The typical procurement cycle for a service or material consists of the following phases:
Determination of Requirements
Materials requirements are identified either in the user departments or via materials planning and control. (This can cover both MRP proper and the demand-based approach to inventory control. The regular checking of stock levels of materials defined by master records, use of the order-point method, and forecasting on the basis of past usage are important aspects of the latter.) You can enter purchase requisitions yourself, or they can be generated automatically by the materials planning and control system. 1.Source Determination
The Purchasing component helps you identify potential sources of supply based on past orders and existing longer-term purchase agreements. This speeds the process of creating requests for quotation (RFQs), which can be sent to vendors electronically via SAP EDI, if desired.
2.Vendor Selection and Comparison of Quotations
The system is capable of simulating pricing scenarios, allowing you to compare a number of different quotations. Rejection letters can be sent automatically.
3.Purchase Order Processing
The Purchasing system adopts information from the requisition and the quotation to help you create a purchase order. As with purchase requisitions, you can generate Pos yourself or have the system generate them automatically. Vendor scheduling agreements and contracts (in the SAP System, types of longer-term purchase agreement) are also supported.
__
The system checks the reminder periods you have specified and - if necessary - automatically prints reminders or expediters at the predefined intervals. It also provides you with an up-to-date status of all purchase requisitions, quotations, and purchase orders.
5Goods Receiving and Inventory Management :Goods Receiving personnel can confirm the receipt of goods simply by entering the Po number. By specifying permissible tolerances, buyers can limit over- and under deliveries of ordered goods. 6.Invoice Verification
The system supports the checking and matching of invoices. The accounts payable clerk is notified of quantity and price variances because the system has access to PO and goods receipt data. This speeds the process of auditing and clearing invoices for payment.
7.Payment Processing
Integration
Purchasing 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: 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.
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. 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.
Sales and Distribution (SD)
Within the framework of materials planning and control, a requirement that has arisen in the Sales area can be passed on to Purchasing. In addition, when a requisition is created, it can be directly assigned to a sales order.
Purchasing Document Definition
A purchasing document is an instrument used by Purchasing to procure materials or services.
The following list shows the various external purchasing documents available in the standard SAP System. (Note: purchase requisitions are not included on this list because they are usually regarded as internal documents used within Purchasing and are therefore treated separately.)
__
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 and is the basis for vendor selection. 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, formalizing 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.
Requirements of materials or services can be reported to Purchasing by means of purchase requisitions.
Structure
Each purchasing document is subdivided into two main areas: the header and individual items. Each document will contain a header and can contain several items. The header contains information relevant to the whole document . The items specify the materials or services to be procured. For example, information about the vendor and the document number is contained in the document header, and the material description and the order quantity are specified in each item.
Master Records from the Purchasing View
This section describes the functions of the material master and vendor master records that specifically relate to purchasing. It discusses purchasing-specific master data and describes how to enter and maintain material and vendor data relating to purchasing.
__
MM Purchasing processes the following types of Master data:
Material Master Data : Details on materials an enterprise procures externally or produces in-house. The unit of measure and the description of a material are examples of the data stored in a material master record. Other SAP Logistics components also access the material data.
Vendor Master Data : Information about external suppliers (creditors). The vendor’s name and address, the currency the vendor uses, and the vendor number (stored in the SAP system as an account number) are typical vendor data.
Purchasing Master Data : such as the following: Purchasing Info Record
The info record establishes the link between material and vendor, thus facilitating the process of selecting quotations. For example, the info record shows the unit of measure
__
used for ordering from the vendor, and indicates vendor price changes affecting the material over a period of time.
Source List
The source list specifies the possible sources of supply for a material. It shows the time period during which a material may be ordered from a given vendor.
Quota Arrangement
The quota arrangement specifies which portion of the total requirement of a material over a certain period is to be assigned to particular vendors on the basis of quotas. Purchase Requisitions :
You use this component if you wish to give notification of requirements of materials and/or external services and keep track of such requirements.
Requisitions can be created either directly or indirectly.
"Directly" means that someone from the requesting department enters a purchase requisition manually. The person creating the requisition determines what and how much to order, and the delivery date.
"Indirectly" means that the purchase requisition is initiated via another SAP component.
RFQ and Quotation:
You use this component if you wish to manage and compare requests for quotation (RFQs) issued to vendors and the quotations submitted by the latter in response to them.
__
In Purchasing, the RFQ and the quotation form a single document. Prices and conditions quoted by vendors are entered in the original RFQ. If you have issued an RFQ to several vendors, you can have the system determine the most favorable quotation submitted and automatically generate letters of rejection to the unsuccessful bidders. You can also store the prices and terms of delivery from certain quotations in an info record for future accessing.
Purchase Orders : Definition
A purchase order is a formal request or instruction from a purchasing organization to a vendor or a plant to supply or provide a certain quantity of goods or services at or by a certain point in time.
The purchase order can be used for a variety of procurement purposes. You can procure materials for direct consumption or for stock. You can also procure services. Furthermore, the special procurement types "subcontracting", "third-party" (involving triangular business deals and direct-to-customer shipments) and "consignment" are possible.
You can use purchase orders to cover your requirements using external sources (i.e. a vendor supplies a material or performs a service). You can also use a purchase order to procure a material that is needed in one of your plants from an internal source, i.e. from another plant. Such transactions involve longer-distance stock transfers. The activities following on from purchase orders (such as the receipt of goods and invoices) are logged, enabling you to monitor the procurement process.
You can use purchase orders for once-only procurement transactions. If, for example, you wish to procure a material from a vendor only once, you create a purchase order. If you are thinking of entering into a longer-term supply relationship with this vendor, it is advisable to set up a so-called outline agreement, since this usually results in more favorable conditions of purchase.
The procedures and menu paths described in the SAP Library refer to the traditional purchase order (ME21, ME22, ME23) and not to the Enjoy purchase order (ME21N, ME22N, ME23N).
__
Structure
A purchase order (PO) consists of a document header and a number of items.
The information shown in the header relates to the entire PO. For example, the terms of payment and the delivery terms are defined in the header. A procurement type is defined for each of the document items. The following procurement types exist:
__ • Standard • Subcontracting • Consignment • Stock transfer • External service
Incoterms: Incoterms are internationally-recognized terms of delivery reflecting the standards set by the International Chamber of Commerce (ICC). For example, the term Free on Board (FOB) means that seller fulfills his obligation to deliver when the goods have passed over the ship’s rail at the named port of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point. You can specify Incoterms for an order item that differ from those in the PO header. The relevant defaults come from the purchasing info record. When the document is outputted, the item-specific Incoterms are set out in addition to the generally applicable ones at header level.
Shipping Instructions
These are the packing instructions the vendor has to comply with when shipping the ordered materials. You specify them for an item by entering the predefined code for shipping instructions. The corresponding text is then included in the purchasing document printout.
__
Purpose
The central role of MRP(Materials Requirements Planning) is to monitor stocks and in particular, to automatically create procurement proposals for purchasing and production (planned orders, purchase requisitions or delivery schedules). This target is achieved by using various materials planning methods which each cover different procedures.
Method 1: CBP(Consumption Based Planning) :
27) Explain the Flow Of SD ? 28) Explain the Flow of FI ?
Reorder Point Planning : In reorder point planning, procurement is triggered when the sum of plant stock and firmed receipts falls below the reorder point.
The reorder point should cover the average material requirements expected during the replenishment lead time.