Procurement Processes EGN 5620 Enterprise Systems Configuration Spring, 2012

Procurement Processes EGN 5620 Enterprise Systems ConfigurationSpring, 2012

Procurement ProcessConcepts & Theories

Requirements Determination – Requisition request • Request for Quotation (RFQ) • Vendor Selection • Order Processing - Purchase Order • Order Tracking • Goods Receipt and Inventory Management • Invoice Receipt and Verification • Payment Procurement Process © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Is an internal document • Requests a certain quantity of certain material (or service) on a certain date • Is generated: • Manually • MRP (automatically), or • Sales orders, etc. • With an optional request approval (or release) procedure Purchase Requisition (Request) © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Non-inventory items: manually specified by the user department for: • Office supplies, • Project-specific materials, and • Prototype materials • Inventory items: automatically created by a MRP/MPS planning mechanism for: • Plant Maintenance • Production Orders • Sales Orders Purchase Requisition Sources © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Default data for line items (from the material master, vendor info record, & user preferences) • Delivery dates, • Plants, storage location • Purchasing groups, etc. • Individual line item data • Material, • Quantity, • Delivery date • Account assignment (if required) • Cost center, • General Ledger accounts, • Project number, etc. • Check data Purchase Requisition Data © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Request for Quotation (RFQ) • Maintaining a Quotation • Comparison of Prices • Creating a Contract • Creating a Release Order Quotation Process © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Is an invitation to a vendor to indicate their terms and conditions (in particular, their price) for the supply of a material (or service) by submitting a quotation • Identifies the required material, quantity, and delivery dates Request for Quotation (RFQ) © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

P.O. 45…12 Quote Vendor 1 Vendor 2 Vendor 3 RFQ Eval. Quote Pur Req. generate Reject Letter Quote • An RFQ is an invitation to a vendor by a Purchasing Organization to submit a bid for the supply of materials or services • The accepted quotations will generate Purchasing Information Records • Perform Quotation Price Comparisons • Finally Select a Quotation Request for Quotation

Enter each vendor's quotation in the associated Request for Quotation (RFQ) • Compare prices using the price comparison list • Store the best quote in an info record • Optionally, send rejection letters to the losing bidders Maintaining a Quotation © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Evaluate vendors (for sourcing) with respect to: Price • Price Level • Price History Quality • Goods Receipt • Quality Audit • Complaints/Rejection level Delivery performance • On-time delivery • Quantity reliability • Compliance with shipping instructions • Confirmation Date • A scoring range (1 -100) may be used with weight factors to score each identified/qualified vendor. Vendor Evaluation

Compares the prices from all quotations from the competitive bidding process using a price comparison list • Ranks the quotations in the comparison list by item from the lowest to highest price Comparison of Prices © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Release order is a purchase order that references a contract; it specifies: • Number of the contract • Quantity to be released • Delivery date • When a release order is created, release order documentation is automatically updated against the contract (including open quantity, quantity released to date, total value) Creating a Release Order © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

The vendor data, price data, and the delivery terms and conditions are copied directly to the release order • Release orders can be created from a proposed purchase requisition generated off a MRP run (net requirements) • Automatically • Manually Creating a Release Order (2) © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Purchase Orders are: • a formal request to a vendor to provide materials or services • An internal planning and tracking tool • Purchase Orders specify: • Vendor • Material and/or service • Quantity and price • Delivery dates • Terms of payment • A purchase order can be for variety of purposes: • Standard Stock or Consumption • Services • Subcontracting • Consignment Purchase Orders © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Procurement ProcessesSAP Implementation

Rules define the parameters for Master Data and Transactions • Rules determine functionality for Master Data and Transactions • Rules are relatively fixed • Rules change, when corporate policy changes Rules (review) © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Material Management • Fiscal Periods • Account Groups • Material Types • Plant Parameters • Purc./Rec./Inv. Tolerances • Automatic Account Assignment • Reservations • Material Group • Loading Group Rules (review) © SAP AG - University Alliances and The Rushmore Group, LLC 2007. All rights reserved.

Transaction data are application data; each transaction is dynamic and unique, unlike master data and organization data which do not change very often. • Transaction data use (is comprised of) organization data, master data, and rules • Transaction data includes internal and external exchanges that describe business activities Transaction Data (review) © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

The purchasing process resides in the Materials Management (MM) module of SAP R/3 as well as the Finance (FI) module • Master data for the purchasing process exists in the (MM) and (FI) modules • The purchasing process may interface with the modules below: • Production Planning (to plan for production), • Quality Management (to check quality at receipt), and • Warehouse Management (to put away) Purchasing in SAP R/3 (review) © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Procurement Process (Procure-to-Pay) Purchase Requisition Purchase Order Notify Vendor 3-Way Match Payment to Vendor Vendor Shipment Invoice Receipt Goods Receipt © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Create & Save Purchase Order

Purchase Order in SAP Three sections in a purchase order: • Header • Item overview • Line item

Header Vendor Company Purch. Org. Date Purch. Org. group PO Price Item Overview Materials Price/UofM Quantities Currency Delivery Date Plant Line Item PO History Tolerances Line Price Storage Delivery Schedule Purchase Order 45......01 Purchase Order Structure

Header - information specific to the entire purchase order • Vendor • Purchase organization data • Condition (total purchase price) • Partner • Payment process • Status Purchase Order Structure:Header © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Line item – purchasing information required for the item • Item category • Material ID and description • Material or service quantity • Delivery date • Net price • Currency • Plant • Storage location • Measurement unit Purchase Order Structure:Line Items © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Material data for the item • Quantity/weight • Delivery schedule • Invoice • Conditions (Purchasing price for the item) • Delivery address • Confirmation • Condition control • Subcontracting Purchase Order Structure:Item Details © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Printed and mailed • E-mail • Electronic Data Interchange (EDI) • Faxed (hardcopy or electronic) • eXtensible Markup Language (XML) Purchase Order: Output Format © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

You can search for the purchase order number with • Material number, • Vendor number, etc. Search Purchase Orders © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

MM: Goods Receipt Notify Vendor Purchase Order 45......01 Vendor Receipt Shipment

Movement types - stock transactions • Goods receipt (from a vendor or production) • Goods issue (to customer or production/use) • Stock transfer (from one SL to another) • Movement type determines which • Quantity fields are updated • Stock types are updated • General Ledger (G/L) stock or consumption accounts are updated • Fields are displayed during document entry Goods Receipt – Movement Types © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

When a goods movement takes place it is represented by a Movement Type • Movement types are three-digit keys used to represent a movement of goods 101 – goods receipt into warehouse 102 - reversal of goods receipt for purchase order into warehouse/stores 103 – goods receipt into GR blocked stock 122 – return delivery to vendor 501 - receipt w/o purchase order into unrestricted-use stock Material Movements

Goods receipt is a goods movement activity in which we accept goods into our system. • If materials are delivered against a purchase order we will reference that order and SAP can: • retrieve data from the PO for us to verify: material, quantity, and so on • Update inventory G/L account automatically • Update purchase order history with the receipt • Update physical inventory Goods Receipt

Goods receipt into (destined for) the warehouse • SAP increases total valuated stock by the delivered quantity. • SAP updates the stock value at the same time. • Goods receipt into consumption • SAP only updates the consumption statistics in the material master record • SAP does not update the consumption statistics if the goods movement posting uses the special stock types: sales order stock type and project stock. • Goods receipt posted into blocked stock • SAP maintains the same stock level. • SAP only records it in good receipt block stock of the purchase order history. • Note: • If goods receipt is being posted into a storage location where data does not yet exist for the material, SAP automatically creates a storage location data in the material master record. Goods Receipt – Destinations © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Purchase Order (PO) history and Purchase Order (PO) updated • Material Master - stock and value updated • Notification of goods receipt issued (optional) • Transfer request to the Warehouse Management module (if active) Goods Receipt – Effects © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Material and financial documents created and/or updated • Stock and consumption accounts updated • Inspection notification in the Quality Management (QM) module - if active Goods Receipt – Effects (continued) © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Inventory account is debited at standard price • Goods Receipt/Inventory Receipt (GR/IR) clearing account is credited at purchase order price • Price difference account is debited (credited) with difference between standard price and purchase order price Goods Receipt – Account Postings © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Inventory (account) GR / IR Dr Cr Dr Cr $100 • $100 No impact on Financial Accounting (FI) Purchase requisition Purchase order Materials Management (MM) and Financial Accounting (FI) via automatic account assignment Goods receipt Goods Receipt – Account posting

Tasks: • Engage in 3-way match to validate the invoice. • Enter PO number to retrieve the PO and view (verify) • Open dollar amount. • Quantity, • Price, • receiving date, • Vendor name • Enter the invoice number and the dollar amount to be paid • Simulate invoice posting • Post the invoice in SAP Invoice Receipt Process © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Payment Program Debit Credit Purchase Order Invoice Receipt Verification 3-Way Match for Payment Goods Receipt © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Purchase order - Target quantity - - Target price - Goods receipt - Actual quantity - Invoice receipt - Actual price - Incoming Invoices are reference against a Purchase Order to verify their content, prices, and arithmetic. If discrepancies arise between the purchase order or goods receipt and the invoice the system with generate a warning or an error • Depending on system configuration the difference could cause the system to Block the Invoice Invoice Processing - 3-Way Match

Matches the vendor’s invoice to the purchase order and the goods receipt (3rd part of 3-way match) • Matches price and quantity • Updates the purchase order and its history • Updates accounting information Invoice Verification - 3-way match © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

When an invoice is posted, SAP shifts the liability • From the Goods Receipt/Invoice Receipt account (for the purchase order) • To the vendor account Upon posting, SAP: • Updates the Purchase Order • Updates the Material Master • Creates an Accounting Document • Initiates the payment process within Financial Accounting Financial effects of Invoice Posting

GR / IR A/P Vendor Dr Cr Dr Cr Dr Cr $100 • $100 • $100 Amount owed is assigned and transferred to vendor account payable Invoice receipt Invoice Receipt Reconciliation Account automatic posting

Vendor 100435 Vendor 100234 Vendor 100621 Vendor 100846 Accounts Payable (AP) Reconciliation 250 200 100 400 950 Accounts Payable Reconciliation Account © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Selects invoices for payment based on the payment terms in the vendor master or purchase order • Generates payment for released invoices • Updates accounting information Invoice Payment © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Determines: • Which open items to be paid • When they will be paid • Which bank to make payment • Payment medium • Who will get paid • Payment process creates a financial accounting document to record the transaction Accounts Payable Settlement Process © SAP AG - University Alliances and The Rushmore Group, LLC 2008. All rights reserved.

Can be done automatically or manually • Post Outgoing Payment vs. Payment Program Elements of the Payment Transaction: • Payment Method • Bank from which they get paid • Items to be Paid • Calculate Payment Amount • Print Payment Medium Process will create a financial accounting document to record the transaction Payment to Vendor

Procurement Processes EGN 5620 Enterprise Systems Configuration Spring, 2012