L1 Training

Materials Management

OsA One simple ABB

Materials Management Module
Rules of the Room
1. The purpose of this session is to understand the basic
concepts of SAP pertaining to Production Planning. This is not
a session for solution design.

2. We will appoint a time keeper to prevent us from running

over on time – and sessions will start on time!

3. A parking lot attendant will capture items that are out of

scope for this session, require more time or resources than we
have available today, or require research or cross-team
discussion.

4. No question is stupid, but please wait until the end of a topic

to ask your question.

5. Please switch of Cell phones / Place the mobile in silent

mode during the entire session

6. Please let us know if we are going too fast! And keep in mind
that some of us are SAP-savvy while others would have never
heard of it before!

2
 Business Process Map

Manage
Organization Master Data Contracts Requisition Manage
RFQ / Vendor
Structure Management Management Management Approval
Selection

Initiate Create PR
Organization Manage Create RFQ Contract
Contract automatically
Structure Material Master Approval

Create Create PR
Manage PR
Contract manually Execute RFQ
Vendor Master Approval

Distribute
Third Party Vendor
Info-Records Contract
PR Creation Selection

Source List

Mange
Service Master

3
 Business Process Map
Approval
Manage Manage Procurement Inventory
/ Document
PO PO Support Management
Transmission

Create PO Create
Create PO PO
Via MRP Return to Goods Receipt
Services Approval
Vendor

Goods Receipt
Create PO Create PO PO
3rd Party
Manual Subcontracting Transmission Reminder
Report
Create PO
3rd Party Service Entry
Vendor
Evaluation
Crete PO Cancellation
Consignment Reversal
Interface /
Enhancements/
Create PO Goods Receipts Consignment
KANBAN Receipt

Create PO
Reservations
STO

PO
Confirmation

4
 Business Process Map
Inventory Inventory Manage
Management Management Invoice

Goods Issue Consignment Match by Invoice

1-way

Reporting Match by
STO-GR/GI PO & Invoice
2-way

Forms /
Interfaces Match by
Transfer Posting PO,GR & Invoice
3-way

Physical Subcontract
GR / GI
Inventory

Inventory
Valuation

KANBAN

Warehouse
Management

5
Agenda

Objective & Overview

Organisation Structure

Master Data Overview

Purchasing documents

Standard Procurement Process

Inventory Management

Invoice Verification

Standard Reporting

6
Objective

 Provide a general overview of the Materials Management (MM)

Module and the relevant sub-modules

 The functions supported by MM - Materials Management include the

following sub-modules:

• Procurement
• Inventory Management
• Material Valuation
• Invoice Verification

 Note that the Procurement cycle for goods/services is only completed

once payment has been made by Finance (through the FI module)

7
Overview

 The Materials Management (MM) module is aimed at managing

procurement and receipt of materials & services.

 Materials Management also involves storage, movement, valuation &

consumption of materials.

8
 Materials Management - Integration with other Functions
Projects
Projects Sales & Distribution (SD)

•Mfg Demand •Sales orders

•Forecast
Plant Maintenance
Customer Service
•Spares
•Services
Materials Production Planning (PP)
•SOP
Management •Demand Management
•MRP / MPS
•Purchase orders •Production Control
•Goods receipts & •Goods Receipt
•Issues Warehouse
Management

Finance &•Controlling •Stock placement

Quality Management •Stock removal
• Inspection of Parts
• Usage decision •Product costing

9
MM Organization Structure

Client

Company code 1 Company code 2

Plant 1 Plant 2
Purchasing
Organization

Storage Storage
location 1
WH
location 2
WH Plant 3 Plant 4

10
Client

A self-contained unit within an R/3 System

 Every Client has

• A separate database
• A separate set of tables
• A separate set of master records

A client could be at
• Global level Client

• Regional level
• Country level

11
 Company Code

The smallest organizational unit for which a complete

self-contained set of accounts can be drawn up for
external reporting

 At Company Code level we can have

• Balance sheet
• Profit & Loss statement

Client

Company Company
Code Code

12
 Plant

An organizational unit within logistics, serving to sub-

divide an enterprise according to production,
procurement, maintenance, and material planning
aspects
 Plant can represent
• A manufacturing facility
• A distribution centre
• An office Client

Company Code

Plant 1 Plant 2 Plant 3

13
 Storage Location

An organizational unit within logistics where materials

are stored within a Plant

 Storage Location can represent

• A storage area where materials are stored
• A storage area where goods receipt is made
• A storage area from where goods are issued

Company Code

Plant

Storage Storage Storage

Location 1 Location 2 Location 3

14
 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
 Purchasing Organization can be for
• Central purchasing
• Local purchasing

Client

Company Code

Purchasing Purchasing
Organization 1 Organization 2

15
 Purchasing Group

A group of Purchasers who are responsible for day-to-

day purchasing activities

 Purchasing Group can be defined for

• A set of similar materials
• A geographical location

Client

Company Code

Purchasing
Purchasing Group
Organization

16
Basics of SAP Materials Management Process

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Master Data

 Material Master

 Vendor Master

 Purchase info record

 Source List

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Material Master

Material
Material Views
type

Raw Material Purchasing

Internal number Semi-finished Sales

assignment Finished product Accounting

External number Pipe line material MRP

assignment Trading goods Warehouse
etc. etc.

Material master is the central repository of logistics.

It contains all the information of all the materials in a company .

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Purchasing View of Material Master

 Purchasing Data in the Material Master.

 Purchase Order Specific Unit of measures for Purchasing data
materials.
 Tolerance levels (Over delivery and Under Order unit
delivery) Material Tolerances
 Reminder levels. Reminder levels

 Purchasing Group responsible for procuring this ...

materials.
Purchasing group
 Purchase Order Texts. PO text
 Automatic PO indicator which controls the PO ...
Optimization and Automation. Plant
Automatic PO
 Quota arrangement information.
Source list require -
 All of this Information gets defaulted in the PO ment
and can be edited and changes in the Quota arrangement
subsequent masters like PO Info records,
usage
PO etc.

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Vendor Master

General data
Account number
Description/address
Supply region

Purchasing organization
Accounting data data
Reconciliation account Partner roles
Terms of payment Schema group
Bank details Purchase order currency

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Purchasing Data of Vendor Master

Purchasing Data in the Vendor Master Record

Purchasing data
 Purchase organization data
 Purchase order currency PO currency
 Payment terms Terms of payment
Incoterms
 Automatic purchase order Purchasing ...
organization
 Incoterm

Vendor
Automatic PO
...

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Purchase info record

General data
Vendor data
Origin data
Order unit

Control data Prices and conditions

Delivery time Gross price
Minimum quantity Discounts
Tolerances Freight

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Purchasing Data of Purchase info Record

 A purchasing info record serves as a Purchasing Info Record

source of information for Purchasing. Pur.order
order
Pur.
 Data from the info record is used as 1

default data in documents such as Info record Pur. order

2

purchase orders. Vendor A

 Purchasing info records enable the Material Vendor A
1
Purch. org. 1000
buyer to determine: Purch. org. 1000
Plant 1000
• Which materials a certain vendor has Price 10.00 Material 1
offered or supplied to date PO text Pc.
Pc.
• Which vendors can offer or supply a Material ... Price 10.00
%
certain material Conditions
Conditions
Purchasing $
 A purchasing info record can be valid data Info record Pur. order
for all the plants covered by a Vendor A
purchasing organization or for a Material Vendor A
1
Purch. org. 1000
single plant within a purchasing Purch. org. 1000
Plant 3000
organization. Plant 3000
Material 1
Price 9.00
 Info records can be created manually PO text Price 9.00
or automatically ...
 SAP AG 1999

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Source list

•For some materials, there exists

more than one possible source.
•In order to manage these
sources, you will use source list
and quota arrangements.

• When a requisition is created 1.7.95 - 31.12.95

1.1.95 - 30.6.95
manually or through MRP, the
SAP system can then Source list Vendor 1 fixed
Vendor 1 allowed
Vendor 2 allowed
determine the correct source. Vendor 3 allowed
Material M1
•The source list contains the Plant 0001
allowed, preferred and/or blocked
sources of supply for a material in
a plant that are valid within a
certain period

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Purchasing Documents

Definition:
A Purchasing Document is an instrument used by purchasing to procure
material or service.

Purchasing Documents

Purchase Scheduling
Purchase Order RFQ Quotation Contract
Requisition Agreement

How to differentiate purchasing documents ?

•Document type.
•The relevant number range assigned internally or externally.

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Purchasing
 Purchasing Documents

Purchase Defines Requirement for a material/service.

Requisition

Purchase Request to vendor to supply certain material/service.

Order

Transmits a requirement defined in a requisition for a material/service to

RFQ potential vendor.

Contains vendor pricing & terms of delivery provided in response to an

Quotation RFQ. Its a basis for selecting vendor to supply material/service.

A type of Long term buying agreement with negotiated conditions over a

Contract certain period of time.
Quantity contracts and Value contracts

Scheduling A type of Outline agreement providing for the subsequent issue of

Agreement delivery schedule specifying qty, delivery date, delivery time-spots.

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Purchasing
Purchase Requisition

Purch. req.
generate Release Release procedure
document
? OK

RFQ

Requirements
planning

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Request for Quotation

RFQ
Quotation price Manual/automatic
One-time vendor ! comparison list data update
Statistics
Certificates Reminder
Quantities
Texts
Conditions

Purch. info record

Vendor B
Vendor A Purch. order
RFQ Rejection
Collective request
? for quotation Purch. order

Stock material
Consumable material
Service
BANF req
Purch.

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Purchase Order

Reference and
copy function Account
Stock material assignment
Consumable material - Single
- Multiple PURCHASE ORDER
Service
Contract - Normal
Material provided
Purch. order - Subcontracting
Purch. info rec. - Consignment
Req. for quot. - Stock transfer

Generation from
Statistics
purchase requisition Direct
processing entry Purchase
order history

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Purchase Order Release

 Purchase Orders can be subjected to release procedures. Purchase Orders

can be release based on PO value, Cost Centers, Plants, etc. If the purchasing
documents fulfills certain conditions (e.g. the total order value exceeds
$10,000) defined, it has to be approved (by the cost center manager, for
instance) before it can be processed further. This process of approving
(clearing, or giving the "green light" to) a proposed item of expenditure is
replicated in the SAP System by the "release procedure". Also there is
provision for release prerequisites for approvals.

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Scheduling Agreement / Contract

Outline Agreements

Contracts Scheduling Agreements

Released to
MK WK vendor by

Quantity Value
Delivery Schedules
Contract Contract

Released to
vendor by

Release Release
order order
 Popularly called as “blanket
purchase orders “

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What is required to create Purchasing Documents ?

 Organizational Data

 Master Data

33

Purchasing
Standard Procurement Processes

 Procurement for Stock

 Procurement for consumption
 Procurement of External services
 Subcontracting
 Third party Procurement
 KANBAN Procurement
 Vendor Consignment
 Stock Transfer with delivery
 Return to Vendor

34
Procurement for stock

Purchasing
document(s)

Item:
no account Warehouse
assignment
Goods
category
receipt

Goods
issue

Material
Production

Vendor

35
Procurement for consumption

Purchasing
document(s)

Item:
with account
assignment
category

Goods
receipt Production

Vendor

Material

36
Procurement of External Service

37
Subcontracting

38
Consignment

39
Stock Transport Order

40
Return To Vendor

41
Third Party Procurement

 Create a third Party Sales Order. This triggers a Purchase Requisition

automatically in the system. If no SD route is used third Party
Requisition can be manually created in the system.

 Find source of supply and convert the PR to PO.

 Vendor confirms the shipment to customers. Post a statistical Goods

Receipt in SAP.

 Receive Vendor Invoice and make Invoice verification

42
KANBAN Procurement

43
Inventory Management

Objective:
To manage the stocks on a quantity & value basis

Function:

Inventory Management

Goods Goods Transfer Physical

Receipt Issue postings Inventory

44
 The Document Concept

When Posting a goods movement in SAP system, the following documents are created.

Material Document Accounting Document

 When a goods movement is  If a movement is relevant for

posted, a material document is financial accounting, an
generated that serves as proof of accounting document is created.
movement.  The G/L accounts involved in a
 A material document consist of goods movement are updated
header & at least one item. through an automatic account
Reports can be generated based assignment.
on material document.

45
Goods Receipt

 This is to post the receipt of Goods from an external vendor or

from production.

 A goods receipt leads to an increase in warehouse stock.

 SAP distinguishes between the following types of goods receipt.

• Receipt with ref to Reservation.
• Receipt with ref to an Order.
• Other Goods Receipts.

Planned
Goods Receipt goods
receipts
Goods receipt
Goods receipt Goods receipt
for purchase
for order for reservations
order

46
Stock types for goods receipt

Goods receipt blocked stock

Unrestricted-use stock
Warehouse
Stock in quality inspection

Vendor Co
n su Blocked stock
mp
t ion

Account assignment object

Cost center
Order
47 ......
Goods Receipt Posting

Results of Goods Receipt Posting

G/L
Material Accounting Goods receipt
Stock is accounts
document document is slip is
updated are
is created created created
updated

48
Goods Issue

 Using this you can post a material withdrawal, a material Issue,

or a shipment of goods to a customer.

 A Goods Issue leads to a reduction in warehouse stock.

 SAP supports the following Goods Issues:

• Withdrawal for Production Order.
• Scrapping or withdrawal for sampling.
• Return delivery to vendor.
• Issue to a delivery

49
Goods Issue Types

Goods Issue Types

Deliveries to Goods issue for Return deliveries Goods issue for

customers production order to vendors Scraping & Sampling

Goods Issue

Issue with
Issue without
reference
reference document
document

 Reservations
 Production orders

50
Goods Issue Posting

Results of Goods Issue Posting

Cost G/L Consumption,

Material Accounting Goods issue
accounting Stock is accounts Reservation,
document document is slip is
document is updated are orders are
is created created created
created updated updated

51
Transfer postings
Transfer postings : ( TP)
 TP may or may not connected with a physical goods movement .

 TP usually involve a change in stock type, batch number or material number .

TP from stock
to stock

Ex :
From unrestricted to QI
From QI to unrestricted
From blocked to QI
From blocked to unrestricted
From unrestricted to blocked
Own from return ….. etc.

52
Stock Transfer

Stock Transfer : ( ST)

 ST are connected with a physical goods movement .

 ST can contain stock transport order & billing documents.

 ST can be done in one step or 2 steps using inventory management .

Stock Transfer

Storage location to Company code to

Plant to plant
storage location company code

 Stock will be updated .  If plants belongs to  Accounting doc . will be

different valuation areas, created .
accounting doc. will be
 Stocks will be updated .
created , otherwise no .
 Stocks will be updated .

53
Material Valuation

 Possible methods in SAP

• Moving average Price – MAP (Weighted moving average).
• Standard Price
 SAP Recommendations
• Standard Price for Semi finished and finished materials
• Moving average for raw materials and trading goods
 Valuation using standard Price results in
• Inventory Postings being carried out at the standard price
• Variances being posted to price difference account
 Valuation using Map results in:
• Goods receipts being posted at the goods receipts value
• The price in the material master being adjusted to the
delivered price
• Price differences occurring only in exceptional circumstances
• Manual price changes becoming unnecessary, but possible

54
Physical Inventory: Procedure

Objectives of Physical inventory :

 To check the actual physical stock with the
book - Inventory & post the differences, if
any.
 Creating a physical Inventory document.
Physical Inventory Preparation  Blocking materials for posting .
 Printing & distributing physical
inventory document

Physical Inventory  Counting stocks

Process Physical Inventory Count  Entering the results of count on
the Physical inv doc . Printout

 Entering the counting results into the

system
Physical Inventory Analysis  Initiating a recount, if necessary
 Posting inventory differences

55
Steps in Invoice Verification

Data from
purchase
order / GR

NO Invoice verification
Invoice Invoice
VARIATION is over & payment
Receipt Verification
is possible

Data from YES

vendor
master
Invoice is blocked for Payment is
payment but posted not possible

Release the invoice after

Payment is
taking necessary action
possible
in a separate step

56
Data update during Invoice Verification

Update of MAP
Generation of Update in the
Update in in Mat. Master
financial acc. value of Stock if
PO statistics if value is not
document MAP changes
same

Parking the invoices

Invoice
Receipt Preliminary
posting based When useful ?
on PO or GR
Enter vendor  If interrupted during invoice entry.
& Item Screen
System wont  If there are some question regarding invoice .
check weather
Save the the balance
 If we wish to split the responsibility .
document is ‘0’or not

Post the
Posting is possible
parked
ff the balance = 0
document
57
 Reporting

 Purchasing
ME2L : PO by Vendors
ME2M: PO by Materials
ME2K: PO by Account Assignment
ME2W: By Supplying Plant
ME80: General Analysis

 Inventory Management
MMBE: Stock Overview
MB53 : Plant Stock Availability
MB52 : Warehouse Stock
Stock in transit
MBLB : Stock with Subcontractor

58
Vendor Evaluation

VENDOR1 VENDOR2 VENDOR3 VENDOR1 VENDOR2

PROCUREMENT
PROCUREMENTOFOF PROCUREMENT
PROCUREMENTOFOF
MATERIALS
MATERIALS EXTERNAL SERVICE
EXTERNAL SERVICE

EXTERNAL
PRICE DELIVERY SERVICE

GENERAL
QUALITY SERVICE/
SUPPORT

Vendor Evaluation System

Calculates scores
VENDOR1 VENDOR1 VENDOR1 VENDOR1 VENDOR1
90 Points 85
90 Points 75 Points 80 Points 70 Points

Objectivity/
Comparability
59

Invoice Verification
Key Highlights of Vendor Evaluation

 Your Organization wishes to score your vendors based various performance criteria.
 Evaluation criteria needs to be defined.
 In SAP vendor evaluation in fully integrated into the Purchasing and Quality Management
Modules.
 The main criteria are Price, Quality, Delivery, General Service/Support and External
Service.
 If required other criteria can be defined.
 The organizational level for Vendor Evaluation is the purchasing organization

60
15 Minute Break

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