SAP mm

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Module: Introduction to SAP-MM
Training Objectives:
• Explain the Basic Procurement Cycle
• Explain MM Integration with other Modules

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• Basic Terminologies in MM
• Procurement Cycle
• MM Integration with other Modules
• Discussion Points
• Quiz
Agenda

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Terminologies in SAP MM
• Material Master : A data record containing all the basic information required to
manage a material.
• Vendor : An organization or entity that provides goods or services to the
company
• Vendor Master: The vendor master contains the data of all vendors with which
a company conducts business.
• Customer : An organization or entity that purchases goods or services from the
Company
• Customer Master : The vendor master contains the data of all vendors with
which a company conducts business
• Service Master : A data record containing all the basic information required to
manage a service
• Purchase Requisition: A Purchase Requisition(PR) is a request to
Purchasing(buyers) to procure a certain quantity or service so that it is
available as per the requirements. A PR is an internal document
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Terminologies in SAP MM
• Request for Quotation: A request for quotation (RFQ) is an invitation sent to a
vendor to submit a quotation (bid) for the supply of materials or performance of
services
• Quotation : A quotation is an offer by a vendor regarding the supply of
materials or performance of services subject to specified conditions.
• Purchase Order : A Purchase Order is a Formal request or instruction sent to a
vendor to supply or provide a certain quantity of goods or services at or by a
certain point in time.
• Outline Agreement : An outline purchase agreement is a longer-term
agreement between the company and a vendor regarding the supply of
materials or the performance of services within a certain period according to
predefined terms and conditions
• Goods Receipt : A term used to denote physical receipt of materials or
services from Vendor
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Terminologies in SAP MM
• Invoice : A list of goods sent and service provided with a statement of the
amount due is termed as an invoice. This will be provided by the Vendor to the
company
• Invoice Verification: The matching of documents created during the purchase
order process, the goods receipt process, and the accounts payable process is
termed as Invoice Verification. It contains verifying incoming invoices in terms
of content, price and arithmetic
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• Basic Terminologies in MM
• Procurement Cycle
• MM Integration with other Modules
• Discussion Points
• Quiz
Agenda

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• Definition: Acquisition of goods or services at the best possible price, with the
right quantity, at the right time, from the right place.
• The process of obtaining services, supplies, and equipment from a vendor is
called Procurement.
• The internal Purchasing Department normally manages the majority of
purchasing activities in most of the organizations.
• Exceptions may lie in large industrial complexes where procurement may also
be handled by engineering, or third party outsourced companies.
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Introduction to Procurement

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Procurement Cycle:
Procurement
Determination
of requirement
Selection of
vendors from the
vendor database
PO processing
PO Monitoring
Goods
Receipt
Invoice
Verification
Payment
Source
Determination

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1. Determination of Requirements
• Identification of materials requirements either manually by business
users or automatically by IT system of the organization are passed on
to the Purchasing department via Purchase Requisitions
2. Source Determination
• The IT System helps to identify potential sources of supply based on
old orders and existing longer-term agreements with the vendor. This
speeds the process of creating requests for quotation (RFQs), which
can be sent to vendors.
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Procurement Process

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3. Vendor Selection and Comparison of Quotations
• After receiving the Quotations from the invited vendors, the purchasing
department compares them and chooses the most appropriate vendor
to complete the order
4. Purchase Order Processing
• The Purchasing system takes up input data from the requisition and
the quotation to create a purchase order. As with purchase
requisitions, the user can generate POs or have the system generate
them automatically
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Procurement Process

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5. Purchase Order Monitoring
• The buyer (or Purchasing Officer) can check the status of the PO i.e. if
the goods or invoices have been received. Generally Procurement IT
systems can also be configured to automatically check PO progress
and to issue reminders or expediters at predefined intervals
6. Goods Receipt
• Goods receiving personnel (normally warehouse personnel) can
confirm the receipt of goods simply by entering the PO number into the
system. By specifying permissible tolerances, buyers can limit over-
and under deliveries of ordered goods
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Procurement Process

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7. Invoice Verification
• Vendor invoices are checked for accuracy of prices and contents.
Buyers can also specify permissible value tolerances for invoices
8. Payment Processing
• Based on the invoice verification, the Accounts Department / Accounts
Payable normally deals with vendor payments
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Procurement Process

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• Procure to Pay process starts from requisition determination until the payment
of the correspondent invoice.
• It is comprised by the following SAP documents:
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Procure to Pay Process:
Material Management (MM)
Accounts Payable (AP)
Module
impacted
General Ledger (GL)
Project System (PS)
PP
Req.
Determ.
Purchase
Requisition
Purchase
Order
Goods
Receipt
Invoice
Verification
Payment
SD
PM
QM / WM

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• Is the process which helps users determine the material/services requirements.
• Requirements can be based on customer demand, which drives the production
planning process, or requests from within the organization:
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Procure to Pay Process – Requirements:
Material Management (MM)
Accounts Payable (AP)
Module
impacted
General Ledger (GL)
Project System (PS)
PP
Req.
Determ.
Purchase
Requisition
Purchase
Order
Goods
Receipt
Invoice
Verification
Payment
SD
PM
QM / WM

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• A Purchase Requisition is a request to procure a certain quantity of a material
or a service so that it is available at a certain point in time.
• It is not essential for creating a PO. It can also be created automatically by
running the MRP in the PP module.
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Procure to Pay Process – PR:
Material Management (MM)
Accounts Payable (AP)
Module
impacted
General Ledger (GL)
Project System (PS)
PP
Req.
Determ.
Purchase
Requisition
Purchase
Order
Goods
Receipt
Invoice
Verification
Payment
SD
PM
QM / WM

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• A Purchase Order is a formal request to a vendor to supply or provide goods or
services at a certain point in time with a certain quantity, under the agreed
terms and conditions.
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Procure to Pay Process – PO:
Material Management (MM)
Accounts Payable (AP)
Module
impacted
General Ledger (GL)
Project System (PS)
PP
Req.
Determ.
Purchase
Requisition
Purchase
Order
Goods
Receipt
Invoice
Verification
Payment
SD
PM
QM / WM

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• Goods Receipt is the term used to describe an increase in warehouse stock
due to receipt of goods from external vendors of from internal stock transfers.
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Procure to Pay Process – GR:
Material Management (MM)
Accounts Payable (AP)
Module
impacted
General Ledger (GL)
Project System (PS)
PP
Req.
Determ.
Purchase
Requisition
Purchase
Order
Goods
Receipt
Invoice
Verification
Payment
SD
PM
QM / WM

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• Is the verification of invoice data sent by the vendor against the goods receipt
and the original purchase order.
• This ensures that the goods received match the cost and quantity requirements
of the purchase order and the vendor’s invoice.
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Procure to Pay Process – IR:
Material Management (MM)
Accounts Payable (AP)
Module
impacted
General Ledger (GL)
Project System (PS)
PP
Req.
Determ.
Purchase
Requisition
Purchase
Order
Goods
Receipt
Invoice
Verification
Payment
SD
PM
QM / WM

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• Once the invoice is posted, the payment is made on the basis of the payment
terms and conditions defined in the purchase order.
• It is processed through Accounts Payable in the FI module.
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Procure to Pay Process – IR:
Material Management (MM)
Accounts Payable (AP)
Module
impacted
General Ledger (GL)
Project System (PS)
PP
Req.
Determ.
Purchase
Requisition
Purchase
Order
Goods
Receipt
Invoice
Verification
Payment
SD
PM
QM / WM

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Sample Copy of a PO
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Sample Copy of Invoice
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• Basic Terminologies in MM
• Procurement Cycle
• MM Integration with other Modules
• Discussion Points
• Quiz
Agenda

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MM Integration with other Modules:
SAP
Client / Server
ABAP/4
IS
Industry
Solutions
MM
Materials
Mgmt.
PD
Personnel
Development
SD
Sales &
Distribution
PP
Production
Planning
QM
Quality
Management
PM
Plant
Maintenance
FI
Financial
Accounting
CO
Controlling
TR
Treasury
PS
Project
System
WF
Workflow
EC
Enterprise
Controlling
IM
Investment
Management
PA
Personnel
Administration

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MM Integration with other Modules:
• Material Requirement
Planning (MRP)
• Goods Receipts / Issues
against Production Order
• Stock Availability Check
• Goods Receipt Inspection
• Transfer Requirements
auto creation for the goods
movement
• Plant and Storage Bin
• Material Requirement (Demand
from Customer)
• Third Party Drop Ship
• Order Delivery Process
• Stock Availability Check
• STO Delivery Process
• Material Valuation
• Invoice Verification
• Vendor Payment
• Material Costing
FI / CO SD / PS
PP / PM
WM / QM
MM

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MM integration with other modules
• Material Master is one of the major areas of integration between different
modules of SAP.
• It is used by all the components in the SAP Logistics System. The integration
of all material data in a single database object eliminates redundant data
storage.
• In the SAP Logistics System, the data contained in the material master is
required, for example, for the following functions:
• In Purchasing for ordering (both internal and external)
• In Inventory Management for goods movement postings(goods receipt,
issue & transfer) and physical inventory
• In Invoice Verification for posting vendor invoices
• In Sales and Distribution for sales order processing, delivery and billing
• In Production Planning and Control for material requirements planning,
scheduling, and work scheduling
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MM integration with other modules
SAP has a sound Organizational Structure, which helps Purchasing to
communicates with other modules in the SAP System to ensure a constant flow
of information. For example, it works side by side with the following modules:
• Financial Accounting (FI)
• Purchasing maintains data on the vendors that are defined in the system
jointly with Financial Accounting. Information on each vendor is stored in a
vendor master record, which contains both accounting and procurement
information in addition to the General data which is being used by both.
• Vendor address, payment terms, currency, taxation information, payment
method, due date and reconciliation accounts are some of the information
which needs to be maintained in the vendor master for the use of the
Financial Accounting.
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MM integration with other modules
• These information are used by Financial Accounting at the time of payment
to the vendor against all the procurement. The vendor master record
represents the creditor account in financial accounting.
• Through PO account assignment, Purchasing can also specify which G/L
accounts are to be charged in the financial accounting system.
• These information are used by Financial Accounting at the time of payment
to the vendor against all the procurement. The vendor master record
represents the creditor account in financial accounting.
• Through PO account assignment, Purchasing can also specify which G/L
accounts are to be charged in the financial accounting system.
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MM integration with other modules
• Financial Accounting (FI)(contd..)
• Whenever any inventory posting are done, it updates the G/L accounts
online in the background.
• Logistics invoice verification will create vendor liability in vendor account
immediately on posting the document.
• Any advance given against the purchase order updates the PO history.
• For every inventory posting there is corresponding CO document to update
profit center accounting reporting.
• Finish goods costing is link through MM & PP.
• Procurement of capital item cost can be directly booked against asset
number.
• Controlling (CO)
• The interface to the cost accounting system (Controlling) can be seen above
all in the case of purchase orders for materials intended for direct
consumption and for services, since these can be directly assigned to a cost
center or a production order.
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MM integration with other modules
• Sales and Distribution (SD)
• It is integrated in the areas like Delivery, Availability Check, Stock transfers
requirements etc.
• As soon as a sales order is created, system can initiate a dynamic
availability check of stocks on hand. With this, a requirement that has arisen
in Sales area can be passed to purchasing.
• In case company doesn’t have sufficient quantity of stock, it can be
converted into a Purchase Order(via purchase requisitions) to get the
goods. Once the goods are received, they can be immediately shipped out
against the open requirements.
• When the delivery is created, the quantity to be delivered is marked as
“Scheduled for delivery”. It is deducted from the total stock when the goods
issue is posted.
• Purchase order can be directly converted to delivery for a stock transfer
requirement.
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MM integration with other modules
• Quality Management (QM)
• The interface to the Quality Management (QM) can be seen above all in the
case of purchase orders for materials for which quality of the materials play
a vital role, since these can be directly assigned for quality check before
taking them into the stock (IM).
• This ensures that the materials for which QM is activated cannot be used
until the inspection is completed.
• This is majorly required with use of safety critical equipment's where bad
quality can lead to major incidents including loss of life.
• Production Planning (PP)
• The interface to the Production Planning (PP) can be seen above all in the
case of purchase orders for materials (components or raw materials or semi
finished) intended for direct consumption into the production of main or final
products, since these can be directly assigned to a cost center or a
production order.
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MM integration with other modules
• Once the requirements are converted into production orders, MRP run can
create planned orders or purchase requisitions and buyer can then procure
the goods from Vendors via purchase order or from other plants via stock
transport orders.
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Discussion
• How is Material Requirement Planning (MRP)
integrated with MM?

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1. What are the steps associated with Procurement Process?
Checkpoint

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You should now be able to:
• Explain the Basic Procurement Cycle
• Explain MM Integration with other Modules
Module Summary

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Questions and Comments
• What questions or comments
do you have?