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Procurement Process

- Obtain materials or services from dealers in correct quantity, proper value at proper time
- Subdivided in 2
o Basic Procurement
o Special Procurement

Basic Procurement

- Quality of procurement: Getting the Right Balance

- Orgs keep inventory level at minimum
- Price related to high levels of inventory
- Also expensive to prevent production due to shortages

Procurement Lifecycle

- Requirement and Information Gathering – knowing what to procure and how many and look for
- Supplier Contact – look for suppliers and ask for quotation request
- Background Review – quality is checked such as installation, warranty, maintenance
- Negotiation – regarding price and availability on delivery schedule, binding of legal document
once contract signed
- Order Fulfillment – shipped, delivered and paid accordingly
- Consumtion, Maintenance, and Disposal –
- Contract Renewal – o

Basic Procurement Activities

Determine Requirements  Requisition  Purchase Order  GR/IR  Invoice Verification / Vendor


Requisition – electronic form to inform purchasing department of need for business purpose

PO – approved requisition and assigned to a supplier

GR/IR – material is received and condition and quality are verified, Invoice received from vendor

Invoice Verification/ Vendor Payment – Reconciliation of INVOICE and PO, vendor is PAID

Type of Basic Procurement

- Procurement for Stock Vs Consumtion

o Procurement for Stock – procured item is kept in stock once delivered. Must have
master record in the system
o Proc for Direct Consumption – consumed as soon as receviced. May have master record
is system but not mandatory
- External Vs Internal
o External – G&S from external vendors
 One Time Orders – order irregularly
 Longer Ter contracts with subsequent issue of release orders – materials
ordered regularly for a specific validity date
 Longer Scheduling Agreement and Delivery Scheheduled – materials ordered on
everyday basis and delivered according exact time schedule
o Internal – large org with smaller businesses, inhouse manufacturing, maintain a
complete bookkeeping system with separate balances

Special Procurements

- Stocks handled differently as they are not belonging to company, kept in some particular
- Consignment Stock – materials in store presmises but belongs to vendor/owner of materials
- Third Party Processing –
- Pipeline Handling – company not need to store materials involved, obtainable when required
such as oil or water, electricity
- Returnable Transport Stock – goods delivered with returnable transport packaging (pallets,
containers) which would be returned to vendor
- Subcontracting – 3rd party would do processing of materials but raw materials are provided to
- Stock Transfer using Stock Transport Order – Goods procured and supplied witin a company,
Internal transactions

MM Organizational Levels

- Client – has own set of master data with independent table sets
o Company Code – independent accounting unit, own legal entity and profit/loss. Balance
 Plant – unit having a manufacturing facility, warehouse distribution center,
where company activities take place
 Storage Location – where stock is physically kept
o Purchasing Organization – org unit under company responsible
for procurement activities
 Purchasing Group

Defining a Company

- Client which incorporates financial accounting statements

- T-CODE: OX15

Create Company Code

- Smallest organizational unit with stand-alone financial accounting’s P&L, withdrawn

Create Plant

- OX10
- Org unit within company where activities take place
Create Storage Location

- Stock is physically kept

Create Purchasing Organization

- Responsible for procurement activities according to requirements

- OX08

Data Can be Categorized in Two

- Master Data – available for all application, needs constant updating

- Transactional Data – associated with processing of business transactions

Material Master Data

- Main source of material specific fata

- Main Data: basic data like measure, weight, purchasing data, accounting Data
- Additional Data: short description about material, currency

Material Type

- Common attributes grouped together

- Differentiate material and allow org to manage different materials in systematic orger
o Raw mAterials, Finished Products, Material Types
- OMS2

Material Group

- Wider range of material type

- Materials with common attributes are assigned to a material group
- Material Group: A group of Material Types related to eachother

Number Range

- Create material master record, every material is recognized

- Number is unique and known material number
- Two Ways
o External Number Assignment – when creating material, you enter own number and
should be unique
o Internal Number Assignement – system auto generage
- Define Number Rage: MMNR

Material Master Creation

- Contains all materials that company produces or sells
- Central data that is available at all the levels
- MM01
- Examples
o Raw Material, Semifinished Product, Trading Goods, Finished Product, etc

Vendor Master Data

- Data regarding vendors which company can procure,

- Information such as Vendor’s name, address
- Divided in 3 Categories:
o General Data – maintained at client level, valid for all organizational levels
o Accounting Data – company level, valid for all plants belonging to company
o Purchasing Data – maintained at purchasing organizational level

Vendor Account Group

- Vendors categorized based on requirements

- Similar characteristics are grouped together and placed in a category
- Ex. Local Vendors, Non Local Vendors
- Create Vendor: XK01

Info Record – maintained for procurement types

- Standard – information on standard orders includes details of vendor and material, includes
vendor price for supplying particular material
- Subcontracting – information on subcontract orders, price for assembling te raw material that is
supplied by ordering party
- Pipeline – material that is provided by vendor thru pipelines
- Consignment – material kept at orgering party premises

Create Info Record – ME11

Source List –

- List of possible sources of supply based on given framework of time

- Specifies time period of ordering particular material
- Can be created in Manually or Autormatically

Automatic Creation of Source List

- Can be automatically created

- MM02

Manual Creation of Source List

- ME01 or Maintain under Source List

Procurement Cycle
- Determination of Requirements  Purchase Requisition  RFQ  Purchase Order  Vendor
Invoice  Vendor Verification
- Creating Purchase Order: ME21N

Posting Goods Receipt

- Material is delivered to ordering after processing purchase order

- Phase in which material is received by Ordering Patry
- Quality and Condition are verified

Posting Invoice

- Invoice received after goods receipt

- Invoice is verified by ordering party
- Phase where seller is paid from the company
o Reconciliation of Invoice and Purchase Order is accomplished

Purchase Requisition

- Document that contains all requiremenents

- Request made to purchasing organization
- Internal document that remains in organization
- Purchase requisition is approved then changes possible is limited
- Procurement Types:
o Standard
o Subcontracting
o Consignment
o Stock Transfer
o External Service
- Create Purchase Requisition: ME51N

Creating Purchase Order from Purchase Requisition

- ME21N

Request for Quotation

- Fulfill requirements at best possible price

- Request made to vendors to submit their quotation indicating price and terms and conditions
- Form of invitation sent to vendors to submit quotation regarding price, terms, conditions
- QUOTATION: reply by vendor in response to request for quotation
- Can be created two ways: Manually, Automatically

Manual Creation of RFQ

- ME41

Automatic Creation of RFQ from Purchase Requisition

- Created with reference to a Purchase Requisition

- Enter Requisition number if you want to create RFQ

Outline Agreement

- Vendors can be selected by quoitation process

- Once vendors are shortlisted by organization it enters into an agreement with certain vendors to
supply certain materials and conditions
- Long Term purchasing agreement with vendor containing terms and conditions
- Valid for a certain period of time and has a predefined quantity or value
- Two Types;
o Contract
o Scheduling Agreement


- Long term outline agreement between vendor and ordering party over predefined materials or
- Quantity Contract: overall value is specified in terms of total quantity
- Value Contract: overall value specified in term of total amount paid
- ME31K

Scheduling Agreement

- Long term outline agreement between vendor and ordering party over predefined material or
- ME31L : Creating Scheduling Agreement

Scheduling lines for the agreement

- Schedule lines maintained for scheduling agreement

Quota Arragement

- Total requirement for material is distributed to different vendors

- Quota is assigned to each source of supply
- Quota arrangement divides total requirement of material among certain sources of supply
- QUOTA RATING: determine amount of material that is to be assigned to particular source or
o Quota Rating = (Quota Allocated Quantity + Quota Base Quantity) / Qoita
 Quota Allocated Quantity – total quantity from all orders procured from source
 Quota Base Quantity – quantity from new source of supply
 Quota = total requirement of material given to particular source of supply
 Mandatory: Info Record and Source List for particular material
- Create Quota Arragement: MEQ1
Posting Period

- To secure documents you need concept of posting period

- Means that it would allow you to post and make changes in documents only in a specific time
- Errors like posting allowed only in time period for a certain company code
- Posting Period for a Company can be defined using 5 Fields
o Maintain Fiscal Year Variant
o Assign Fiscal Year Variant to Company Code
o Define Variants for Open Posting Periods
o Assign Variant to Company Code
o Open and Close Posting Period

Maintain Fiscal Year Variant

- Time period where financial statements are withdrawn from company

Assign Company Code to Fiscal Year Variant

- Needs to be assigned to a company code

- Tcode: OB37

Define Variants for Open Posting Periods


Open and Closing Periods

- Posting period: allows you to post and make changes to ducments only in specific time period
- TCOde: OB52

Purchase Order Types

- Different Procurement Types

o Subcontracting PO
o Consignment PO
o Stock Transfer PO
o Service PO

Subcontracting Purchase Order

- Subcontracting vendor receives component from ordering party to help procuude product
- ME21N Category: L

Consignment PO

- Available materials at organizational store premises

- If utilize material from consignment stock, you have to pay te vendor
- ME21N Category:K

Stock Transfer Purchase Order

- Goods and services are procured and supplied within a company
- Plant order the goods internally from another plant
- ME21N Category: U

Service Purchase Order

- 3rd party will provide services to company

- Includes maintenance, electricity, oiling of machines,
- ME21N Category: D

Inventory Management

- Procured items must be in correct place so that they can be consumed when required
- Management of stock based on value or quantity basis
- Planning, entry and keeping record of all goods movement
- Goods movement will create a document that w
- Inventory Management Deals with
o Movement Type
o Goods Receipt
o Reservation
o Goods Issue

Movement Type

- Described type of stock posting in inventory

- 101 - Goods receipt for purchase order or order
- 103 - Goods receipt for purchase order into GR blocked stock
- 201 - Goods issue for a cost centre
- 261 - Goods issue for an order
- 301 - Transfer posting plant to plant in one step
- 305 - Transfer posting plant to plant in two steps - placement in storage
- 311 - Transfer posting storage location to storage location in one step
- 313 - Stock transfer storage locations to storage location in two steps - removal from storage.

Goods Receipt

- Phase where material is received by ordering party

- Condition and quality verified
- Posted in inventory with the help of goods receipit
- Will show increase in warehouse stocks
- Scenarios:
o Creation of Goods Receipt MIGO
o Cancellation of Goods Receipt

- Stock needed to be blocked in advanced so it can be made available at particular point of time
- MMBE: View Reserved Quantity
- MB21: Create Reservation

Goods Issue

- Moving stock out of inventory

o Withdrawing of material for sampling or returning good back to vendor
o Result to decrease quantity in warehouse

Invoice Verification

- Amount being provided by vendor for goods or services delivered is called INVOICE
- Before paying the vendor we need to verify the invoice
- Invoice Verification makrs ends of procurement after PO and GR
- Invoice posting updates all related documents in financial and accounting

Posting Invoice

- Done after goods are received from ventor and goods receipt is done
- Invoice is received from vendor is verified against cost, quantity, and quality
- Phase where vendor is paid from the company and reconciliation of invoice and PO is

Blocked Invoice

- When accounting is unable to pay the invoice to vendor

- Reasons may be
o Variance in Amount and Quantity at item level
- If variance tolerance limit is met, lead to blocking of invoice
o Need to manually unblock or release invoice
- MRBR: Release Blocked Invoice

Evaluated Receipt Settlement (ERS)

- Easy method of settling goods receipt automatically

- If ordering patry has agreed with vendor on all financial terms and conditions
- If ordering party need not verify invoice
- Advantages of ERS are as follows
o Purchase Orders can be settled and closed quickly
o Reduces human efforts as no need to verify invoice
o Amount and Quantity Variances in invoice can be avoided
- XK02 : Change Mode of Vendor Master
- MRRL: Evaluated Receipt Settlement

Service Management

- Services include small matainenace task like changing lights, paintings, and housekeeping
- Services are direct consumtption than keeping inventory
- Service Procurement are Two Types:
o Planned Services – prices and quantity are known in advance, nature and scope of
service is clear
o Unplanned Services – quantity and price are not known in advance, nature and scope of
service is not clear

Service Master Record

- Contains all details of all services can be procured from external vendor
- Contains description of service along with unit of measure
- AC03: Create Service Master Record

Service Purchase Order

- Services are accomplished with help of service purchase order

- ME21NL Create Purchase Order Category: D

Service Entry Sheet

- Stores services that have been procures as a sheet

- Will accommodate the changes that need to pay to the vendor
- ML81N: Create Service Entry Sheet


- Integration of MM and FI
- Since it updates general ledger accounts in financial accounting
- Helps Determine price of material for which general ledger account needs to be posted in
financial accounting
- Materials are valuated based on different types of procurement
o Split Valuation – normally used to valuate material in same valuation area ( company,

Split Valuation

- Enables you to valuate stocks of a material in same valuation area

- Split Valuation are required in ff.
o Procured Externally vs. price of stock in-house production
o Stock from one vendor valuated differently than stock obtained from another vendor
o Same Material having different batch may have different valuation prices
- OMW0: Activate Split Valuation
- Important Terms in Split Valuation
o Valuation Area – valuated at plant level or company code level
o Valuation Category – category criteria in which material split is valuated
o Valuation Type – specifies features of valuation category

Split Valuation Configuration

- OMWC: Configure Split Valuation

Account Determination

- Cost being paid must be posted in organization necessarily in correct general ledger account
- During procurement remembering the correct, correct G/L accounts needs to be posted but is
an impossible thing
- SAP System, configuration on account determination is done automatically

Define Valuation Control

- Valuation areas can be grouped together and be assigned to one grouping code
- OMWM: Activate Valuation Grouping Code

Group Together Valuation Areas

- Valuation grouping, valuation area, and valuation grouping code are assigned to company code
- OMWD: Define Valuation Area and Valuation Grouping Code

Define Valuation Classes

- Valuation Classes categorizes G/L account on basis of material type

- Account Reference is also matained along valuation class
- OMSK: Define Account Reference and Valuation Class

Configure Automatic Posting

- G/L automatically determines for each of the transaction

- Happens because automatic posting are configured in SAP System
- OMWB: Configure Automatic Posting


- Settings done in background according to business needs

- Help in making custom enhancements in structure according to business needs

Assign Fields to Field Selection Groups

- Allows to make some fields optional, hidden or some mandatory master record
- OMSR: Assign Fields to Fields Selection Groups

Maintain Field Selection for Data Screens

- Make some data screens in master data as optional or hidden or some as mandatory
- OMS9: Maintain Field Selection for Data Screens

Maintain Company Codes for Materials Management

- Allows you to maintain company codes with period along fiscal year
- OMSY: Maintain Company Codes for Material Management

Define Attriburtes of System Messages

- Sometimes if information is incomplete for any document, system will not allows us to save the
- To setup system messages in Define Attributes of System Messages
- OMT4: Define Attributes of System Messages:

Define Number Ranges for Purchase Requisition

- Requisition is recognized by a purchase number

o Unique and known as purchase requisition number
- OMH7: Define Number Ranges for PR

Define Number Ranges for RFQ/Quotation

- Define Number Ranges: OMH6

Define Document Types – RFQ/Quotation

- Define Document Types

- - different types of document created for RFQ/ Quotation


T-Code Description

OX15 Create Company

OX02 Create Company Code

OX10 Create Plant

OX09 Create Storage Location

OX08 Create Purchasing Organization

OME4 Create Purchasing Group

OX18 Assign Plant to Company Code

OX01 Assign Purchasing Organization to Company Code

OX17 Assign Purchasing Organization to Plant

MM01 Create Material

MM02 Change Material

MM03 Display Material

MB51 Material Document List

MMDE Delete All Materials

MMNR Define Material Master Number Ranges

XK01 Create Vendor

XK02 Change Vendor

XK03 Display Vendor

ML33 Create Vendor Conditions

ME11 Maintain Purchasing Info Record

ME01 Maintain Source List

ME51N Create Purchase Requisition

ME52N Change Purchase Requisition

ME53N Display Purchase Requisition

ME41 Create RFQ/Quotation

ME42 Change RFQ/Quotation

ME43 Display RFQ/Quotation

ME31L Create Scheduling Agreement

ME32L Change Scheduling Agreement

ME33L Display Scheduling Agreement

MEQ1 Create Quota Arrangement

MEQ2 Change Quota Arrangement

MEQ3 Display Quota Arrangement

ME21N Create Purchase Order

ME22N Change Purchase Order

ME23N Display Purchase Order

ME29N Release Purchase Order

ME59N Automatic generation of Purchase Order

MIGO Post Goods Movement

MB1A Goods Withdrawal

MB1B Transfer Posting

MB1C Post Other Goods Receipts

MB01 Post Goods Receipt for Purchase Order

OMJJ Customizing: Define New Movement Types

MIRO Enter Incoming Invoice

MIRA Fast Invoice Entry

MR8M Cancel Invoice Document

MRBR Release Blocked Invoices

OMR6 Tolerance limits: Invoice Verification

MIR5 Display List of Invoice Documents

MIR6 Invoice Overview

MIR7 Park Invoice

MRIS Settle Invoicing Plan

AC02 Service Master

ML81N Create Service Entry Sheet

MRRL Evaluated Receipt Settlement

MMB1 Create Semi Finished Product

MMF1 Create Finished Product

MMG1 Create Returnable Packaging

MMH1 Create Trading Goods

MMI1 Create Operating Supplies

MMK1 Create Configurable Material

MMN1 Create Non-Stock Material

MMBE Stock Overview

MB52 List of Warehouse Stocks on Hand

MB21 Create Reservation

MBST Cancel Material Document

MB5T Stock in Transit