2011 1 Training Manual On Material Management

HPPCL-MM-TRG-V2
Training Manual – Materials Management

Agenda
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
Page 2
Agenda Day 1

3. Master Data
7 Valuation
8 Price Control
Page 3
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
Page 4
What is Materials Management ?
MM
Master Inventory
Procurement
Data Management
• Requisition Planning • Receiving

• Purchase Requisitions • Disbursement
• RFQs • Materials • Physical Inventory (Raw Material,
• Contracts • Vendors Semi Finished Goods, Finished
• Purchase Orders • Information Goods)
Records
The Material Management module comprises of procurement and the inventory management
functions .
Page 5
The processes of Material Management are based on various types of

Master Data which are stored in Master Records.
MASTER
DATA
Vendor Materials Purchasing

Info Records
Master Records
Page 6
This diagram illustrates a typical SAP-supported procurement cycle.
Page 7
Agenda
 Material Management Overview

 Organizational Elements
 Master Data
 Procurement Cycle
 Inventory Management
 Invoice Verification
 Valuation
 Price Control
 Managing Supplier Relationship
 Material Requirement Planning
Page 8
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.
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.
Page 9
Materials Management – Organizational Elements
Group Client
Company Subsidiary Company Code
Purchasing Purchasing
Org. Organization
Plant Plant Plant
Storage Storage Storage Storage Storage Location

location location location location
Purchasing Purchasing Group

Group
Page 10
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.
Page 11
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.
Page 12
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
Page 13
Organisational Elements in MM Purchasing:
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.
Page 14
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
Page 15
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.
Page 16
Agenda

 Master Data
 Valuation
 Price Control
Page 17
Material Management : Master Data
Objectives
 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
Page 18
Contents
1. Material Master
2. Vendor Master
3. Service masters
4. Purchasing Info Records
5. Source Lists
6. Price Conditions
7. Vendor Evaluation
8. Bills of Materials (BOMs)
Page 19
Master Data
Master Data is a shared source of information that all departments can access and
utilize to perform their jobs.
Master
Data
Finance/ Materials
Controlling Management
Page 20
Master Data
The processes of Material Management are based on various types of Master

Data which are stored in Master Records.
MASTER
DATA
Vendor Materials Purchasing

Info Records
Master Records
Page 21
Material Master Data
Basic Data 1
Basic Data 2
Classification
Sales: Sales Org. Data 1
Sales: Sales Org. Data 2
Sales: General/Plant Data
Foreign Trade: Export Data
Sales Text
Purchasing
Foreign Trade: Import Data
Purchase Order Text
MRP 1 Material • Material Type
MRP 2
MRP 3 Master • Material Group
MRP 4
Forecasting
General Plant Data / Storage 1
General Plant Data / Storage 2
Warehouse Management 1
Warehouse Management 2
Quality Management
Accounting 1
Accounting 2
Costing 1
Costing 2
Page 22
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.
Page 23
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.
Page 24
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.
Page 25
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.
Page 26
Material Master Views
SALES BASIC DATA * STORAGE

Product
• hierarchy Description
• Picking
• area
Basic data1 Shipping
• details Unit
• of measure Storage
• bin (fixed)
Purchasing
Purchase order text PURCHASING WORK SCHEDULING
Purchasing
• group Production
• controller
Storage 1 Delivery
• tolerance Prodn.
• Tolerances
Storage 2
Accounting 1 MRP
ACCOUNTING
Accounting 2 MRP
• Type, or MPS
Valuation
• class
MRP
• Controller
Price
• control
Lot
• size key
Company Level * Plant Level
Page 27
User departments using same material master
Page 28
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
Page 29
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 Description Example

Type
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
Page 30
Vendor Master Data
General Data
Address
Control
Payment transactions
Company Code Data •Company

Accounting info Code
Payment transactions Vendor •Purchasing
Correspondence Master Organisation
Withholding tax
Purchasing Organisation
Data
Purchasing data
Partner functions
Page 31
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)
Page 32
Vendor master
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
Record
General Purchase Account

Data Data Data
for purchasing for company
for all clients organization code
• Account Number • Order Currency • Control account

• Description • Incoterms (terms of • Terms of payment
• Address shipping) • Bank Details
Page 33
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
Page 34
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
Page 35
Info Records
Material Vendor
Master Vendor’s current Master
price
Info
Record
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.
Page 36
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
Page 37
Info Records- Key points
 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
Page 38
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
Page 39
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.
Page 40
Agenda:Day 2

3. Master Data
7 Valuation
8 Price Control
Page 41
Procurement
Objectives
 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
Page 42
Contents
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
Page 43
Procurement Cycle
Determine requirements and

potential sources; negotiate with
suppliers to set up agreements; Convert requisitions to
create supply plans Purchase Orders or
create replenishment
orders
Logistics Invoice
Verification and
payment
Goods delivered
Invoice receipt
Page 44
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
Page 45
Integrated Business Process Overview
FI
G/L GRIR/ Vendor
G/L Inventory
Expense AP
/ GRIR Payment
Invoice
MM
Requirement Purchase Goods Invoice
for Goods /
Services Order Receipt Verification
Financial and Managerial Reporting and Analysis
Page 46
Project Materials Planning
Procurement Erection
From Project or Project Stock Indicator Commissioning

Requirements WBS
2
MM
Purchasing
PS
DMS
1 Materials Planning
Purchase Requisition
Design Document
Purchasing Order
Goods Issue
Cables
PO-1
Goods Receipt
Generator
PO-2
Page 47
Purchasing Documents
= Enquiries Suppliers
Quotations
Request for Quotations
Blanket PO’s
Purchase Orders
Scheduling Agreements
Purchase Requisitions
Material Reservations Contracts
Info Records
Page 48
 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.
Page 49
 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 .
Page 50
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
Page 51
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)
Page 52
52
Release Strategy - Example
Conditions Releases Strategies Defined
Strategy Release Codes
PO Value < 10000, approval by Team Lead S1 Team Lead 1
S2 Team Lead 2
PO Value > 10000, approval by Team Lead
Project Manager
Release Strategy Applicable
Purchase Order
Value = 4050
Page 53
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
Page 54
Agenda: Day 3

3. Master Data
7 Valuation
8 Price Control
Page 55
External Service Management
1. Service Procurement Cycle

2. Service Master Record
3. Service Purchase Order
4. Service Entry Sheet
5. Release Procedure
6. Invoice Verification
Page 56
Services : Procurement Cycle
Page 57
Service no. 1540 Service conditions

200
- Texts
- Units of measure
Service master record
PM PS MM
Plant Project
Maintenance Procurement
System
Purchase
order
Plant Network 1
maintenance PReq. 2
order Specs
Applications
 SAP AG 1999
 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.
Page 58
Purchase Order for Service
Stock Material <=> Services
Purchase order # 12345 Jan. 27 Purchase order # 12345 Jan. 27
Item 10 Material : Steel - 01 Item 10 Repair printing press

Order quantity : 250 pcs - Detailed description of service ?
- Order quantity ?
- Acct assgmt ?
Specs Cost control via
limits !
Service entry sheet Feb. 3

Item 10
Oil filter changed
M Cctr 123
Feb. 3 Limit adhered to ?
GR for PO 12345, item 10 Release procedure Acceptance
 SAP AG 1999
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.
Page 59
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.
 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.
Page 60
 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.
 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.

Page 61
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.
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.
Page 62
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
Page 63
Agenda

 Master Data
 Valuation
 Price Control
Page 64
Inventory Management
MM
Inventory
ProcurementMaster
Objectives Data Managemen
 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
Page 65
Contents
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
Page 66
Inventory Management Overview
» Goods movements
» Stock types
» Movement types
» Material & accounting documents
Page 67
Inventory Management Overview
Inventory management involves the receipt, storage, control and

disbursement of materials and supplies.
Goods are Goods are Goods are Goods are

physically stored and controlled either
received movements (physical consumed or
are tracked inventory) dispersed
Page 68
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
Page 69
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.
Page 70
Stock Types
 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
Page 71
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.
Page 72
Stock Types in Goods Receipt
Goods Receipts
Unrestricted- Stock in Quality

Blocked stock
use stock Inspection
Scrapping / Sampling
Transfer
Consumption
Page 73
Documents for Goods Movement
Storage Location
Entry Material Exit
Goods movement
When posting any transaction for goods movement, two types of documents are created:
Material Accounting
document document
Page 74
Material Movement
Documents for Goods Movements
The document principle also Warehouse

Warehouse
applies in IT-based
Goods movements
Inventory Management. A
document is the proof that
a transaction involving
stock changes has taken Receipts
place. Documents are
stored in the system.
Material Accounting
n A material document is document document
created in the SAP

System as proof of a
transaction involving stock
changes.
n As soon as a goods movement is posted, the quantities, material, movement
type and organization level can SAPno longer be changed. You can only change
AG 1999
the text. If you want to correct errors, you must create a new document. You
can reverse or cancel the incorrect document.
Page 75
Goods Movements
Vendor
Goods receipt
Storage Loc 2
Transfer posting
Storage Loc 1
Goods issue
Scrapping Consumption
Page 76
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
Page 77
Material Movement
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 Description
101 Goods receipt for Purchase Order into warehouse

102 Goods receipt for Purchase Order into warehouse - reversed
301 Transfer from one plant to another plant.
309 Transfer posting from material to material
321 Transfer Posting from QI to Unrestricted Stock
349 Transfer posting from blocked stock to QI stock
311 Transfer from storage location to another storage location.
551 Withdrawal for scrapping
Page 78
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
Page 79
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.
Page 80
Physical Inventory – Process Flow
Page 81
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.
Page 82
Cycle Counting
Cycle Counting
n Cycle counting is a method Physical inventory

of physical inventory
whereby material is counted Cycle counting
at regular intervals within a
fiscal year. These intervals
(or cycles) depend on the
cycle counting indicator set Stock:
Plant 0001
for each material.
Stock
n Cycle counting allows fast- Indicator: B
B B C
moving items to be counted A
more frequently than slow- ...

moving items, for example.
A B C D
Inventory frequency:
12 x 6x 4x 1x ...n x
 SAP AG 1999
Page 83
Cycle Counting – Setting the indicator
Setting the Indicator
Memory
All materials to be included in
1. Manually Material
Material cc- A
the cycle counting inventory are master
master
record
record
classified. This is done either
manually, using a cycle
counting indicator in the Via report Consumption- Requirements-
2. based analysis based analysis
(RMCBIN00)
material master record (storage
data), or automatically, by Analysis
means of an ABC analysis. The
cycle counting indicator allows Material Text CC CC
Value Quantity new old
you to classify materials into $ Pc. Plant 0001
individual cycle counting PP-001... No. Text CC CC
21,500 19,850 Material new old
categories (e.g.: A, B, C, D) In PP-008... PP-001.. A
Customizing, you can then set 20,330 15,100 PP-008 A A
PP-015... PP-015 B B
different time intervals for
...
B A
C A
inventory of different materials. C C
 SAP AG 1999
Page 84
Agenda Day 4

3. Master Data
7 Valuation
8 Price Control
Page 85
Logistics Invoice Verification
Objectives
 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
Page 86
Contents
1. Logistics Invoice Verification

• Invoice Entry
• Invoice Posting
• Invoices with Variances
• Blocking Invoices
• Releasing Blocked Invoices
2. Automatic Settlement
3. Credit Memos and Reversals
Page 87
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).
Page 88
 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.
Page 89
Invoice Entry
• When an invoice is received at the Purchase Req.

Accounts Payable department, its details PURCHASE ORDER
Purchase Order
No. 890 ORDER
PURCHASE
are entered into the SAP system to Vendor No. 1304
No. 890 ORDER
PURCHASE
Vendor No. 1304
Item No. 27 PURCHASE ORDER
match the details of the Purchase Order Item No. 27
No. 890 ORDER
PURCHASE
Vendor No. 1304
No. 890 ORDER
PURCHASE Vendor No. 1304
No. 890
Vendor No. 1304
and Goods Receipt Item No. 27

No. 890
Vendor No. 1304
Item No. 27
SUBSTITUTE
Item No. 27
ITEM
Item No. 27
SUBSTITUTE
ITEM
SUBSTITUTE
ITEM
•
SUBSTITUTE
Tolerance levels can be set for matching SUBSTITUTE

ITEM
SUBSTITUTE
ITEM
ITEM
invoices in MM Goods Receipt
• Unmatched invoices can be blocked for

payment and trigger warnings and
activities for the purchasing department
Page 90
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.
Page 91
Preliminary Posting
 When an invoice is parked, the

data entered is saved (even
when the entries do not Preliminary Posting
balance).
However, no postings are made. Invoice
 A parked document can be

changed as often as you like.
 The actual checks are only Park
made within the function “Post
parked document”. Doc. 51000123
 Account postings are made Change
when a parked document is Vendor 100 -
GR/IR 100 +
posted.
 Parked documents are recorded Post
in the purchase order history. GR/IR Account

Document Purchase Order History
 Preliminary posting is linked to Vendor Account
Workflow. Vendor 100 - Goods receipt
GR/IR 100 + Invoices
 You can branch directly from Parked invoices
Logistics Invoice Verification to  SAP AG
Preliminary Posting.
Page 92
Posting an Invoice
 When an invoice is posted, the

following occurs: Posting an Invoice
 the individual items are
Invoice
posted to the corresponding
accounts for purchase
order
GR/IR Account
 a document is created Posting Vendor Account
 the material master is updated XX
A B
XX
 the purchase order history is

updated
Doc. no. 51000123 Material master Purchase order history
Vendor 100 - Moving Avg Pr goods receipts

GR/IR 100 + value down-payments
invoices
UNIT 7.PPT 11/28/97 / 1

 SAP AG, 1997
Page 93
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 Variance
– Quantity variance (M) Quantity

Invoice
GR 40
–
50 pcs
Price variance (P) Goods receipt
Purchase Invoice
– Variance in order price quantity (G) order Price
@ $ 6.00
$ 5.00
– Schedule variance (T) Invoice
– Quality inspection (I) Goods receipt

10 pcs = 250 g
10 pcs = 200g Purchase order

price quantity
Purch.Order Invoice
10 pcs @ = 2 kg 10 pcs = 2.5 kg
$20/kg
Purch.Order Invoice
Planned Date
delivery date 12.21.96 12.11.96
UNIT 7.PPT 11/28/97 / 1
 SAP AG, 1997
Page 94
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
Page 95
Credit Memos and Reversals
Credit Memos
n You usually receive a credit

Purchase
memo from a vendor if you were order Invoice Credit memo
4151599035
overcharged. 100 pcs
PO 4151599035
80 pcs
PO 4151599035
30 pcs Create
n A credit memo can be 10.00 UNI/pc. 800 UNI 300 UNI credit memo
entered with reference to a PO 4151599035
purchase order or a goods Goods receipt

receipt. 50 pcs Invoice Credit memo
n If you enter a credit memo Purchase

PO 4151599036
50 pcs
PO 4151599036
50 pcs
Create
subsequent credit
for a purchase order item order 800 UNI 300 UNI
4151599036 PO 4151599036
because the vendor has 100 pcs
10.00 UNI/pc.
invoiced you at too high a price,
you must post the credit memo  SAP AG 1999
as a subsequent debit/credit.
The total quantity invoiced for
the purchase order item remains
the same; the total value
invoiced is reduced.
Page 96
Agenda
 Material Management
 Master Data
 Valuation
 Price Control
Page 97
Material Valuation
Objectives
• 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
Page 98
Transactions Involved in Material Valuation
 Transactions in Inventory
Management that affect
Accounting are goods receipts, Transactions Involved in Material Valuation
goods issues and transfer Requirements determined in
postings (for example, a stock requirements planning
transfer between two plants or a
transfer posting from one
material to another). These External procurement
Purchasing
Internal procurement
Production
transactions can change the
valuation price of the material,
depending on the type of price Master data
Invoice Verification Goods
control. receipt Warehouse
Material
Management
Batch
Invoice receipt Vendor
 Postings in Logistics Invoice Inventory Management G/L account
Customer
Verification can also affect Storage
Material Valuation. A locations
Goods Transfer
? issue posting
B .
.
.
R
Internal and external accounting SD
 SAP AG
Page 99
Material Valuation Levels
Inventory management for values and

quantities always takes place at
the level of the valuation area.
Material  Valuation Levels
 Valuation area = Company code:
You create valuation data for a
material for each company code. Material  Valuation Levels
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
0001
code.
 Valuation area = Plant:

You create valuation data for a Company code Plant
material per plant. The price
control and price of a material are
Valuation area
valid per plant. This enables the R
same material to have different

values in different plants.  SAP AG
Page 100
Valuation Class
 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.
Page 101
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 material
Different grades of quality for the material
Different statuses for the material
Differentiation between in-house production and external procurement
Differentiation between different deliveries
Features
If 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.
Page 102
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.
Page 103
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).
 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.
Page 104
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.
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.
Page 105
Managing Supplier Relationship
Objectives
 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
Page 106
Contracts
Contracts
 Contracts are outline Manual PReq. RFQ Contract

agreements. They do not 10 10 10
20 20 20
contain details of the 30 30 30
delivery dates for each of
the items.
Info record
 To inform vendors of 5300007152
which quantities you need Contract Vendor: 1234
Material: Nail A21
for which date, you enter
10 PurchOrg: 3000
contract release orders for Vendor 20 Release
30 documtn
a contract. A release order Conditions
Price/UoM 6 UNI / kg
is a purchase order that Freight 2%
references a contract. Discount 5%
Last purch. order:
Contr. rel. ord.
4500019324
...
 SAP AG 1999
Page 107
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.
 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.
Page 108
Contracts
Plant Contract/Centrally Agreed Contract
Contract 1
• Contract items can relate to a
single plant or to all plants Plant 1000 Item Mat. Plant
covered by a purchasing 10 1
organization (centrally agreed
contract).
 All the plants of a purchasing
Plant 2000 Contract 2
organization can order against
a centrally agreed contract. Item Mat. Plant
10 2 3000
 An enterprise working with a central purchasing

Plant 3000 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
SAP AG 1999
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.
Page 109
Contracts Plant Conditions in Centrally Agreed Contracts
 Items of a centrally
agreed contract do not
Contract Release
relate to just one order
specific receiving
Vendor :A Vendor :A
plant. Period : 01.01.-
12.31. Material :1
 All the plants covered Material :1 Plant : 1000
Total qty. : 10,000 pcs. Plant conditions Qty. : 100 pcs.
by a purchasing Price : 100.00 Plant 1000: surcharge 5% Price : 105.00
organization can order Plant 2000: surcharge 3%
Plant 5000: surcharge 3%
against a centrally
agreed contract.
 An enterprise that works with a central purchasing organization covering

several plants can negotiate better conditions at a high level.
SAP AG 1999
 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.
Page 110
Function of Vendor Evaluation
 The vendor evaluation

Function of Vendor Evaluation
functionality supports you in
optimizing the procurement
Price
Price simulation
simulation for
for material
material 11
process.
 It facilitates the process of Vendor
Vendor AA 10.20
10.20
source selection and the Vendor

Vendor CC 9.90
9.90
ongoing surveillance of existing Vendor

Vendor BB 11.80
11.80
supply relationships.
General
General vendor
vendor evaluation
evaluation Evaluation
Evaluation for
for material
material 11
Overall
Overall Price
Price Qual.
Qual. Deliv.
Deliv. Service
Service Overall
Overall Price
Price Qual.
Qual. Deliv.
Deliv. Service
Service
Vendor
Vendor BB 90 92 90 93 85 88 81 93 92 86
Vendor
Vendor AA 84 75 92 88 81 90 94 92 88 86
Vendor
Vendor CC 81 90 76 74 84 80 85 82 79 74
 SAP AG
Page 111
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 Scoring Levels in Vendor Evaluation
achieved for each of the main criteria.
 The scores for main criteria and sub- Overall score
criteria reflect a vendor’s performance
more accurately than the overall
score. Weighted
 The scores achieved by a vendor for Scores for main

criteria
the individual criteria may be of
varying significance to you. The
weighting factor takes account of this Weighted
fact. Scores for
 Sub-criteria are divided into manual, subcriteria
semi-automatic, and automatic

criteria, according to the method by
which the scores awarded for them
Individual scores
are determined.
 SAP AG
Page 112
Evaluation Criteria
Overall Overall score

Performance for vendor
Weighted
External Score for

Price Quality Delivery Support
Service main criteria
Goods On-time Weighted

Price level
receipt delivery
Score for
Price Quality Quantity sub-criteria
history audit reliability
Rejection Shipping
level instruct.
Confirmation Sub-criteria with

date automatic scoring
Page 113
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 Analyses in Vendor Evaluation
which vendors rank among the best, which Ranking
Ranking list
list
perform moderately well, and which are General vendor evaluation
General vendor evaluation
below average. Overall
Overall Price
Price Qual.
Qual. Deliv.
Deliv. Service
Service
Vendor B 90 92 90 93 85
 The list of evaluations per material or Vendor A 84 75 92 88 81
material group provides you with a ranking Vendor C 81 90 76 74 84
list based on a certain material or material Evaluation per material/material group

General
General vendor
vendor evaluation
evaluation
group. This analysis enables you to Overall
Overall Price
Price Qual.
Qual. Deliv.
Deliv. Service
Service
determine which vendors of a particularly Vendor A 84 75 92 88 81
important material have performed well, Vendor C 81 90 76 74 84
moderately well, or poorly. Evaluation

Evaluation comparison
comparison
General vendor evaluation Evaluation
Evaluation for
for material
material 11
 The evaluation comparison is an analysis Overall Price Qual. Deliv. Service Overall
Overall Price
Price Qual.
Qual. Deliv.
Deliv. Service
Service
that compares the general evaluation of a Vendor A 84 75 92 88 81 88 81 93 92 86
vendor with the latter’s evaluation in

 SAP AG
respect of a certain material.
Page 114
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 .
Page 115
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
Page 116
Re-order point planning
n The manual reorder point Stock Lot size
procedure uses the MRP indicator

VB.
n The reorder point procedure is
based on a comparison between Reorder
point
the warehouse stock and the
Safety
reorder point. If the available stock
warehouse stock is less than the

Reorder point Delivery Time
reorder point, the system initiates time
requirements calculation. Replenishment

lead time
n The reorder point comprises the expected average material requirements

 SAP AG 1999
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.
Page 117
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).
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
Page 118
Thank You
Page 119

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Training Manual – Materials Management

Section Topics Page No.

1. Material Management Overview

Section Topics Page No.

1. Material Management Overview

External procurement of materials and services ,

What is Materials Management ?

• Requisition Planning • Receiving

The processes of Material Management are based on various types of

Vendor Materials Purchasing

This diagram illustrates a typical SAP-supported procurement cycle.

 Material Management Overview

In the SAP R/3 System,

Company Subsidiary Company Code

Storage Storage Storage Storage Storage Location

Purchasing Purchasing Group

 Plant is an organizational unit that structures the enterprise from the

 Purchasing organization subdivides an enterprise according to the requirements

An organizational unit responsible for

 You can organize your purchasing function in the following ways:

 The purchasing organization is further subdivided into purchasing

 Material Management Overview

The processes of Material Management are based on various types of Master

Vendor Materials Purchasing

 The material master contains information on all the materials that a

 In Purchasing for ordering materials.

 In Inventory Management for goods movement postings and physical

 In Logistics Invoice Verification for posting invoices

 In FI for maintaining value of material.

 The Material Master is used by several areas of the system in addition to

 Raw Materials, Stocked Intermediates, Spare Parts and Maintenance

SALES BASIC DATA * STORAGE

Company Level * Plant Level

 It determines type of industry .

 The industry sector you specify determines

Code Industry sector

A Plant Engineering & Construction

Material Description Example

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

ROH Raw material

ERSA Spare Parts Nuts, gears, motors

Company Code Data •Company

 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 stores information pertinent to a company’s vendors.

General Purchase Account

• Account Number • Order Currency • Control account

 The following partner roles are defined in the standard system:

 Contains the description of a service

To allow the assignment of product requirements to sources of supply, specific

 An info record represents a material-vendor relationship.

 Use of Purchasing info record in PO creation

– All the pricing conditions will be defaulted

 Purchasing Info Records contain information on a specific material and

 Source list can also be maintained manually.

The most important elements in price

Condition Table: A condition table consists of one

Access Sequence: An access sequence is a

Calculation Schema : A calculation schema

Section Topics Page No.

1. Material Management Overview

 Understand the concept of Procurement as it relates to the Materials