2011-1-Training Manual on Material Management

HPPCL-MM-TRG-V2Training Manual – Materials Management

Section Topics Page No.

1. Material Management Overview

2. Organizational Elements

3. Master Data

4. Procurement Cycle

5 Inventory Management

6 Invoice Verification

7 Valuation

8 Price Control

9 Managing Supplier Relationship

10 Material Requirement Planning

Agenda




3. Master Data




7 Valuation

8 Price Control



Agenda Day 1

Materials Management Overview

Materials Management

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

What is Materials Management ?

MMMaster

Data

MMMaster

DataInventory Management

Inventory ManagementProcurementProcurement

• Requisition Planning• Purchase Requisitions• RFQs • Contracts• Purchase Orders

• Materials• Vendors• Information

Records

• Receiving• Disbursement• Physical Inventory (Raw Material,

Semi Finished Goods, Finished Goods)

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


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

Vendor PurchasingInfo Records

MASTERDATA

Materials

Master Records


This diagram illustrates a typical SAP-supported procurement cycle.


Agenda

Material Management Overview

Organizational Elements

Master Data

Procurement Cycle

Inventory Management

Invoice Verification

Valuation

Price Control

Managing Supplier Relationship

Material Requirement Planning

SAP AG 1999

Organizational Levels in the Procurement Process

Client

Company Code

Plant

Storage Location

Purchasing Organization/Purchasing Group

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

Organizational Elements in MM

In the SAP R/3 System, organizational levels are structures that represent the legal or organizational views of a company. n A client is the highest organizational level, representing, for example, a corporate group.

Materials Management – Organizational Elements

Client

Company Code

Purchasing Organization

Plant

Storage Location

PurchasingGroup

Group

Company Subsidiary

Storage location

Storage location

Storage location

Storage location

Plant Plant

Purchasing Org.

Purchasing Group

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.

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.

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

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.

Organisational Elements in MM Purchasing:

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

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.

Agenda



Master Data

Procurement Cycle



Valuation

Price Control



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

Material Management : Master Data

Objectives

1. Material Master2. Vendor Master3. Service masters4. Purchasing Info Records5. Source Lists6. Price Conditions7. Vendor Evaluation8. Bills of Materials (BOMs)

Contents

Master Data is a shared source of information that all departments can access and utilize to perform their jobs.

Finance/Controlling

MaterialsManagement

MasterData

Master Data

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

Vendor PurchasingInfo Records

MASTERDATA

Materials

Master Records

Master Data

Material Master Data

Basic Data 1Basic Data 2ClassificationSales: Sales Org. Data 1Sales: Sales Org. Data 2Sales: General/Plant DataForeign Trade: Export DataSales TextPurchasingForeign Trade: Import DataPurchase Order TextMRP 1MRP 2MRP 3MRP 4ForecastingGeneral Plant Data / Storage 1General Plant Data / Storage 2Warehouse Management 1Warehouse Management 2Quality ManagementAccounting 1Accounting 2Costing 1Costing 2

MaterialMaster

• Material Type• Material Group

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.

Use of material master in SAP logistics system functions.

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.

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.

Material Master Key points

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

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

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

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.

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• Prodn. Tolerances

ACCOUNTING• Valuation class• Price control

SALES• Product hierarchy• Shipping details

STORAGE• Picking area • Storage bin (fixed)

Plant LevelCompany Level *

Basic data1

Purchasing

Purchase order text

Storage 1

Storage 2

Accounting 1

Accounting 2

User departments using same material master

Industry Sector

It determines type of industry .– Eg. mechanical industry,chemical industry,pharmaceutical etc.

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

Code Industry sector

C Chemicals

M Mechanicals

P Pharmaceuticals

A Plant Engineering & Construction

R Retail

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.

Material Type

Description Example

FERT Finished Products Power

PIPE Pipeline Materials Gas, Oil, Electricity, Water, Utility supplies

ROH Raw material

HALB Semi finished

DIEN Services Legal, Consulting, Construction services

ERSA Spare Parts Nuts, gears, motors

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

VendorMaster

• Company Code

• Purchasing Organisation

Concept of vendor master in SAP

vendor master record is maintained by both Accounting and Purchasing.

A vendor can be a one time vendor or regular vendor

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)

GeneralData

AccountData

PurchaseData

• Account Number• Description• Address

• Order Currency• Incoterms (terms of shipping)

• Control account• Terms of payment• Bank Details

for purchasing organization

for company code

Vendor

Master Record

for all clients

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

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

Vendor master

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.

The following partner roles are defined in the standard system:– Vendor – Order recipient – Goods supplier – Invoicing party – Payee

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

Info Records

InfoRecord

MaterialMaster

VendorMasterVendor’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.

Concept of Purchasing info Record

An info record represents a material-vendor relationship.

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

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

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

– All the pricing conditions will be defaulted

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

Info Records- Key points

Concept of source list in SAP

A source list specifies the possible sources of supply for a material over a given period of time

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

Source list can be created automatically using generate source list option

Source list can also be maintained manually.

Uses of source list– Fixed vendor– Vendor blocking– Auto PO creation

Condition Technique

The most important elements in price determination are the following:Condition Type: Condition types represent price factors in the system.

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

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.




3. Master Data




7 Valuation

8 Price Control



Agenda:Day 2

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

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

Execute key procurement transactions in the Materials Management Module

Procurement

Objectives


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

Contents

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

Procurement Cycle

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

MM

FI

Integrated Business Process Overview

Requirement for Goods / Services

Requirement for Goods / Services

Purchase

Order

Purchase

Order

Goods

Receipt

Goods

Receipt

Invoice

Verification

Invoice

Verification

Financial and Managerial Reporting and AnalysisFinancial and Managerial Reporting and Analysis

G/L Inventory / GRIR

G/L Inventory / GRIR

G/L GRIR/ Expense AP Invoice

G/L GRIR/ Expense AP Invoice

Vendor

Payment

Vendor

Payment

Project Materials Planning

WBSWBSRequirements

Procurement Erection

2

1

From Project or Project Stock Indicator

Generator

Cables

Materials Planning

PurchasingPSPS

MMMM

Commissioning

DMSDMS

Design DocumentPurchasing Order

Purchase Requisition

PO-1

PO-2

Goods Receipt

Goods Issue

Purchasing Documents

Quotations

Contracts

Purchase Requisitions

Purchase OrdersScheduling Agreements

Info RecordsMaterial Reservations

= Enquiries Suppliers

Request for Quotations

Blanket PO’s


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.


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 .

Release Strategy

A release strategy defines the approval levels through which a purchase document should be released

The release code determines who is authorized to release the document

52

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.

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

Once a release strategy is assigned, it must be released by someone with the authorization to use the specified release code. (Segregation of Duties)

PO Value < 10000, approval by Team Lead

Release Strategy - Example

Releases Strategies Defined

Strategy Release Codes

S1 Team Lead 1

S2 Team Lead 2

Project Manager

PO Value > 10000, approval by Team Lead

Conditions

Purchase OrderValue = 4050

Release Strategy Applicable

The Types of procurement Cycles

Procurement of External Services

Standard Procurement Cycle

Subcontracting Procurement Cycle

Consignment Cycle

Pipeline Procurement Cycle

Stock transfer Cycle

Project Purchase Cycle




3. Master Data




7 Valuation

8 Price Control



Agenda: Day 3

1. Service Procurement Cycle

2. Service Master Record

3. Service Purchase Order

4. Service Entry Sheet

5. Release Procedure

6. Invoice Verification

External Service Management

Services : Procurement Cycle

SAP AG

Steps in the Procurement of Services

Determination of requirementsDetermination

of requirementsDetermination Determination

of requirementsof requirements

OrderingprocessOrderingprocessOrderingOrderingprocessprocess

Invoice verification


Invoice Invoice verificationverification

Service acceptance

Service acceptance

Service Service acceptanceacceptance

Serviceentry

Serviceentry

ServiceServiceentry entry

PO monitoring/follow-up

PO monitoring/follow-up

PO monitoring/PO monitoring/follow-upfollow-up

Bid invitation

Bid invitation

Bid Bid invitationinvitation

Quotation entry

Quotation entry

Quotation Quotation entryentry

VendorselectionVendor

selectionVendorVendor

selectionselection

- User department- PM Plant maintenance- PS Project system

PaymentPaymentPaymentPaymentCreation of

service specifications

Creation of service

specifications

Creation of Creation of service service

specificationsspecifications

Source determination

Source determination

Source Source determinationdetermination

InvoicePO

??==

RFQKarl Einstein

Bank transfer $9,500Date

SAP AG 1999

MMMMProcurementProcurement

PMPMPlantPlant

MaintenanceMaintenance

PSPSProject Project SystemSystem

Service no. 1540

- Texts- Units of measure

ApplicationsApplications

Service master record

Purchase order

1NetworkPlantmaintenance

order

Service conditions200

2PReq.

Specs


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.


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

SAP AG 1999

GR for PO 12345, item 10

Service entry sheet Feb. 3

Item 10

Oil filter changed

Cctr 123

adhered to Limit

Release procedure Acceptance

Purchase order # 12345Jan. 27

Item 10 Repair printing press

- Detailed description of service

- Order quantity

- Acct assgmt

Cost control via limits !!

MMM

Feb. 3

??????

??

Specs

Purchase order # 12345Jan. 27

Item 10 Material : Steel - 01Order quantity : 250 pcs

Stock Material <=> Services

Purchase Order for Service

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.

SAP AG 1999

PurchPurch.. ord ord..

Service specificationsService specifications

Outline level

Service line

01 Selection of software components

01 Define requirements

Consultant K4 10 days at 2100 UNI

Adapt components02

01 Component A


02 Test configuration


??Value limit

Unplanned servicesto a max. of 60000 UNI

Service Specifications in the Purchasing Document


n Materials are procured at item level.

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

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.

You can set up release procedures for service entry sheets.

SAP AG 1999

Serviceentry sheet

Entry Accept.

FI and CO update

Serviceentry sheet

Total value22000 UNI

Services...

Service Entry and Acceptance

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.


n The system compares the prices on the invoice with the prices from the service entry sheets. n If there are no discrepancies, you can enter and post the invoice. n If the system finds any discrepancies, it blocks the invoice for payment.

SAP AG 1999

InvoiceABCSoftware GmbH

26000 UNISheet 1

o.k.

?

Vendor: ABCSoftware GmbH

PO no. 0346722PO itm 01

Sheet 1 20000 UNI

Sheet 3 6000 UNI

26000 UNI

Value 20000 UNI

Serviceentry sheet

Vendor invoice

Invoicedocument

31 Mar.

Invoice Verification for Entry Sheet

n The Logistics Invoice Verification procedure is carried out with reference to the purchase order. n This means that all service entry sheets signed off for this purchase order are suggested for invoice verification.


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

Agenda



Master Data

Procurement Cycle



Valuation

Price Control



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


ObjectivesMMMaster Data

MMMaster Data


Inventory ManagementProcurementProcurement

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

Contents

Inventory Management Overview

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

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

Inventory Management Overview

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

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.

Indicate what quantities of the material are in what types of stock

Three main (frequently used) types: – Unrestricted-use stock– Stock in Quality inspection– Blocked stock

Stock Types

Stock Types

In Inventory Management, there are three stock types that indicate a material’s usability.

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.

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.

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.

Stock Types in Goods Receipt

Goods Receipts

Unrestricted-use stock

Stock in Quality Inspection

Blocked stock

Scrapping / Sampling

ConsumptionTransfer

Documents for Goods Movement

Goods movement

Storage Location

Entry ExitMaterial

Materialdocument

Accountingdocument

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

SAP AG 1999

Goods movements

Warehouse Warehouse

Materialdocument

Accountingdocument

Receipts

Documents for Goods Movements

n 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.

Material Movement

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.

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

Goods Movements

Vendor

Goods receipt

Storage Loc 1

Storage Loc 2Transfer posting

Goods issue

Scrapping Consumption

Goods Movements

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

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

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

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

101102301309321349311551

Description

Goods receipt for Purchase Order into warehouseGoods receipt for Purchase Order into warehouse - reversedTransfer from one plant to another plant.Transfer posting from material to materialTransfer Posting from QI to Unrestricted StockTransfer posting from blocked stock to QI stockTransfer from storage location to another storage location.Withdrawal for scrapping

Material Movement

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

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.

SAP AG 1999

The Physical Inventory Process

Print physicalinventory document

List ofdifferences

3

5

5b

5a

Initiaterecount

Changecount

Blocking indicatorBlocking indicator

Enter physicalEnter physicalinventory countinventory count

PostPostdifferencesdifferences

11

22

44

66

Create physicalCreate physicalinventory documentinventory document

Physical Inventory – Process Flow

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.

n 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.

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

SAP AG 1999

Cycle Counting

Cycle counting

Stock:

Indicator:

Inventory frequency:

Stock

A

B B C

B

A B C D

12 x 6 x 4 x 1 x ...n x

...

Plant 0001

Physical inventory

Cycle Counting

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. SAP AG 1999

Setting the Indicator

Requirements-based analysis

Consumption-based analysis

Manually

Via report(RMCBIN00)

1.

2.

Memory

cc- AMaterial masterrecord

Material masterrecord

Analysis

Material Text CC CCValue Quantity new old$ Pc.

PP-001...21,500 19,850

PP-008...20,330 15,100

PP-015...

Plant 0001

No. Text CC CCMaterial new old

PP-001.. APP-008 A APP-015 B B

B AC AC C

...

Cycle Counting – Setting the indicator




3. Master Data




7 Valuation

8 Price Control



Agenda Day 4

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

Logistics Invoice Verification

Objectives

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

2. Automatic Settlement3. Credit Memos and Reversals

Contents

Logistics Invoice Verification : Overview

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

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

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


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

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

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

• 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

• Tolerance levels can be set for matching invoices in MM

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

SUBSTITUTEITEM

PURCHASE ORDERNo. 890

Vendor No. 1304

Item No. 27

SUBSTITUTEITEM


Vendor No. 1304

Item No. 27

SUBSTITUTEITEM


Vendor No. 1304

Item No. 27

SUBSTITUTEITEM


Vendor No. 1304

Item No. 27

SUBSTITUTEITEM


Vendor No. 1304

Item No. 27

SUBSTITUTEITEM


Vendor No. 1304

Item No. 27

Purchase Req.

Purchase Order

Goods Receipt


Invoice Entry

n 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. SAP AG 1999

PaymentPaymentprogramprogram

InvoiceInvoice


Purchaseorder

Mat. doc. forgoods receipt

Invoicedocument

Master dataMaster data

Invoice Processing

Invoice Entry

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. SAP AG

Preliminary Posting

Document

Vendor 100 -

GR/IR 100 +

Document

Vendor 100 -

GR/IR 100 +

Document

Vendor 100 -

GR/IR 100 +

Purchase Order History

Goods receipt

Invoices

Parked invoices


Goods receipt

Invoices

Parked invoices


Goods receipt

Invoices

Parked invoices

Invoice

PostPostPost

GR/IR AccountGR/IR AccountGR/IR Account

Vendor AccountVendor AccountVendor Account

ChangeChangeChange

ParkParkPark

Doc. 51000123

Vendor 100 -

GR/IR 100 +

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

SAP AG, 1997

UNIT 7.PPT 11/28/97 / 1

Posting an Invoice

Invoice

for purchaseorder

Doc. no. 51000123

Vendor 100 -

GR/IR 100 +

Doc. no. 51000123

Vendor 100 -

GR/IR 100 +

Doc. no. 51000123

Vendor 100 -

GR/IR 100 +

Material master

Moving Avg Pr

value

Material master

Moving Avg Pr

value

Material master

Moving Avg Pr

value

Purchase order history

goods receipts

down-payments

invoices


goods receipts

down-payments

invoices


goods receipts

down-payments

invoices

PostingPostingPostingAAA BBB

XX XX

GR/IR AccountGR/IR AccountGR/IR Account

Vendor AccountVendor AccountVendor Account

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)

SAP AG, 1997

UNIT 7.PPT 11/28/97 / 1

12.11.9612.21.96

Variance

Goods receiptGoods receiptGoods receipt

QuantityQuantityQuantityQuantityInvoice

50 pcs GR GR 40

PricePricePricePrice

Goods receipt10 pcs = 200gGoods receipt10 pcs = 200gGoods receipt10 pcs = 200g

Invoice

DateDateDateDateInvoice

Purchaseorder

5.00$

Invoice

6.00$@

= 2 kg Purch.Order

10 pcs @$20/kg

Purchase orderprice quantity

Purchase orderprice quantity

Purchase orderPurchase orderprice quantityprice quantity

Invoice

10 pcs = 2.5 kg

10 pcs = 250 g

Purch.Order

Planneddelivery date

Credit memos

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

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

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.

Processing of credit memos is same as invoice verification

n You usually receive a credit memo from a vendor if you were overcharged.n A credit memo can be entered with reference to a purchase order or a goods receipt. n 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.

SAP AG 1999

Create credit memo

PO 4151599035

Purchaseorder4151599035100 pcs10.00 UNI/pc.

Createsubsequent credit

PO 4151599036

Goods receipt50 pcs

Invoice

PO 415159903580 pcs800 UNI

Invoice

PO 415159903650 pcs800 UNI

Credit memo

PO 415159903530 pcs300 UNI

Credit memo

PO 415159903650 pcs300 UNI

Credit Memos

Purchaseorder4151599036100 pcs10.00 UNI/pc.

Credit Memos and Reversals

Agenda

Material Management


Master Data

Procurement Cycle



Valuation

Price Control



• 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

Material Valuation

Objectives

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.

Postings in Logistics Invoice Verification can also affect Material Valuation.

SAP AG

R

Transactions Involved in Material Valuation

SDSDInternal and external accounting

Requirements determined inRequirements determined inrequirements planningrequirements planning

Master dataInvoice Verification


Goods receipt

Goods issue

Transferposting

WarehouseManagement

A

B

MaterialBatchVendorG/L accountCustomerStorage locations...

Internal procurement Internal procurement ProductionProduction

External procurementExternal procurementPurchasingPurchasing

Invoice receipt

?

Material Valuation Levels

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

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.

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.

SAP AG

R

0001

Material Valuation Levels

Material Valuation LevelsMaterial Material Valuation Levels Valuation Levels

Valuation areaValuation area

Company codeCompany code PlantPlant

SAP AG 1999

Material typeMaterial type

300100

300000Valuation class 1Valuation class 1

Valuation class 2Valuation class 2Accounting 1

Valuation class

Valuation Class

MaterialMaterialmastermaster

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.

Valuation Class

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 materialDifferent grades of quality for the materialDifferent statuses for the materialDifferentiation between in-house production and external procurementDifferentiation between different deliveries

FeaturesIf 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.

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.

SAP AG 1999

Price control(in material master)

“S”Standard price

“V”Moving average price

Material valuationMaterial valuation

Material Valuation Procedures

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.

Valuation Procedure and Price Control

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).

SAP AG 1999

GR/IR

250

Stock account

200

Valuation of Goods Receipts

Price control

S (Standard price) = fixed

V (Moving average price) = value / quantity

Amount from purchase orderStandard price * quantity

GR/IR

250

Stock account

250

Amount from purchase order

Accounting 1

Price difference

50

MaterialMaterialmastermaster

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.

Valuation Procedure and Price Control

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.

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

Contracts

SAP AG 1999

Contracts

ReleasedocumtnVendor

Vendor:

Material: Nail

PurchOrg:

Conditions

1234

A21

3000

6 UNI / kg2%5%

Price/UoMFreightDiscount Last purch. order:

4500019324

Manual RFQ Contract

Contract

PReq.

10

20

30

Contr. rel. ord.

10

20

30

10

20

30

102030

. . .

Info record5300007152

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.

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.

SAP AG 1999

Target qty:Target qty: 50 000 m cable 50 000 m cable at 300 UNI per mat 300 UNI per m

Quantitycontract

(MK)

Valuecontract

(WK)

Contract Target qty:Target qty: Materials at a Materials at a value of 150 000 UNIvalue of 150 000 UNI

Types of Contract

Contract

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.

SAP AG 1999

Plant 1000

Plant 2000

Plant 3000

Contract 2

Item Mat. Plant

10 2 3000

Contract 1

Item Mat. Plant

10 1

Plant Contract/Centrally Agreed Contract

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.

Contracts

• 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.

SAP AG 1999

Plant conditionsPlant conditionsPlant 1000: surcharge 5%Plant 1000: surcharge 5%Plant 2000: surcharge 3%Plant 2000: surcharge 3%Plant 5000: surcharge 3%Plant 5000: surcharge 3%

Releaseorder

Vendor

MaterialPlantQty.Price

: A

: 1: 1000: 100 pcs.: 105.00

Contract

VendorPeriod

MaterialTotal qty.Price

: A: 01.01.- 12.31.: 1: 10,000 pcs.: 100.00

Plant Conditions in Centrally Agreed Contracts

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

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.

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.

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.

SAP AG

Function of Vendor Evaluation

Price simulation for material 1Price simulation for material 1Price simulation for material 1

Vendor A 10.20

Vendor C 9.90

Vendor B 11.80

Vendor A 10.20

Vendor C 9.90

Vendor B 11.80

General vendor evaluationGeneral vendor evaluationGeneral vendor evaluation

Vendor B

Vendor A

Vendor C

Vendor B

Vendor A

Vendor C

Overall Price Qual. Deliv. ServiceOverallOverall PricePrice Qual.Qual. Deliv.Deliv. ServiceService

90

84

81

92

75

90

90

92

76

93

88

74

85

81

84

Evaluation for material 1Evaluation for material 1Evaluation for material 1


88

90

80

81

94

85

93

92

82

92

88

79

86

86

74

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.

SAP AG

Scoring Levels in Vendor Evaluation

Individual scoresIndividual scoresIndividual scoresIndividual scores

Scores for maincriteria

Scores for maincriteria

Scores for mainScores for maincriteriacriteria

Overall scoreOverall scoreOverall scoreOverall score

Weighted

Weighted

Scores for subcriteriaScores for subcriteriaScores for Scores for subcriteriasubcriteria

Sub-criteria with automatic scoring

Evaluation Criteria

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

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. SAP AG

Analyses in Vendor Evaluation

Ranking listRanking listRanking list

General vendor evaluationGeneral vendor evaluation


90

84

81

92

75

90

90

92

76

93

88

74

85

81

84

Vendor B

Vendor A

Vendor C

Evaluation per material/material groupEvaluation per material/material group

General vendor evaluationGeneral vendor evaluation


84

81

75

90

92

76

88

74

81

84

Vendor A

Vendor C

Evaluation comparisonEvaluation comparisonEvaluation comparison

Evaluation for material 1Evaluation for material 1General vendor evaluation

OverallOverall PricePrice Qual.Qual. Deliv.Deliv. ServiceService

84 75 92 88 81Vendor A


88 81 93 92 86

Material Requirement Planning Overview

Materials Requirements Planning

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 .

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

n 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.

n 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.

SAP AG 1999

Reorder Point Planning

Replenishmentlead time

Stock Lot size

Reorderpoint

Safety stock

Reorder point Deliverytime

Time

Re-order point planning

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

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

n 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

SAP AG 1999

Reorder pointReorder point

Purchase orders

Firm planned ordersFirm purch. requisitions

Order proposalfor qty of lot size

Stock

Shortage

Comparison

Av

ail

ab

le w

are

ho

us

e s

toc

k

Net Reqmts Calculation in Reorder Point Planning

Re-order point planning

n 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).

Thank You

2011-1-Training Manual on Material Management

Documents

Transcript of 2011-1-Training Manual on Material Management