAP
component, such as: materials planning,
maintenance order of PM module, production
order of PP module, network activity of PS
module, etc.
 We have explained this in the previous article
about MM integration with other modules.
We can set in SAP that the PR must be
approved or released before it can be passed
to the next step of purchasing processes.
Step #2 Determination of the source of
supply
After the PR has been created (and released if needed)
in the previous step, the responsible department
(usually purchasing/procurement department of the
company) must process it.
The buyer of the procurement department must
determine the possible sources of supply of the
material/service specified in the PR.
With ME57 t-code, 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.
 If there is no valid info record at that time, the
buyer can create Request For Quotation (RFQ)
documents to one or some prospective vendors.
The buyer can access the procurement history of
the material/service specified in the PR, so he can
see which vendors that have provided it to the
company before.
He can also create the RFQ to the new
prospective vendor that might have never
provided the material/service to the company
before.
 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.
 Step #3 Vendor Selection
If in the previous step, there are some outline
agreement or info record documents that can be
used as references to create a PO, the buyer can
select or choose which vendor that will be
appointed to provide the material/service at this
time.
If there is no outline agreement or info record
documents that can be used as references to
create PO, in the previous steps, the buyer will
send the RFQ documents to one or some
vendors.
 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 t-code.
With ME49 t-code, 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.
SAP ERP can also create rejection letters to
the vendors that are not selected as the
supplier of the material/service.
 Step #4 PO Processing
In the previous step, the buyer has selected
the vendor which will provide the
material/service needed in PR.
In this step, the buyer creates a Purchase
Order (PO) based on the PR and the reference
document (that can be an outline agreement,
an info record, or a quotation).
 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.
 Step #5 PO Monitoring
After the PO has been sent to the vendor, the
buyer has the responsibility to monitor whether
the vendor delivers the material/service at the
right time on the right place.
The buyer can monitor whether the
material/service has been received by the person
responsible (such as the warehouse man) online
with PO history function in the PO document.
 If the warehouse man or anyone else has
received the material/service and posted the
Goods Receipt/Service acceptance
document, the PO history will be updated in a
real-time basis.
SAP ERP can also has a functionality to give
the reminder to the buyer if the PO item has
not been GR in the specified period in respect
of the delivery date agreed with vendors.
 Step #6 Goods Receipt
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.
 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.
Depends 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.
 Step #7 Invoice Verification
After the vendor delivered the material/service, it
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
provide 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.
 The person responsible, usually an accounting
staff, will perform the three way matches.
He will check whether the invoice information
(such as price, terms of payment, etc) is the
same with the PO, and whether the PO item
has been received (GR/SA).
 If yes, then he will post the Invoice Receipt
(IR) transaction in MM module.
The IR transaction will credit the account
payable of the vendor which specified in the
pay to partner function in the PO.
 Step #8 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 payment transaction will be performed in FI
module.
After the payment has been posted, the vendors
account payable will be debited and the cash or
bank account will be credited.