HPPCL-MM-TRG-V2�Training Manual – Materials Management

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Agenda

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Agenda Day 1

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�Materials Management Overview

• 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

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�Materials Management Overview

The Material Management module comprises of procurement and the inventory management functions .

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�Materials Management Overview

The processes of Material Management are based on various types of Master Data which are stored in Master Records.

Master Records

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�Materials Management Overview

This diagram illustrates a typical SAP-supported procurement cycle.

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Agenda

• Material Management Overview
• Organizational Elements
• Master Data
• Procurement Cycle
• Inventory Management
• Invoice Verification
• Valuation
• Price Control
• Managing Supplier Relationship
• Material Requirement Planning

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�Organizational Elements in MM

■    Balance sheets and Profit and Loss statements, required by law, are created at company code level.

■    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.

In the SAP R/3 System, organizational levels are structures that represent the legal or organizational views of a company.

■  A client is the highest organizational level, representing, for example, a corporate group.

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�Materials Management – Organizational Elements

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:�

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• 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

• Material Management Overview
• Organizational Elements
• Master Data
• Procurement Cycle
• Inventory Management
• Invoice Verification
• Valuation
• Price Control
• Managing Supplier Relationship
• Material Requirement Planning

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�Material Management : Master Data

• 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

Objectives

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1. Material Master
2. Vendor Master
3. Service masters
4. Purchasing Info Records
5. Source Lists
6. Price Conditions
7. Vendor Evaluation
8. Bills of Materials (BOMs)

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Contents

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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.

Finance/

Controlling

Materials

Management

Master

Data

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�Master Data�

The processes of Material Management are based on various types of Master Data which are stored in Master Records.

Master Records

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�Material Master Data

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.

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• 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

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• The Material Master is used by several areas of the system in addition to Inventory. Some of these are Purchasing, Manufacturing, and Despatch.

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• Material masters must be created for all stocked materials, and can optionally be created for some non-stocked items (eg. Services).

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• Raw Materials, Stocked Intermediates, Spare Parts and Maintenance Spares will definitely be in the SAP material master database.

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• 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

BASIC DATA *

•

Description

•

Unit of measure

PURCHASING

•

Purchasing group

•

Delivery tolerance

MRP

•

MRP Type, or MPS

•

MRP Controller

•

Lot size key

WORK SCHEDULING

•

Production controller

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Prodn. Tolerances

ACCOUNTING

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Valuation class

•

Price control

SALES

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Product hierarchy

•

Shipping details

STORAGE

•

Picking area

•

Storage bin (fixed)

Plant Level

Company Level *

Basic data1

Purchasing

Purchase order text

Storage 1

Storage 2

Accounting 1

Accounting 2

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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.

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• The industry sector you specify determines
• Which screens appear and in what sequence
• Which industry-specific fields appear on the individual screens

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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.

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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.

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• A vendor can be a one time vendor or regular vendor

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• A vendor master record contains the vendor’s 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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General

Data

Account

Data

Purchase

Data

• Account Number
• Description
• Address

• Order Currency
• Incoterms (terms of

shipping)

• Control account
• Terms of payment
• Bank Details

for purchasing

organization

for company

code

Vendor

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Master

Record

for all clients

A Vendor Master Record stores information pertinent to a company’s vendors.

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It contains 3 different types of Data which are used to support both Materials Management and Finance activities in SAP.

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Vendor master

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�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.

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• 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

Info

Record

Material

Master

Vendor

Master

Vendor’s current

price

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.

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• The info record contains concise information about a vendor and a material that you already procure from that vendor.

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• Info records are created automatically when you order a material. You can also create, change, and delete info records.

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• Use of Purchasing info record in PO creation
• Net price for the item will be defaulted in PO

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• 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

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• It shows the time period in which a material may be ordered from a given vendor

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• Source list can be created automatically using generate source list option

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• 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.

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Condition Table: A condition table consists of one or more condition keys and a data part.

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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

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�Procurement

• Understand the concept of Procurement as it relates to the Materials Management module in SAP

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• Be able to identify the key SAP procurement documents used in the Materials Management module

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• Execute key procurement transactions in the Materials Management Module

Objectives

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�Contents

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1. Procurement Cycle
2. Purchase Requisitions
3. RFQ/Quotation
4. Purchase Order
5. Release Strategy
6. Procurement of Consumable Material
7. Account Assignment
8. Special Procurement Processes
• Consignment
• Sub-contracting

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Determine requirements and potential sources; negotiate with suppliers to set up agreements; create supply plans

Convert requisitions to Purchase Orders or create replenishment orders

Goods delivered

Invoice receipt

Logistics Invoice Verification and payment

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Procurement Cycle

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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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MM

FI

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Integrated Business Process Overview

Requirement for Goods / Services

Purchase

Order

Goods

Receipt

Invoice

Verification

Financial and Managerial Reporting and Analysis

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G/L Inventory / GRIR

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G/L GRIR/ Expense AP Invoice

Vendor

Payment

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Project Materials Planning

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Commissioning

DMS

Design Document

Purchasing Order

Purchase Requisition

PO-1

PO-2

Goods Receipt

Goods Issue

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�Purchasing Documents

Quotations

Contracts

Purchase Requisitions

Purchase Orders

Scheduling Agreements

Info Records

Material Reservations

=

Enquiries

Suppliers

Request for Quotations

Blanket PO’s

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�Purchasing Documents

• 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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�Purchasing Documents

• Purchase order (PO)
• The buying entity’s 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

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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.

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• Release strategies are based upon attributes of the purchasing documents that the company desires to implement control over such as value.

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• 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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Release Strategy - Example

PO Value < 10000, approval by Team Lead

Releases Strategies Defined

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Strategy

Release Codes

S1

Team Lead 1

S2

Team Lead 2

Project Manager

PO Value > 10000, approval by Team Lead

Conditions

Purchase Order

Value = 4050

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Release Strategy Applicable

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�The Types of procurement Cycles

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• 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

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�External Service Management

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1. Service Procurement Cycle
2. Service Master Record
3. Service Purchase Order
4. Service Entry Sheet
5. Release Procedure
6. Invoice Verification

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Services : Procurement Cycle

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�Service Master Record�

•    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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■    Stock materials are subject to inventory management, whereas services are procured for direct consumption.

■    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.

�Purchase Order for Service

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•   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.

�Purchase Order for Service

■    Materials are procured at item level.

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• Services are procured below item level. The item type D activates the service functions and controls or allows you to create service specifications.

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•   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.

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• You can set up release procedures for service entry sheets.

• 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.

�Purchase Order for Service

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■   The system compares the prices on the invoice with the prices from the service entry sheets.

■   If there are no discrepancies, you can enter and post the invoice.

■   If the system finds any discrepancies, it blocks the invoice for payment.

■   The Logistics Invoice Verification procedure is carried out with reference to the purchase order.

■   This means that all service entry sheets signed off for this purchase order are suggested for invoice verification.

�Purchase Order for Service

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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

Page 63

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Agenda

• Material Management Overview
• Organizational Elements
• Master Data
• Procurement Cycle
• Inventory Management
• Invoice Verification
• Valuation
• Price Control
• Managing Supplier Relationship
• Material Requirement Planning

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Page 64

�Inventory Management

• 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

Objectives

Page 65

�Contents

1. Overview
2. Stock Types
3. Material Movement
• Movement Types
• Material Document
• Goods Receipt
• Goods Issue
• Transfer Posting
4. Special Stocks
• Consignment Stock
• Subcontracting Stock
5. Physical Inventory
• Physical Count
• Cycle counting

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�Inventory Management Overview

• Goods movements
• Stock types
• Movement types
• Material & accounting documents

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Page 67

Goods are physically

received

Goods are stored and movements are tracked

Goods are controlled

(physical inventory)

Inventory management involves the receipt, storage, control and disbursement of materials and supplies.

Goods are either consumed or dispersed

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Inventory Management Overview

Page 68

�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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Page 69

�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

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• 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 material’s usability.

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•     Unrestricted-use stock: A company’s own stock that is physically located in the warehouse, is valuated, and is not subject to any restrictions on usage.

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•     Quality inspection stock: A company’s own stock that is in quality inspection. Quality inspection stock is not valuated(in SPD) and is not for unrestricted use.

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•     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

Unrestricted-use stock

Stock in Quality Inspection

Blocked stock

Scrapping / Sampling

Consumption

Transfer

Page 73

Documents for Goods Movement

Storage Location

Entry

Exit

Material

Material

document

Accounting

document

When posting any transaction for goods movement, two types of documents are created:

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Material Movement

■    As soon as a goods movement is posted, the quantities, material, movement 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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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.

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■    A material document is created in the SAP System as proof of a transaction involving stock changes.

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Goods Movements

Vendor

Goods receipt

Storage Loc 1

Storage Loc 2

Transfer posting

Goods issue

Scrapping

Consumption

Page 76

�Goods Movements

• Definition of Goods Movement
• A goods movement is an event that causes a change in stock.

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• 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

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• 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

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101

102

301

309

321

349

311

551

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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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Page 79

�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

Page 81

�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 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.

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■    Cycle counting allows fast-moving items to be counted more frequently than slow-moving items, for example.

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Page 83

�Cycle Counting – 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.

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Agenda Day 4

Page 85

�Logistics Invoice Verification

• 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

Objectives

Page 86

�Contents

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1. Logistics Invoice Verification
• Invoice Entry
• Invoice Posting
• Invoices with Variances
• Blocking Invoices
• Releasing Blocked Invoices
2. Automatic Settlement

3. Credit Memos and Reversals

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Page 87

�Logistics Invoice Verification : Overview

• An incoming invoice can be posted with reference to a purchase order, goods receipts, or vendor.

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• The invoice items are created automatically; the corresponding account postings are carried out automatically.

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• After the invoice has been posted, the document appears as an open item on the vendor account (payment proposal list).

Page 88

�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

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• Logistics Invoice Verification does not handle the payment or the analysis of invoices.

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• The information required for these processes is passed on to A/C department.

Page 89

• 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

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• Tolerance levels can be set for matching invoices in MM

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• Unmatched invoices can be blocked for payment and trigger warnings and activities for the purchasing department

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Invoice Entry

Page 90

■    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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Invoice Entry

Page 91

�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.

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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

Page 93

�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.
• Variances in an Invoice Item
• Quantity variance (M)
• Price variance (P)
• Variance in order price quantity (G)
• Schedule variance (T)
• Quality inspection (I)

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Page 94

�Credit memos

• The term credit memo always refers to a credit memo from the vendor.

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• Posting a credit memo always leads to a debit posting to the vendor account.

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• 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.

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• Processing of credit memos is same as invoice verification

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�Credit Memos and Reversals�

■    You usually receive a credit memo from a vendor if you were overcharged.

■    A credit memo can be entered with reference to a purchase order or a goods receipt.

■    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.

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Agenda

• Material Management
• Organizational Elements
• Master Data
• Procurement Cycle
• Inventory Management
• Invoice Verification
• Valuation
• Price Control
• Managing Supplier Relationship
• Material Requirement Planning

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�Material Valuation

• 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

Objectives

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�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.

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• Postings in Logistics Invoice Verification can also affect Material Valuation.

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�Material Valuation Levels

Inventory management for values and quantities always takes place at the level of the valuation area.

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• 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.

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• 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.

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�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.

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�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

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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.

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�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.

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�Valuation Procedure and Price Control�

• 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.

• 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).

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�Valuation Procedure and Price Control

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.

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.

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�Managing Supplier Relationship

• 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

Objectives

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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.

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•     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.

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Contracts

•     A contract is a long-term 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.

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• An enterprise working with a central purchasing organization covering several plants can negotiate better conditions at a high level.
• Centrally agreed contracts can be entered into with a vendor’s 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.

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Contracts

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•  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.

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• An enterprise that works with a central purchasing organization covering several plants can negotiate better conditions at a high level.

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• 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.

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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.

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�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.

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�Scoring Level in Vendor evaluation

• The evaluation of a vendor is reflected in the latter’s overall score. This is a combination of the scores the vendor achieved for each of the main criteria.
• The scores for main criteria and sub-criteria reflect a vendor’s 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.

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Evaluation Criteria

Sub-criteria with

automatic scoring

Price

Quality

Delivery

Support

Price level

Price history

On-time delivery

Quantity reliability

Shipping instruct.

Goods receipt

Quality audit

Rejection level

Weighted

Weighted

Overall score for vendor

Score for main criteria

Score for sub-criteria

External Service

Overall Performance

Confirmation date

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�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 latter’s evaluation in respect of a certain material.

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�Material Requirement Planning Overview

Materials Requirements Planning

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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 . 

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�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

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�Re-order point planning�

■    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.

■    The safety stock is used to cover unplanned excess consumption during the replenishment lead time and additional requirements in the case of delivery hold-ups.

■    The manual reorder point procedure uses the MRP indicator VB.

■    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.

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�Re-order point planning�

■    If the available warehouse stock is less than the reorder point, there is a shortage of materials.

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■    The shortage quantity is the difference between the reorder point and the available warehouse stock. The purchase order quantity is derived from the lot-sizing procedure in the material master record.

The system bases the requirement date on the planning date

■    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).

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Thank You

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