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PROJECT Mission Online


3
Sign-off on Business Blue Print

3. Materials Management
Implementation of mySAP ERP by SEAL InfoTech (P) Ltd. for Kajaria Ceramics Ltd

Steering Committee Steering Committee Steering Committee


Member, Kajaria Member, Kajaria Member, SEAL Infotech
(Pvt) Ltd.

Mr. Amit Gupta Mr. Anil Singh


Project Manager, Project Manager,
SEAL Infotech (Pvt) Ltd. Kajaria Ceramics Ltd

Mr. Rajesh Mahajan


Prem Kumar P.N. Pareek
Consultant, SEAL Infotech
Key User, Kajaria Key User, Kajaria
(Pvt) Ltd.

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Introduction
This Business Blue Print Document describes the following:

• Enterprise Structure of Kajaria Ceramics LTD.,

• Business requirements as given by the Kajaria Key Users

• Suggestions by SEAL consultants wherever mySAP features are found to be useful to Kajaria’ s business functionality
• To-Be Process on mySAP system suggested by SEAL Consultants
• Comments whether the requirement can be realized on the mySAP system or not.
• Gaps which are at different stages of exploration

The following codes are given to each module that is within the scope of the agreement:

Module ID Module

1 Financial Accounting

2 Controlling

3 Sales & Distribution

4 Materials Management

5 Production & Planning

6 Plant Maintenance

7 Quality Management

8 Payroll

Further processes, sub-process and activities in each module are denoted by, say. 1.1, 1.1.1, 1.2.1 etc.

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A Business Blueprint document is prepared for each module and reference shall be made wherever required to other modules, whenever there is an
overlap of business processes across modules or a business process requires to be completed in more than one module. The reference to the business
process shall be made using the process numbers as described above;

For e.g.:
As per the above notation, all processes in Sales and Distribution start with 3.*… So if a reference has to be made to process in Accounts Receivable of
Financial Accounting, then the reference is made using the notation say, 1.2.*… where ‘1’ refers to Financial Accounting and 1.2 refers to Accounts
Receivable and then further numbers denote the sub-processes and activities in the module.
Step 1:
The Module Owner shall identify various existing business processes at a broad level and make a list of them as described under section 1 of this
document

Step 2:
Depending upon the various business processes thus identified in Step 1, various business scenario are described in the following way:
As Is Business Processes: The current way of executing the business process shall be explained in detail with data/information flow along with the IT
systems / Manual Systems being used in the whole cycle.
Business Requirement: Under this head, the module owner shall describe the requirements of the company vis-à-vis this business scenario, if necessary
with examples. Following situations can arise:
(a) The current provisions in the system are sufficient enough and additional configuration efforts are not required.
(b) The current provisions are not sufficient and satisfactory and additional features need to be incorporated in the system
(c) There is no current provision to handle this transaction at all.
The module owner shall identify each business scenario with the above classification.

Step 3:
Based on the Business Requirement, SEAL consultant shall do a detailed Suggested Business Process and based on the analysis, shall propose the best
fit business process on the mySAP Business Suite system.
It may not be possible to decide the realization possibility of all Business requirements on the mySAP Business Suite immediately and hence the
following legend is being followed for describing the statuses:

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Status of To-Be Business


Status Description
Process
A-Possible Can be implemented on mySAP ERP 2005

B-Possible with workaround Can be implemented on mySAP ERP 2005 through indirect means

C-Possible with ABAP Can be implemented on mySAP ERP 2005 through ABAP/4 development

D-Possible with ABAP (But Can be implemented on mySAP ERP 2005 through ABAP/4 development but system performance may be
performance issue) effected

E-Not possible with out


Cannot be implemented on mySAP ERP 2005 without major system modification
Major Modification
Possibility of implementation will be explored in the development environment. Cannot be confirmed at this
F-Open for exploration
stage

G-Not possible Cannot be implemented on mySAP ERP 2005

Cannot be implemented because it is not part of the scope defined in the “Software Services Agreement”
H-Not in Scope
between SEAL and Kajaria Ceramics Ltd.

The To-Be business process realization is dependent on the following aspects:

 Scope of services described in the Software Services Agreement signed by Kajaria Ceramics and SEAL
 Scope of functionality described in the Software Services Agreement mentioned above.
 Capabilities and Limitations of mySAP ERP 2005

 As-Is Business Knowledge Transfer from Kajaria Ceramics Project Team members

 Business Requirements defined by the Kajaria Ceramics Project Team members


Kajaria Ceramics accepts that the decision to accept the ‘To-Be’ Business Processes is completely its own and not influenced by SEAL. SEAL shall not be
responsible for the business consequences on Kajaria Ceramics Ltd. after the realization and usage of the processes being suggested here.

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Kajaria Ceramics shall indemnify SEAL from all responsibilities for any other business consequences during the framing of the To-Be Business processes,
or at any time during or after the realization / implementation of these processes on mySAP ERP 2005 or while using the system.
Methodology to be adopted for preparing Business Blue Print:

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Contents

Page Numbers
# Topic
Start End

0 Process Scope – List of Business Processes 6 7

1 Material / Services Range and Procurement Types 8 9

2 Enterprise Structure 10 13

3 To-Be Business Processes / Master data 14 70

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0. Process Scope – List of Business Processes

Process
Process Description
Id
4.1 Master Data Maintenance
4.1.1 Material Master Maintenance
4.1.2 Shipping Instructions
4.1.3 Purchasing Value Keys
4.1.4 Service Master Maintenance
4.1.5 Vendor Master Maintenance
4.1.6 Purchasing Info Records
4.1.7 Source List Maintenance
4.1.8 Maintaining Vendor Evaluation Criteria
4.1.9 Maintaining Conditions
4.1.10 Payment Terms
4.2 Material Requirement Planning
4.3 Procurement Process
4.3.1 Purchase Requisition
4.3.2 Approval of Purchase Requisition
4.3.3 Request for Quotation
4.3.4 Quotation
4.3.5 Purchase Order Creation
4.3.6 Purchase Order Approval
4.3.7 Purchase Order Follow-Up
4.4 Gate Pass for Entry & Exit of Goods
4.5 Goods Receipt
4.5.1 Tolerance limits for goods receipt

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4.5.2 Goods Receipt against Stock Transport Orders


4.5.3 Goods Receipt against Service Orders
4.5.4 Goods Receipt against Subcontracting Orders
4.5.5 Screen manufacturing
4.5.6 Goods Receipt of Customer Returned Materials
4.5.7 Rejection Handling while GR
4.5.8 Excise Transactions while GR
4.6 Goods Issue
4.6.1 Goods Issue to Production
4.6.2 Goods Issue to Consumables
4.6.3 Goods Issue to Capital Items
4.6.4 Goods Issue against Subcontracting Orders
4.7 Scrap Handling
4.8 Logistics Invoice Verification
4.8.1 Invoice Variance and Vendor Invoice Block
4.8.2 Releasing Blocked Invoices
4.8.3 Subsequent Debit/Credit
4.8.4 Delivery cost- Planned/Unplanned
4.8.5 GR/IR Account Maintenance
4.9 Physical Inventory
4.10 Vendor Evaluation

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1. Material/Services Coverage & Different Types of Procurement

Procurement at Kajaria covers the following items:


• Raw Material required for Production
• Packing Material and accessories required for Packed Finished Products
• Engineering / Spares item & Consumables
• Services with Material Supply Repairs etc

Kajaria makes the following type of purchases:


1. Procure-to-Stock
2. MRP based Procurement
3. Need-based Procurement – based on Purchase Requisition
4. Capital – Projects / General
5. Services
6. Service with material supply – Job work
7. Cash Purchase

Brief Explanation of each type of Purchase:


1. Procure-To-Stock
In case of Procure-To-Stock type, the re-order level for each material is maintained by stores department. Stores create purchase
requisitions. It goes through approval process. Further, a purchase order is prepared with reference to PREQ, approved by Purchase
Committee and send to the concerned vendor.
2. Purchase Requisition based
In case of purchase requisition based purchases, concerned departments raise a purchase requisition, which is approved by their
respective Hod’s. Then the purchase checks for available sources of suppliers and price of that material is enquired with various sources,
based on Price, Quality and delivery a best possible vendor is selected and the final quotation goes through a approval process. Then the
PO document is finally prepared and approved and sent to the vendor.
3. Capital Items
For capital purchases, the purchase requisitions is raised by the concerned dept and it’s approved by concerned authorities and then
purchase dept obtains different quotes from various sources and compared the best quote as final quotation and it’s goes through
approval process. The Purchase then prepares a PO and it’s approved by Purchase Committee.

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4. Service Purchase Orders with Material Supply/ Job work Orders


Sub-contracting / Job work Orders are created on service providers in case where Kajaria needs to get its material processed from
service providers due to lack of that service capability / capacity with in KCL. After processing, KCL will take back the entire processed
material.
5. Services
Services are performed by various vendors, either at in house or outside the factory by creating the purchase orders with required terms
and conditions and the applicable service charges shall be paid to the vendor, after satisfactory performances.

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2. Enterprise Structure

Plants (under Company Kajaria Ceramics Ltd.)

Current New
Justification / Purpose of the Organizational Unit
Code Description Code Description
Kajaria’s Floor Tiles Manufacturing facility at
Sikanderabad Plant 1100 Kajaria Sikanderabad Plant Sikanderabad

Gailpur Plant 1200 Kajaria Gailpur Plant Kajaria’s wall Tiles Manufacturing facility at Gailpur
Kajaria’s Delhi Depot 2100 Kajaria’s Delhi Depot Kajaria’s Delhi Depot
Kajaria’s Jaipur Depot 2200 Kajaria’s Jaipur Depot Kajaria’s Jaipur Depot
Kajaria’s Mumbai Depot 2300 Kajaria’s Mumbai Depot Kajaria’s Mumbai Depot
Kajaria’s Kolkata Depot 2400 Kajaria’s Kolkata Depot Kajaria’s Kolkata Depot
Kajaria’s Cochin Depot 2500 Kajaria’s Cochin Depot Kajaria’s Cochin Depot
Kajaria’s Chennai Depot 2600 Kajaria’s Delhi Depot Kajaria’s Chennai Depot
Kajaria’s Bangalore Depot 2700 Kajaria’s Bangalore Depot Kajaria’s Bangalore Depot
Kajaria’s Ahmedabad
Kajaria’s Ahmedabad Showroom 3100 Kajaria’s Ahmedabad Showroom
Showroom
Kajaria’s Gurgaon Showroom 3200 Kajaria’s Gurgaon Showroom Kajaria’s Gurgaon Showroom
Kajaria’s Mumbai Showroom 3300 Kajaria’s Mumbai Showroom Kajaria’s Mumbai Showroom
Kajaria’s Bangalore Showroom 3400 Kajaria’s Bangalore Showroom Kajaria’s Bangalore Showroom

Note: - The Depots and Showrooms will be treated as Plant location. The exact details of upcoming depots to be given by Kajaria Team.

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Storage Locations

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Current New
Justification / Purpose of the Organizational Unit
Code Description Code Description

Raw materials – Bin ST01 Storage of raw materials


Raw materials – Bin ST02 Storage of raw materials
Raw materials – Bin ST03 Storage of raw materials
Raw materials – Bin ST04 Storage of raw materials
Raw materials – Bin ST05 Storage of raw materials
Raw materials – Bin ST06 Storage of raw materials
Raw materials – Bin ST07 Storage of raw materials
Raw materials – Bin ST08 Storage of raw materials
Raw materials – Bin ST09 Storage of raw materials
Raw materials – Bin ST10 Storage of raw materials
Raw materials – Bin ST11 Storage of raw materials
Raw materials – Bin ST12 Storage of raw materials
Raw materials – Bin ST13 Storage of raw materials
Raw materials – Bin ST14 Storage of raw materials
Raw materials – Bin ST15 Storage of raw materials
Raw materials – Bin ST16 Storage of raw materials
Raw materials – Bin ST17 Storage of raw materials
Raw materials – Bin ST18 Storage of raw materials
Raw materials – Bin ST19 Storage of raw materials

Raw materials – Bin(OUTSIDE) ST20 Storage of raw materials

Glazed Raw Material ST21 Glazed Raw Material

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Glazed Raw Material ST22 Glazed Raw Material

Pigments and stains PS01 Pigments and stains

Packing Materials PM01 Pack Mat (Plant) Storage location of packing materials

Finished Goods FG01 FG (Plant) Storage of finished goods

LPG LPG1 LPG Storage Location Storage of LPG (cylinders)

LPG BULK LPG2 LPG Storage Location (bullet) Storage of LPG (In bullet)

Engineering & Spares ES01 Engg/Spares Storage Storage of engg and spares

High Speed Diesel DST1 HSD Storage Storage of HSD

Furnace Oil FO01 Furnace Oil Storage Furnace Oil Storage

LDO LDO1 LDO Storage LDO Storage

Note: Codification for the storage locations, yet to be given for C&F and head office by the Key User

Purchasing Organization

Current New Justification / Purpose of the Organizational


Unit
Code Description Code Description

Purchase Department 1000 Kajaria Purchasing Organization Centralised Purchasing Organisation for Kajaria

Note: KCL will decide whether the purchase group is required at depot and showroom level. The decision to have number of Purchase Group required

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in KCL is to be finalised.
Purchase Group

Current New Justification / Purpose of the Organizational


Unit
Code Description Code Description

Factory Operations, Sikandarabad Sikandarabad Factory Operations Factory Operations,

Factory Operations, Gailpur Gailpur Factory Operations Factory Operations,

Head Office operations, New Delhi Head Office, New Delhi Head Office Operations, New Delhi

Depots operations To be decided

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3. To - Be Business Processes

4.1 Master Data Maintenance


AS-IS Business Process Suggested Business Process
At Kajaria Ceramics, general data is maintained in the existing SAP R/3 provides functionality for maintaining the following master
legacy system for raw materials, stores, spares, power and fuel data:
and packaging materials. And the prices, terms and conditions for
1. Materials
vendors are also maintained.
2. Services
Business Requirements
3. Vendors
Master data is required to maintain uniquely, as per the SAP
standard system, for the following: 4. Purchasing Info Records

1. Material 5. Source List

2. Vendor 6. Vendor Evaluation

3. Purchasing info record (Conditions) 7. Conditions (Commercial)

4. Services
5. Vendor evaluation Gaps:
A

4.1.1 Sub-Process Scope: Maintenance of Material Master


AS-IS Business Process Suggested Business Process

Material Master: is maintained in legacy system. Following Kajaria Ceramics shall maintain material master data in Standard
information is maintained in the system: SAP System. In mySAP ERP the material master contains
information on all the materials that a company procures or
1 material description produces, stores, and sells. It is the company's central source for
retrieving material-specific data. This information is stored in
2.unit of measure individual material master records.
The material master is used by all components in the SAP Logistics
3. Sub-Ledger account description System. The integration of all material data in a single database
object eliminates redundant data storage.
4. Cost Centre
In the SAP Logistics System, the data contained in the material
Whenever there is a new material, material code is opened by master is required, for example, for the following functions:
Stores in the system with above mentioned details.

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Materials are grouped into: • In Purchasing for ordering


• In Inventory Management for goods movement postings and
1.Raw materials: these are further categorized according to physical inventory
manufacturing operation, viz-
• In Invoice Verification for posting invoices
• Body • In Sales and Distribution for sales order processing
• In Production Planning and Control for material requirements
• Glaze Frits
planning, scheduling, and work scheduling
• Glaze material others
Material Type
• Stains
Materials with the same basic attributes are grouped together and
• Zirconium assigned to a material type.
These are further differentiated according to local/ Indigenous This allows managing different materials in a uniform manner in
and import. accordance with your company's requirements. SAP Standard
Material types can be used for all the materials. At Kajaria, the
2. Packing materials: include cartoons of various sizes,
material types, used are,
wooden pallets, and plastic sheets for shrink wrap, glue, ink and
strapping rolls. • Raw Materials (ROH)
3. Fuel: include RLNG, HSD, LDO, Furnace oil. • Packing Materials (VERP)
4. Finished goods: There are two types of finished goods: • Semi finished (HALB)
1. Floor Tiles ( matt) • Pipeline (PIPE) - Only in case of Sikanderabad
2. Wall Tiles (glossy) • Finished (FERT)
Floor tiles are categorized according to the size like 300 X 300 • Trading Goods (HAWA)
mm, 400 x 400 mm, 395 x395 mm, etc which is further grouped
• Spares (ERSA)
into series like Plain, printed, budget series, and etc The product
in the series is further divided into standard, commercial and • Manufacturer Parts (HERS)
utility.
• Operating supplies (HIBE)–Only in case of
Broken tiles are sold separately as scrap.
Sikanderabad Plant for screen
5. Trading Goods: Wall and floor tiles, borders and cassette • Non-stock Materials (NLAG)
are procured within India and are also imported from china,
Italy, Spain, etc for trading. • Non valuated Materials (UNBW)

Walls and floor tiles meant for trading are classified like finished • Service (DIEN)
goods. (See 4.) The material type also decides -

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Business Requirements • Whether the material number can be assigned internally or


externally
Material master is required to maintain uniquely, for raw
materials, packaging materials, semi finished goods, finished • Which screens appear and in what sequence which
goods, spares, trading goods, pipeline materials. departmental data you may enter.

Requirement to have external number range. • What procurement type the material has, that is, whether it is
manufactured in-house or procured externally, or both (for
Manufacturer Part Number (MPN), which is different from Kajaria’ Semi-finish)
s material number, to be added while creating PO, for certain
trading materials as and when required. Material master creation includes Material Basic data, Purchasing,
MRP, Accounting Views, information like description of the material,
base unit of measure, order unit, valuation class, Price control etc.
Requirement is to make Fuel as a new material type are given while creating the material master.

(statutory requirement) Material coding for all material types will be provided as per the
requirement.
Material Group
Key that you use to group together several materials or services
with the same attributes, and to assign them to a particular
material group.
Material groups are maintained in order to meet the analysis &
reporting requirements as well for searching material master
records.
Material will be grouped according to their characteristics
maintained and a 4 digit materials groups provided as required.
Material Master (Excise Data)
The part of the material master record that contains information
relating to Indian excise duty. In conjunction with other data, this
data is used to calculate excise duty on various transactions.
The excise part of the material master is divided into the following
screens:
Chapter IDs
On this screen, you define the chapter IDs and corresponding
descriptions as described in the excise tariff structure. This
information is used when you create excise invoices and is also
shown in the various excise registers

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Material and Chapter ID Combination


On this screen, you maintain the excise data relating to materials.
For each material, specify:
• Chapter ID
• Whether the material can be sent to subcontractors
• The material type
This denotes, for example, whether the material is a raw material,
a capital good this affects the CENVAT process – or if it is a finished
good on which excise has been paid, to be covered by the Update
of RG 1 and Part I Registers
• Whether you accept more than one goods receipt per excise
invoice, and if so, whether the excise duty should be credited to the
CENVAT account immediately a goods receipt is posted (multiple
credit) or not until all the goods receipts have arrived (single credit)
This information is valid for a given plant. If the information is valid
for all the plants, however, leave the Plant field blank.

Material Assessable Value


On this screen, you maintain the net dealer price and the
assessable value of all materials that you send to subcontractors or
for any other issue. These values serve as the excise base value
when the materials are issued, and tell the system how much
excise duty to reverse from your CENVAT account.

CENVAT Determination
On this screen, you specify which raw materials are used to
produce which finished (or semi finished) goods. The system uses
this information to determine whether it you can claim a CENVAT
credit for a material.

Excise Tax Rate


On this screen, you specify for each chapter ID every possible rate

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of excise duty that might apply, so you must take into consideration
each permutation of plant and customer; and each combination of
plant and vendor.
You can maintain the basic excise rates in the following forms:
• Ad valorem
• Specific
• As a combination of both
For each rate, specify until which date it applies.
You can also maintain the additional excise duty and special excise
duty in ad valorem form, should any apply. If you need to give
these rates as a fixed sum, use the Quantity Based AED and SED
screen. Additional Excise Rate
On this screen, maintain any cess applicable.

Exceptional Material Excise Rate

On this screen, maintain any exceptions that apply to the excise


rates that you have defined. Exceptions can apply to a single
material from all vendors, of to a single material from one vendor
only. If you have an exceptional rate for a customer–material
combination, you can maintain it here as well.

Sales Tax Setoff Percentages

On this screen, maintain the percentage of local sales tax on inputs


that you can deduct against LST on outputs. The setoff amount is
deducted from the inventory valuation of the material.

Currently very few states, for example, Maharashtra and Gujarat,


participate in this scheme.

Gaps: A.
Material groups for Kajaria will be finalised by the Key Users.

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4.1.2 Sub-Process Scope: Shipping Instructions


AS-IS Business Process Suggested Business Process
Shipping and packaging instruction are mentioned in PO. Shipping and packaging instructions are set out in purchase orders
issued to vendors. When the relevant goods receipts are entered,
Business Requirements
the extent to which the vendor has complied with these
instructions can then be noted.
In PO it will be specified:
Which packaging and shipping instructions apply to deliveries of
ordered goods
Whether the instructions are to be included in the PO document
printout
Which criteria apply in assessing the degree of the vendor's
compliance with the instructions
Example:
CO coil
NE unpacked
NT nylon net
Gaps:
A
4.1.3 Sub-Process Scope: Purchasing Value Keys
AS-IS Business Process Suggested Business Process
At KCL, no purchasing value keys are maintained in the legacy Purchasing value key
system.
A key defining the valid reminder days and tolerance limits
applicable to this material for the purchasing department.
Business Requirements The purchasing value key serves as a data entry aid.
In the material master record, you can store rules governing:
The issue of reminders and urging letters (expediters) with respect
to nearly due and overdue deliveries
The admissibility of over- and under deliveries ("overages" and

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"underage")
Order acknowledgment requirements for PO items
Shipping/packaging instructions
This data appears as default data in purchasing documents and is
taken from the material master record (unless a purchasing info
record exists, in which case it is taken from the latter source).

Gaps:
A
4.1.4 Sub Process Scope: Service Master Maintenance
AS-IS Business Process Suggested Business Process
At Kajaria Ceramics, services are used for General, Engineering, Service masters shall be maintained for various Services with
Housekeeping, Security, Forklifts, Maintenance of AC’s, Network Description, Category and Unit of Measure using the ‘Master Data
and photocopier. Also Kajaria has also got some services on Maintenance’ in ‘External Services management’ of Materials
AMC’s with some vendors. No service master is maintained in the management Module.
legacy system.
Following critical information shall be maintained in the service
TDS and service Tax, works Tax, etc are charged by master record:
vendor/service provider.
1. Service Number, which gives a unique identification to the
Business Requirements service. This shall be internally generated by the system.
Services are required as per the SAP standard system, as part of 2. Service Category, which describes whether a service is an
service contracts negotiated with predetermined terms and internal service or a service to be procured externally. In
conditions with approved vendors for performing the services of conjunction with the organizational (maintenance) status of the
engineering, production, general, house keeping, network, service master, the maintenance views can be controlled i.e.
maintenance of AC’s, security and photocopier. whether a service master can have – a basic data view,
Services shall always be made available through the SAP system controlling view, sales & distribution view. Based on the type of
to obtain the services with the vendors whenever the service, the service category shall be maintained.
requirement comes
3. Description which describes the service in brief
Examples of Services for which Master records shall be created:
1. Annual Maintenance Contracts
2. Repairs in KCL premises
3. Repairs outside

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Gaps: A
4.1.5 Sub Process Scope: Maintenance of Vendor Master
AS-IS Business Process Suggested Business Process
At Kajaria Ceramics, the vendor master is maintained in the Vendor Master Data shall be maintained at the following levels:
legacy system like their names, addresses, telephone numbers, • General data
CST/LST NO, PAN NO. Payment terms and terms and conditions.
But the complete information is not maintained. • Company Code Data

Vendor Master is maintained in legacy system separately for • Purchase Organisation Data
each manufacturing plant. Following information is maintained General Data:
in the system:
The general data includes such information as the vendor's address
1. Address details, telephone, Fax, CST, and LST no. and telephone number, the language of communication with the
2. credit days vendor, email address, etc.
Company Code Data:

Material Master: is maintained in legacy system. Following Accounting information shall be maintained at company code level.
information is maintained in the system: This data includes, for example, payment transaction data and the
number of the relevant control account. Only one control account
1 material description, can be assigned to each vendor. And we can maintain vendor
2.unit of measure customer relation and vendor bank details in vendor master.

3. Sub-Ledger account description Purchase Organisation Data:

4. Cost Centre Purchasing data like contact persons, terms of delivery, etc. shall
be maintained at purchasing organization level. Vendor’s excise
details can be maintained using the CIN functionality of R/3.
Business Requirements
Vendor Schema Group
Unique vendor master data is required to maintain for each
The schema group mentioned in the vendor master is useful in
vendor, by giving account numbers, as per SAP standard system.
determination of pricing procedures.
The vendor master data shall be integrated in the system and
Vendor Account Group:
should be accessed during procurement of materials and the
liabilities, for each vendor, to be accounted automatically as and Vendor account Group mentioned in the vendor master is useful to
when a transactions takes place group the vendor e.g.:

The payment status shall be tracked through the system online, 1. Domestic Vendors
vendor-wise and total vendors 2. Import Vendors
3. Service vendors

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4. Employee vendors
Terms Of Payment
Details of Terms of payments has to be provided by KCL
Terms of payment could be used on different options available in
the SAP standard system.
Vendor Master (Excise Data)
The part of the vendor master record that contains information
relating to excise duty.
In conjunction with other data, this data is used to calculate excise
duty on various transactions.
The excise part of the vendor master is divided into the following
screens:
Vendor Excise Details
On this screen, you enter your vendors' tax numbers, which are
used for various forms of correspondence and reports:
• Excise registration number (and the range, division, and collector
ate in which this is located)
• Central sales tax (CST) number
• Local sales tax (LST) registration number
• Permanent account number (PAN)
In order for the system to be able to calculate which rate of excise
duty to apply on purchases from the vendor, you must also:
• Assign it a vendor excise duty status
• Specify what type the vendor is, for example, a manufacturer,
first-stage dealer, or importer for 57AE returns
• If the vendor qualifies as a small-scale industry(SSI), you must
also specify:
− What its SSI status is (which you must first have defined under
SSI rates,
− Whether or not it is participating in the CENVAT scheme SSI

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Rates
On this screen, you define the excise rates that apply to purchases
from vendors that qualify as SSIs.
You define one status for each band (or "slab") of sales volume
provided for by the law, and for each SSI status, the rates of
excise duty that applies to that slab under the two schemes
Excise Indicator for Plant and Vendor
On this screen, you define the final excise duty indicator
Gaps:
A:
4.1.6 Purchase Info Records

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AS-IS Business Process Suggested Business Process


At Kajaria Ceramics, no purchasing info record is maintained in Purchasing Info records shall store vendor - material details for
the legacy system. various types of procurement like standard and sub-contracting.
These details shall be maintained for a Plant and Purchasing
Organization. Details like Prices & other conditions, under and over
Business Requirements
delivery tolerances, are stored in these records. The information in
Kajaria Ceramics shall be required to maintain applicable the latest purchasing info record for a combination of vendor and
condition records, for desired vendors, for arriving effective material for that purchasing organization and plant shall always be
prices, while making purchase orders, as per the SAP standard defaulted when creating a Purchase Order.
system
Purchasing info records shall be created manually or automatically.
Manual Creation shall be done when a purchasing info record
doesn’t exist already for a vendor – material combination for a
purchasing organization and plant. Manual Update can be done
when there are changes in the values of the Purchasing Info
Records
Automatic updation/creation is also possible at the time of creation
of Quotation, Purchase Order or Contract for those records that
already exist. Purchasing Info Records for multiple validity periods
can be maintained at the same time.
Gaps:
A

4.1.7 Source List Maintenance


AS-IS Business Process Suggested Business Process
At Kajaria Ceramics, no standard source lists is maintained in the The source list shall be used to maintain the possible sources of
legacy system. supply of material for a given period or to block a possible source
of supply for a specific period or to completely block the external
procurement of a material.
Business Requirements
A Source List shall be created automatically or manually.
Shall be maintained as per SAP standard system
1. Automatic creation of a record in the source list for a
particular material is done when a purchasing info record is
created. Source list shall also be automatically created when

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an outline agreement is created.


2. Manual maintenance shall be done when a new source / new
material is identified.

Gaps:
A
4.1.8 Maintain Vendor Evaluation Criteria
AS-IS Business Process Suggested Business Process
At Kajaria Ceramics, vendor evaluation assessment is carried, Vendor evaluation is to be done to analyze and assess the
manually, once in a year, to carry out the total performance performance of external suppliers of materials & services
results of each vendor with respect to delivery on time,
Vendors shall be awarded scores for a number of different criteria.
competitive price, satisfied quality and committed service. This is
Vendor’s overall scores shall be used to determine whether they
also calculated based on no of rejections and delayed deliveries
are retained in or eliminated from Kajaria’s vendor base.
and services
Vendor evaluation shall be done on the basis of the following main
criteria:
Business Requirements
Price
Vendor evaluation criteria is required, for desired vendors, as per
Quality
the SAP standard system to facilitate and give scoring system for
individual vendors Delivery and
Service.
Under the main criterion, again further sub-criterion can be defined
like Price level, Price History, Goods Receipt, Quality Audit,
Complaints / Rejection level, On-time delivery performance,
Quantity reliability, Compliance with shipping instructions,
Confirmation Date etc.
KCL shall define a scoring range i.e. a common scale on which the
vendors can be rated. The scale shall be between 1-100 points. For
every main criteria, a weightage can be assigned The overall score
shall be calculated from the scores of the main criteria taking the
weighing factors for each main criterion into account. All the values
shall be decided at the time of configuration.
Gaps:
A

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4.1.9 Sub-Process Scope: Maintenance of Conditions for Procuring Materials


4.1.9.1 Prices
AS-IS Business Process Suggested Business Process
The pricing structure is maintained manually, at Kajaria, based on This component enables you to store pricing stipulations agreed
each vendor’s terms and conditions which include Gross Price, with the vendor (such as applicable discounts or surcharges, or
VAT, Education CESS, CENVAT, MODVAT, taxes, service tax, stipulations regarding the payment of freight costs) in the system.
discounts, service charges , work tax, etc and this is being used You can enter these conditions in quotations, outline purchase
in the purchase orders for procuring the materials agreements, and info records. You also have the option of entering
general conditions at vendor level, for example. The system then
Business Requirements
applies the conditions in determining the price in purchase orders
The pricing is required to be calculated and maintained for each (POs). You can enter further conditions in the PO itself
vendor, in order to generate effective price while creating a
Prices shall be of three types –
purchase order, as per the SAP standard system which can be
calculated on Gross Price for VAT, Education CESS, taxes, (a) Gross Price which is exclusive of Discounts or surcharges,
discounts, service charges, as per legal requirements.
(b) Net Price inclusive of surcharges, discounts, taxes,
(c) Effective Price which includes the Net Price but taking
delivery costs, cash discount and other incidental costs.
Pricing conditions shall be maintained in the purchasing info
records or in the header or item level as applicable at the time of
PO creation.
Gaps:
A

4.1.9.2 Discounts
AS-IS Business Process Suggested Business Process
At Kajaria Ceramics, the discounts are maintained in the legacy The Discount condition records shall be maintained with conditions
system for applicable vendors along with vendor information and values associated with conditions. While processing a
data, terms and conditions. transaction, the system will search for valid record and as soon as
it finds the record matching the condition of sale it should return a
Qty discounts, Qty Scale discounts both on percentage basis as
discount value. Some of the discounts can be maintained at the
well as on value basis are offered by vendors. Like in the case of

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Propane purchase. time of preparing the purchasing document.


End of the period rebate on purchases are also given by vendors. Gaps:
These discounts shall be used in the purchase orders during A
procurement process.

Business Requirements
Shall be maintained as per SAP standard system

4.1.9.3 Excise & Import Duty


AS-IS Business Process Suggested Business Process
At Kajaria Ceramics, the applicable excise duty with each vendor, This shall include the exceptional rates that may be applicable for
is currently maintained in legacy system to use in the purchase certain vendors and material combination. The setoff of excise duty
order document while procuring the materials or inventorying of excise duty will be controlled by Tax codes.
Vendor, Material and other factors that determine the excise duty
shall be maintained through the CIN Module of SAP R/3.
Business Requirements
In Imports the CVD, which needs to be captured for CENVAT
Shall be maintained as per SAP standard system
postings, shall also be incorporated.
Gaps:
A
4.1.9.4 Sales Tax / VAT
AS-IS Business Process Suggested Business Process
At Kajaria Ceramics, applicable sales tax and VAT is used, in the Tax condition records can be maintained in the system for various
purchase order documents against each vendor levels of taxes, like central and state level, which will be
automatically determined during a transaction depending upon the
receiving plant and the vendor’s locations.
Business Requirements
The tax values are maintained as percentages with the help of tax
Shall be maintained as per SAP standard system codes.
Various sales tax codes are to be maintained in FICO Module of
SAP R/3.
4.1.9.5 Octroi

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AS-IS Business Process Suggested Business Process


At Kajaria Ceramics, no Octroi is paid.
Business Requirements Gaps:
Nil A
4.1.9.6 Freight
AS-IS Business Process Suggested Business Process
At Kajaria Ceramics, freight is being used as and when applicable Freight is to be maintained as a condition type.
with respective vendors and it’s been given in the purchase order.
The Planned Freight costs shall be booked in the same Purchase
Freight charges are borne by Kajaria Ceramics and /or by the Order for which the procurement is to be done. In cases where the
vendor as per the terms and conditions agreed in PO. material carrying party is different from the one on whom the PO is
• Freight charges are paid directly to the supplier. raised the Freight Vendor shall also be maintained in the same PO.

• Freight charges are paid to the goods carrier at the time of For uncertain freights, approximate/minimal freight shall be
entered in the PO, for the internal system purpose and final PO for
GR.
vendor shall be sent without mentioning the freight. And when the
• KCL has hired the services of Goods carrier/Transporters in actual freight comes to be known, during invoice entry, the correct
the form of an agreement to transport the goods from freight amount can be entered. The freight invoice will be booked
vendor to the plant on the behalf of KCL. as soon as the material is received in the stores and the value will
be updated in the stocks.
Gaps: A
Business Requirements
Shall be maintained as per SAP standard system.

4.1.10 Payment Terms


AS-IS Business Process Suggested Business Process
At Kajaria Ceramics, payment terms are maintained manually for Kajaria Ceramics shall use the standard payment terms wherever
each vendor, based on the predetermined negotiations and terms possible. Wherever required, specific payment terms shall be
& conditions. defined in the system like Payment with LC.
Following Payment terms are used: Payment terms could feasibly be carried out for each vendor as per
the agreed negotiations like 30 days, 45 days, payment against
1.Advance against Purchase
delivery, etc, etc
2.100% payment against delivery
The payment shall be blocked under deviation of material quality.

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3. Partly advance, balance against delivery The total quantity shall be received, but the entire payment can
not be released based on the deviation of quality parameters.
4. partly advance+ partly against delivery,+ partly against
certain credit days and remaining after retention period
5. Payment after certain credit days. Gaps: A
The payment shall be blocked under deviation of material quality.
Percentage in payment terms varies from vendors to vendor and The total quantity shall be received, but the entire payment can
material to material. not be released based on the deviation of quality parameters.

Business Requirements
Shall be maintained as per SAP standard system.
The system should be able to allow LC payment for local and
import vendors.

4.2 MRP (Material Requirement Planning)

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AS-IS Business Process Suggested Business Process


This is covered in PP module MRP: - The main function of MRP (Material Requirements Planning)
is to ensure material availability at right time and in right quantity.
It is used to procure or produce the requirement quantities on time
Business Requirements both for internal purposes and for sales and distribution. This
The requirement is covered in PP module process involves the monitoring of stocks and, in particular, the
automatic creation of procurement proposals for purchasing and
production based on the requirements against the available stocks.
You must first create the master data to be able to work with the
MRP component. To do this, you require the following components:
• Material Master
• Bills of Material

The MRP is covered in PP module


Gaps:
A

4.3 Procurement Process


AS-IS Business Process Suggested Business Process
At Kajaria Ceramics, procurement is categorised into External procurement in the MM System centers around a general
• Local Purchase cycle of activities.

• Import Purchase Process Flow


The typical procurement cycle for a service or material consists of
• Service Purchase
the following phases:
The purchase department at New Delhi, Sikanderabad and • Determination of Requirements
Gailpur, prepares purchase requisitions, Request for quotations, Materials requirements are identified either in the user
Contracts, Scheduling Agreement and purchase orders. The departments or via materials planning and control. (This can
purchases at depots and showrooms are through Head Office. cover both MRP proper and the demand-based approach to
Once, the vendor is finalised, then the purchase orders is inventory control. The regular checking of stock levels of
prepared and it is approved by Purchase Committee comprising materials defined by master records, use of the order-point
of User Dept’s Head, Purchase Dept’s Head, Plant Head, method, and forecasting on the basis of past usage are
Account’s Head, GMD and CMD. important aspects of the latter) You can enter purchase

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Against the PO, the materials will be supplied by the vendor and requisitions manually, or they can be generated
GR will be prepared against vendor’s delivery challan /invoice, automatically by the materials planning and control system.
after inspection of the materials as per the inspection criteria / • Source Determination
parameters given for the raw material and packaging materials
The Purchasing component helps you identify potential
and then it is finally sent to the stores department. Any materials
sources of supply based on past orders and existing longer-
being found defect or rejected, it’s then sent back to the vendor
term purchase agreements.
with return note and gate pass
Based on the GR and inspection reports, the invoice of the
• Vendor Selection and Comparison of Quotations
vendor, will be processed by purchasing dept and forwarded to
the finance dept for the payment release The system is capable of simulating pricing scenarios,
allowing you to compare a number of different quotations.
Rejection letters can be sent.
Business Requirements • Purchase Order Processing
The procurement process shall be managed as per SAP standard The Purchasing system adopts information from the
system. requisition and the quotation to help you create a purchase
order. As with purchase requisitions, you can generate Pos
The Purchase requisition should be the basis for starting the
yourself or have the system generate them automatically.
procurement process
Vendor scheduling agreements and contracts (in the SAP
The Request for quotation shall be processed based on purchase System, types of longer-term purchase agreement) are also
requisition approval only and the RFQs shall be obtained from supported.
several vendors and the rates and conditions shall be entered in
• Purchase Order Follow-Up
the system in order to prepare a comparison statement on a
The system checks the reminder periods you have specified
mean / minimum criteria
and - if necessary - automatically prints reminders or
During the purchase order creation, for the given materials with expediters at the predefined intervals. It also provides you
respective vendors, the predefined prices, conditions and with an up-to-date status of all purchase requisitions,
payment terms should be taken automatically, from the master quotations, and purchase orders.
data that are maintained in the SAP system
• Goods Receipt and Inventory Management
The approval process shall be applicable for Purchase Goods Receiving personnel can confirm the receipt of goods
Requisitions, Request for Quotations, Purchase Orders and simply by entering the Po number. By specifying permissible
Contracts, on document type basis. The approvers shall include tolerances, buyers can limit over- and under deliveries of
User Deptt Head, Purchase Deptt Head, Plant Head, Account ‘s ordered goods.
Deptt Head, GMD and CMD. It is based on the PO value.
• Invoice Verification
The purchasing order documents shall be converted in to The system supports the checking and matching of invoices.
word/text format, so as to facilitate for sending them to vendors, The accounts payable clerk is notified of quantity and price
through e-mail. variances because the system has access to PO and goods
Purchasing groups that are defined for Head Office should be receipt data. This speeds the process of auditing and clearing

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flexible while placing orders for Sikanderabad, Gailpur, depots invoices for payment.
and showrooms. Either of the groups shall be used through either
locations Procurement for Stock Versus Procurement for Direct
Consumption
In the MM System, you procure either for stock or for direct
consumption. You can determine the purpose for which ordered
materials are being procured in the purchase order, for example.
This section describes the differences between procuring for stock
and procuring for direct consumption in the MM System.
Procurement for Stock
A stock material is a material that is kept in stock. Such materials
are placed in storage following a goods receipt. When goods are
received by or issued from stores or the warehouse, the stock on
hand is increased or reduced by the amount of the quantity
received or issued.
When you order a material for stock, the system does not require
an account assignment. This is because the posting to the
appropriate stock and consumption accounts occurs automatically
after each goods movement (for example, after a material is
received by the stores or issued from stores) . Furthermore, the
value and the quantity of the stocked material are updated in the
material master record.
To order a material for stock, the material must have a master
record
Procurement for Direct Consumption
When you procure for direct consumption, you specify the
consumption purpose by entering an account assignment (for
example, a cost center) . On goods receipt, the material or service
counts as having been consumed.
If a material is procured for direct consumption, the consumption
accounts in Financial Accounting are posted when the goods receipt
is entered. The total quantity and value of existing stocks of the
material are not affected.
Material Account Assignment

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For each item of a purchasing document, you specify whether


procurement is for stock or for direct consumption. In a purchasing
document, you can enter items with or without account
assignments.
If you order stock materials, the ordered material must have a
material master record. If you order consumable materials, the
ordered material may have a material master record.
Account assignments are possible for the following purchasing
documents:
• Purchase requisitions
• Purchase orders
• Outline agreements
The Procurement process has various stages like Purchase
Requisition, Request for Quotation, Quotation, Purchase Order,
Contract, Goods Receipt with RG23 Postings and Invoice
Verification
Purchase requisition can be created for a given plant storage
location, purchase organisation, material code and delivery date.
Request for Quotation, can be created by giving the material code,
Plant, Storage location, purchase organisation, quotation deadline
and requirement date. Vendor prices can be maintained and price
comparison can be made.
Gaps:
The purchase order documents that need to be converted into
word/text format in order to send them to vendors through e-mail,
shall be considered during the ABAP enhancement.

4.3.1 Sub-Process Scope: Purchase Requisition

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AS-IS Business Process Suggested Business Process


At Kajaria Ceramics, any material is required, it’s generated A purchase requisition is a request or instruction to Purchasing to
through purchase requisition and approved by the individual dept procure a certain quantity of a material or a service so that it is
head and forwarded to the purchase dept for the procurement. available at a certain point in time.
Materials requirements are identified either in the user Purchase requisition contains item category, account assignment
departments or via the demand-based approach to inventory category, material group, quantity and delivery date of the material
control. to be supplied or the service to be performed.
The regular checking of stock levels of materials defined by Purchase Requisitions are created under the following situations:
master records, use of the order-point method, and forecasting
a. Purchase Requisitions shall be created - automatically on MRP
on the basis of past usage are important aspects for identifying
Run or manually by the requesting department.
the material requirement for purchase.
b. Purchase requisition shall be created manually as well as
Minimum and maximum level of stock is maintained in stores.
automatically by the plant maintenance.
When the material falls below minimum level, a Purchase
Requisition/Indent is created by stores. The stock is monitored
on daily basis by taking the report from legacy system.
In case of plan for more production, production department
creates indent for raw materials.
Business Requirements
The purchase requisition shall be created through SAP standard
system. A purchase requisition can be created manually as well
as automatically through MRP run. The business requirement is
to have a different number range for PREQ’S for both the plants
for differentiating and identifying purpose on plant basis.
The purchase requisition should be created for services and
materials requirements

4.3.2 Sub-Process Scope: Approval of Purchase Requisition

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AS-IS Business Process Suggested Business Process


At Kajaria Ceramics, there is PREQ approval process the purchase Release Strategy shall be incorporated for release of Purchase
requisition after approval from Plant head/ JMD is forwarded to Requisition as per the requirements.
Purchase Dept.
Only in the case of capital goods and high value items PREQ is
The release is applicable for only manually generated Purchase
sent for approval to JMD and/or CMD then only the purchase
Requisitions
requisition is ready for further process.

Gaps:
Business Requirements
A
The purchase requisition should undergo the approval process as
per the SAP system for all the purchase.

4.3.3 Sub-Process Scope: Request for Quotation

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AS-IS Business Process Suggested Business Process


In case of any new material or services or in some cases for A request for quotation (RFQ) is an invitation extended to a vendor
existing material/services being requisitioned, multiple enquiries by a purchasing organization to submit a quotation (bid) for the
are floated by the purchase dept with concerned suppliers for supply of materials or performance of services.
quotation.
An RFQ consists of the RFQ header and the items.
Request to suppliers is send either by Fax, E-mail, Verbal/Phone
to submit price quotation for the specified quantity, terms & • RFQ header
conditions, delivery schedule for the materials & services.
Contains general information on the RFQ, such as the
vendor’s address

Business Requirements • Items


Request for quotations shall be created through SAP standard Contain the total quantities and delivery dates for the
system, with reference to approved purchase requisitions or in materials or services specified in the RFQ.
general.
You use this component if you wish to manage and compare
Different RFQs shall be prepared through SAP standard system
requests for quotation (RFQs) issued to vendors and the
and send to various vendors for the quotations
quotations submitted by the latter in response to them.
The RFQ shall contain the total quantity required, name &
Gaps:
address of the vendor, valid date and the predefined terms and
conditions. A

4.3.4 Sub-Process Scope: Quotation

AS-IS Business Process Suggested Business Process


At Kajaria Ceramics, upon receipt of quotes from various A quotation is an offer by a vendor to a purchasing organization
suppliers, a comparative statement is prepared in excel, based regarding the supply of materials or performance of services
on the conditions like price, taxes, duties, Freight, discount, subject to specified conditions.
credit days, timely delivery, reliability, service , etc . Total cost to
The RFQ and the quotation form is a single document. Prices and
the company is calculated and then evaluation is carried out for
conditions quoted by vendors are entered in the original RFQ. If
the best option to find a right vendor for procurement of
you have issued an RFQ to several vendors, you can have the
materials.
system determine the most favourable quotation submitted and
Depending on the value the Quotation undergoes the approval automatically generate letters of rejection to the unsuccessful
process and then Quotation is finalization. bidders. You can also store the prices and terms of delivery from
certain quotations in an info record for future accessing.
The most suitable quote is finalised for further process.
A quotation is legally binding on the vendor for a certain period.
The quotation is the vendor’s response to a request for quotation
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Business Requirements: issued by a purchasing organization.


The comparison statement or list shall be generated through SAP
A quotation consists of items in which the total quantity and
standard system.
delivery date of an offered material or service are specified. An
The price comparison list can be prepared based on either item of a quotation may contain a delivery schedule made up of a
average or minimum value of all the obtained quotations for number of schedule lines in which the total quantity is broken down
various vendors by providing collective number. into smaller quantities to be delivered on the specified dates over a
The RFQ’S should undergo the approval process as per the SAP certain period.
system for all the purchase. An item of the procurement type External service contains a set of
service specifications. The latter can be hierarchically structured.
The summary view of such a hierarchical structure is referred to as
an outline. The outline comprises a number of levels, each
representing a level of the service hierarchy. The quantities of the
quotation are set out in service lines, representing individual jobs
or activities
You can compare the prices from all quotations received as a result
of a competitive bidding process using the price comparison list .
The comparison list ranks the quotations by item from lowest to
highest price.
Prerequisites
Before you generate the price comparison list, you need to consider
the following:
If possible, each quotation should have pricing data for the same
item. Only then is the correct interpretation of the mean and total
values possible.
If quotations 1 and 2 have pricing data for item 1, but quotation 3
only has price information for item 2, then the system does not
have enough information to accurately compare the prices of all
three quotations.
If a quotation is submitted in a foreign currency, the price is
automatically translated into the currency of the company code,
which is determined by your purchasing organization.
You should therefore make certain that up-to-date exchange rates
are defined in your system.
Reference quotation

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You can compare the quotations within the list with a sample
quotation. The system displays the percentage deviation between
each quotation in the list and the sample quotation.
Mean/minimum value quotation
The price comparison list can also display a "fictitious" quotation
reflecting the average or minimum value of all quotations. Select
either the Mean or Minimum value quotation field to choose the
type of fictitious quotation.
Percentage basis
The price comparison list displays the percentage of each item in
relation to the maximum, minimum, or average price. To determine
the display type, enter one of the following:
– “+” Highest value for each item is the 100% value
– “-“ Lowest value for each item is the 100% value
– +"_" Mean value for each item is the 100% value
Price Computations
Select the appropriate field to specify which of the following should
be taken into account in determining the comparison price:
– Cash discount
– Delivery costs
– Effective price

Gaps:
A
The existing RPO document will not be brought into SAP system.
The Purchase Order document will be used as direct document.

4.3.5 Sub-Process Scope: Purchase Order Creation

AS-IS Business Process Suggested Business Process

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At Kajaria Ceramics, purchase orders are prepared for materials A purchase order is a formal request or instruction from a
and services with reference to purchase requisitions purchasing organization to a vendor or a plant to supply or provide
a certain quantity of goods or services at or by a certain point in
Purchase orders are prepared some times for imported raw
time.
materials as and when they find attractive pricing terms vendors
and it’s been negotiated by head office for pricing terms and A purchase order (PO) consists of a document header and a
conditions and the plant shall then place orders based on the number of items.
production requirements.
The information shown in the header relates to the entire PO. For
Also sends some materials for job work through purchase orders example, the terms of payment and the delivery terms are defined
to sub-contractors for making final product. The sub-contractor in the header.
shall perform his services and return the final products back to
A procurement type is defined for each of the document items. The
Kajaria. Thus the sub-contractor is liable for his service charges
following procurement types exist:
only.
• Standard
• Subcontracting
Business Requirements
• Stock transfer
The purchase order shall be created as per SAP standard system
and every PO must have purchase requisition reference. • External service

The payment and delivery terms and conditions, which are fed in Delivery of the total quantity of material (or performance of the
the master data, should be accessible while creating purchase total volume of services) specified in a purchase order item can be
order spread over a certain period in a delivery schedule, consisting of
lines indicating the individual quantities with their corresponding
Import PO should display figures in foreign currency, while
planned delivery dates.
indigenous PO should display in INR.
For PO items to be supplied by subcontractors, you can specify the
The history of PO should be available in the system
necessary input materials or components that are to be provided to
the subcontractor for assembly or processing in respect of each
Shipping notification is required for import goods. delivery date stipulated.
An item of the procurement type "external service" contains a set
of service specifications. The latter can be hierarchically structured.
The summary view of such a hierarchical structure is referred to as
an outline. The outline comprises a number of levels, each
representing a level of the service hierarchy. The order quantities
are set out in service lines, representing individual jobs or
activities. Value limits are specified instead of service lines for
services or work that initially cannot be specified precisely.
If services covered by an already existing contract are released
(ordered, or called off against the contract), the PO item can

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contain a value limit relating to the contract in question.


Conditions
Conditions can apply at various levels:
• To the entire purchase order
• At item level, to the material to be supplied or to the set of
service specifications in the case of services
• At service line level for individual services (tasks or
activities)
Account Assignment
Costs can be apportioned among various Controlling objects via the
account assignment.
Vendor Confirmations
Vendors can issue confirmations to the relevant purchasing
organization indicating their compliance or non-compliance with
scheduled delivery dates.
PO History
The transactions following on from a purchase order are
documented in the PO history on an item-specific basis.
Partner Roles
Instead of the vendor as the order recipient, other business
partners can appear in various partner roles (e.g. goods supplier or
invoicing party).
Plant
In the purchase order, each item is destined for a certain plant.
Each plant belongs to a company code, to which the vendor’s
(creditor’s) invoice is directed.
Texts
You can enter text in a purchase order directly or change texts that
are suggested by the system. There are two kinds of text:
• Header text: applies to the entire document
• Item text: applies only to the relevant item

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You define which texts appear in which order on printouts in


Customizing for Purchasing. You can enter several header or item
texts, which you can identify by your own codes.

Types of Purchase Orders


Purchase Order Types are classified as
• Standard PO
• Imports PO
• Service Orders
• Stock Transport Orders
• Sub-contractor purchase order
These Purchase Documents will have separate numbering series.
Standard PO will cover the domestic procurement need of raw &
packing materials, consumables, capital items etc.
Consumables/Capital items are account assigned to a respective
Cost Centre & G/L account.
Imports PO will be used for procurement from foreign countries.
Pricing conditions will be maintained based on CVD / Customs Duty
and tax conditions which are separate condition types.
Service Purchase Orders are created for the external procurement
of services from a vendor. These services can be account assigned
to a Cost center & G/L account.
Stock transport orders are used in case of stock transfer from one
plant to another.
At the time of Purchase Order creation, system will capture from
various masters e.g. purchasing info record, vendor master etc..
which can be changed subsequently.
Change history of Purchase order is available at header as well as
item level.
GAPS:A
The system shall be able to get the prices from the purchasing info

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record during PO creation.


Stocks and accounting documents to be updated for import goods
against purchase orders, prior to their physical arrival to the
factory, in order to make payments to the vendor and/or freight
collectors.
4.3.6 Sub-Process Scope: Purchase Order Approval
AS-IS Business Process Suggested Business Process
At Kajaria Ceramics, the approval process is currently undertaken The Release strategy shall be applicable for purchase orders. The
for Purchase orders. The approval of the Purchase Order is based various levels identified for each document will be controlled by
on the value of PO which is approved by the Purchase authorizations.
Committee.
1.The purchase at plant level is limited up to the value of
Gaps:
Rs25000, which is approved by user dept Head, Purchase Dept
Head, Plant Head and Account’s Head A

2. For PO value above Rs25000/- up to Rs 5 Lacs is approved by There will be no RPO and the PO will be directly approved in the
user dept Head, Purchase Dept Head, Plant Head and Account’s SAP system
Head and GMD.
3. For PO value above Rs5 Lacs is approved by user dept Head,
Purchase Dept Head, Plant Head and Account’s Head and GMD
and CMD.

Business Requirements
Purchase order document shall be replaced with RPO document
and processed as per the SAP standard system.
The purchasing document shall be authorised by GM (Production)
and/or GM (Maintenance), GM (Commercial & Logistics) and by
the Managing Director
The approval process for the purchase order shall be routed
through SAP standards.
4.3.7 Sub-Process Scope: Purchase Order Follow Up

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AS-IS Business Process Suggested Business Process


At Kajaria Ceramics, after faxing/mailing of purchase orders to The system checks the reminder periods you have specified and -
respective supplier, is followed up manually via telephone, e- if necessary - automatically prints reminders or expediters at the
mailing and faxing methods to ensure for the timely delivery. predefined intervals. It also provides you with an up-to-date status
of all purchase requisitions, quotations, and purchase orders

Business Requirements
Gaps:
Follow up of purchase orders with respective vendors should be
routed through the SAP standard system A

All the reminders and confirmation on PO receipt and delivery


confirmations with respect to specified dates and locations,
should be routed through SAP standard system

Required in the case of imports


4.3.8 Sub-Process Scope: Imports
AS-IS Business Process Suggested Business Process
1. PO is created and sends to the import vendor. The countervailing duty (CVD) on imports is levied in place of
2. Vendor sends the Performa Invoice. excise duty. Unlike other forms of customs duties, such as basic
customs duty or special customs duty, CVD paid on imports is
3. Incoterms are decided at the time of Performa Invoice.
credited to CENVAT account.
Incoterms used in KCL are:
• FOB Vendor Master Record for Customs Office
• CIF
The customs office will be created as a Vendor in vendor master
• Ex-Works record, so that you can create liabilities for the CVD
4. KCL will decide the manner of payment like LC, or DA, or
DP Condition Type for CVD

5. Insurance cover note is obtained by KCL, it is an open The system handles CVD using a condition type for planned
cover note. delivery costs.
6. Dispatch schedule is send by the oversee seller.
CVD Clearing Account
7. KCL decides the manner of dispatch like sea or air.
8. KCL will decide the shipping lines/route or airline. When CVD is posted to a CENVAT account the system debits the
9. KCL tracks the dispatch CVD to the BED account and credits it to a CVD clearing account

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10. When the goods have arrived at the port, KCL files the 1. A purchase order is created for the required goods and is sent
papers to custom deptt. to the vendor.

11. Custom Clearance is done. For each material that CVD has to be paid when it comes
12. Then the goods are transported to different plants/ through customs, the CVD will be entered as a pricing
warehouses. condition.

2. The vendor ships the goods. When the goods arrive in India,
they go through customs. The customs officers issue a bill of
Import Documentation
entry for the goods, which is in effect an invoice for the CVD
• Commercial Invoice on the goods. Once custom office has inspected the goods,
they send them on to KCL.
• Packing List
• Certificate of origin 3. The goods arrive at Gailpur plant, together with the bill of
entry. In order to record the bill of entry in the system:
• Bangkok Agreement
• Bill of Lading/Copy of AWB a. enter an invoice for the bill of entry

• Insurance cover note In Accounts Payable (FI-AP), the system creates a new
vendor item for the CVD at the customs office. The item
is offset to the CVD clearing account.
LC- 90, 120, 150, 180, 360, 365 days
b. captures an excise invoice for the bill of entry
DA -90, 120, 150, 180 (document against acceptance)
DP- document against payment 4. The stores posts the goods receipt.

5. The stores post the excise invoice.


Type of Licenses
6. The stores enters the vendor invoice for the materials, following
• EPCG- Export Promotion capital goods the standard procedure.
• Duty exemption schemes/ Remission schemes

Goods under advance license and EPCG no CVD is required to be


paid. All CVD paid is modvatable.
Raw materials
Pigments
Frits
"Incoterms" are international rules for the interpretation of the
Punches
most commonly used terms of foreign trade.

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Roller Ceramic In particular, the Incoterms regulate the division of costs, and
Packaging Material –shrink-wrap the transfer of risks.
CMC- carbolic, raw material Standard settings
Screen printing material- Zirconium, STP (sodium triple The standard SAP R/3 system includes the following Incoterms:
phosphate) • CFR - Cost and Freight
• CIF - Cost, Insurance and Freight
Duty Paid Goods • CIP - Carriage and Insurance Paid To
Capital Goods and spares, furniture like tile display, lab • CPT - Carriage Paid To
equipment.
• DAF - Delivered At Frontier
Traded Goods- Vitrified Tiles, ceramic tiles, furniture, porcelain
• DDP - Delivered Duty Paid
• DDU - Delivered Duty Unpaid
SAD- special additional duty is also modvit able on
manufacturing goods. • DEQ - Delivered Ex Quay (Duty Paid)
• DES - Delivered Ex Ship

Calculation: • EXW - Ex Works

Basic Duty • FAS - Free Alongside Ship

CVD • FCA - Free Carrier

Edu. Cess on CVD • FOB - Free On Board

Edu. Cess on Basic Duty+ CVD+ Edu. CESS Gaps:

SAD on 4% on CIF value of goods + All duties A,C


GAP C: All the documentation required will be considered in the
Import documentation add on component, to be discussed
Business Requirements
separately.

4.3.9 Sub-Process Scope: Contracts


AS-IS Business Process Suggested Business Process
Contracts are made on yearly bases as in the case of raw The procurement of the agreed material is done by raising the PO
materials, packaging material, spares, advertisement agencies, as per contract terms and conditions.
etc where delivery schedules details are spelled for whole year.
A form of outline purchase agreement under which materials are
Contracts are also made at the time of new upcoming Projects.
procured on predetermined dates within a certain time period for a
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There are contracts for machinery, all type of services like certain Quantity or Value of contract.
security, office maintenance, DG Sets, EDP, etc.
Gaps:
The contract details are covered in PO.
F
Business Requirements
Contract will be routed through the SAP standard system.
Contracts will be subject to Approval process.

4.3.10 Sub-Process Scope: Scheduling Agreement


AS-IS Business Process Suggested Business Process
The functionality of scheduling agreement in SAP is not currently If the same material is required over a certain period of time one
used in KCL. PO is created where the requirement is split in discrete required
delivery dates.
If the same material is required over a certain period of time one
PO is created where the requirement is split in discrete required A scheduling agreement is a longer term arrangement with a
delivery dates. vendor covering the supply of materials subject to predetermined
conditions. The conditions are valid for a predefined period and a
Business Requirements
predefined total purchase quantity. The delivery schedule is given
Scheduling Agreement will be routed through the SAP standard to the vendor to get the material against the scheduling
system and will be subject to Approval process. agreement.
Working with Scheduling Agreement will shorten the purchase
processing time. One delivery schedule can replace a large no of
discrete PO.
Procurement via scheduling agreements will enable Purchase Dept
to reduce the volume of documents used.
Gaps:
A
4.3.11 Sub-Process Scope: Unit Of Measure
AS-IS Business Process Suggested Business Process
KCL uses following unit of measurement: In KCL, individual departments may have their own units of
measure. For example, Purchasing may use a different unit than
MT
Sales. All units of measure other than the base unit of measure are
Kg referred to as alternative units of measure. As per the
requirement, alternative unit of measure will be maintained. All

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Numbers quantities that are entered in units other than the base unit of
measure are converted to the base unit by the system
Litres
automatically. If KCL uses units that are not contained in the
Kilolitres standard table, KCL will state the factor for converting the
Metre alternative unit of measure to the base unit of measure in the
material master record.
SCM- Standard Cubic Metre
Base unit of measure: This is the unit of measure in which the
MMBTU- Million BTU ( British Thermal Unit)
stocks of a material are managed. The system converts all
Boxes quantities entered in other units to the base unit of measure.
Pieces Order unit: Allows a material to be ordered in a unit differing
from the base unit of measure. The order unit is proposed
Business Requirements
automatically in purchasing functions, where it can be changed.
The unit of measure will be maintained in SAP along with
Sales unit: Allows a material to be sold in a unit differing from the
alternative unit of measure.
base unit of measure. The sales unit is proposed automatically in
the sales order, where it can be changed.
Unit of issue: Unit of measure in which the material is issued
from the stores. It allows consumption, stock transfers, transfer
postings, and physical inventories to be recorded in a unit differing
from the base unit of measure and from the stock keeping unit.
Gaps:
A
4.4 Gate Pass for Entry & Exit of Goods
AS-IS Business Process Suggested Business Process
At Kajaria Ceramics, gate entry is a must for any sort of incoming Gate entry system is not part of SAP
materials into KCL premises. A register is maintained manually at
Outbound delivery shall be used for exit of goods
the security gate for making entry on the movements.
Gaps:
The materials that are leaving the premises are also maintained
in the register. The material that will be again returned back, C
RPG- returnable gate pass is prepared and the one that will not Gate entry details cannot be captured at the time of Goods
be coming back Gate pass will be prepared. Receipts.
New ABAP Development
Business Requirements
Gate Entry to be made compulsory for each & every item coming

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in or going out of the factory premises.

4.5 Goods Receipt of Incoming Materials


AS-IS Business Process Suggested Business Process
At Kajaria Ceramics, on arrival of goods in the factory, the The receipt of goods from an external vendor or from production. A
security department intimates to Stores/ Purchase dept. The goods receipt leads to an increase in warehouse stock. System
Stores / Purchase dept confirms whether the goods are to be distinguishes between the following types of goods receipts:
unloaded or not. The goods that are meant for weighing will be 1. Goods receipts with reference to a reservation
sent to in house weighing station.
2. Goods receipts with reference to an order
The goods are received and inspected and the MRN is prepared
for the actual received goods. If anything found rejected, the 3. Goods receipt w.r.t. a purchase order
same shall be sent back to vendor with intimation note. 4. Other goods receipts
The first two types of Goods receipt are covered in PP module.
Business Requirements Goods receipt w.r.t. purchase order shall cover Standard PO,
Imports PO, STO, Service Order etc. At a time GR can be made
The goods receipt process shall be followed as per SAP standard
against only one purchase order.
system.
Other goods receipts include initial entry of stock balances, external
On arrival of materials, the MRN will first be made against the goods receipts without a purchase order, goods receipts of by-
purchase order with respect to storage location. Then the products, returns from the customer etc.
materials stock shall be moved into quality inspection stock
If a material is delivered for a purchase order, it is important for all
automatically through QM module and there after the actual
of the departments involved that the goods receipt entry in the
inspected stocks shall be sent to unrestricted use stock.
system references this purchase order, for the following reasons:
• Goods receiving can check whether the delivery actually
Details in FICO Blue Print for excise requirements.
corresponds to the order.
• The system can propose data from the purchase order during
entry of the goods receipt (for example, the material
ordered, its quantity, and so on). This simplifies both data
entry and checking (over deliveries and under deliveries).
• The delivery is marked in the purchase order history. This
allows the Purchasing department to monitor the purchase
order history and initiate reminder procedures in the event of
a late delivery.

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• The vendor invoice is checked against the ordered quantity


and the delivered quantity.
• The goods receipt is valuated on the basis of the purchase
order price or the invoice price.

When material is posted to quality inspection stock the system


automatically creates an inspection lot. Once the quality check is
cleared the material is transfer posted to unrestricted use stock.
The materials that require quality inspection will be defaulted to
Quality Inspection during the MRN. The Stock is transferred to the
unrestricted use through quality procedures. The quality decision
when made the stock gets transferred into unrestricted use stock
or blocked stock. The quantity posted in Blocked stock will not be
usable unless cleared for quality reasons. The control for these
transactions can be done through the authorizations for the users.
For excise entries, the following 2 processes can be adopted.
1. The excise entries for RG23A part I and Part II are not passed
but in the case of capital goods, machine spares are updated in
RG23C part I and Part II, which can be performed
simultaneously after GR.
At this stage when the stock is lying in quality inspection, if Invoice
Verification is done, the system blocks the invoice because of
quality reasons (Since quality decision has not been made for this
GR Quantity)
Gaps:
A
4.5.1 Sub-Process Scope: Tolerance Limits For Goods Receipt
AS-IS Business Process Suggested Business Process
The tolerance limits are not maintained in legacy system. But in When processing a goods receipt, the system checks each item to
the case of some raw materials like clays, minerals over delivery determine whether the goods receipt varies from the purchase
and under delivery are acceptable upto to 100kg. order or the material master data.
For other materials over-delivery and under delivery are not The different types of variances are defined by tolerance keys. For
allowed.

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In case of price variance, store dept intimate the purchase dept. each tolerance key, tolerance limits can be set per company code.
Purchase dept then coordinate with the vendor to finalise/resolve
The following variances are checked in Inventory Management:
the variances.
Business Requirements
• Variance in the Purchase Order Price Quantity

As per SAP standard and business requirements. For this variance, two tolerance keys are provided:
Tolerance key B1 (error message)
Tolerance key B1 is used to define the maximum percentage
variance. If the variance is greater than the maximum variance,
the system creates an error message. The user cannot post the
goods receipt.
Tolerance key B2 (warning message)
• Variance for the moving average price of the
material
Tolerance key VP is used to define the percentage variance from
which a warning message is issued. This warning message
indicates a price change.
Gaps:
A
4.5.2 Sub-Process Scope: Goods Receipt against Stock Transfer Orders
AS-IS Business Process Suggested Business Process
At Kajaria Ceramics whenever the requirement is given from A Purchase order is created by the receiving plant to supplying
different depot locations and showrooms, the finished products plant for required materials. Materials are issued by the supplying
will be dispatched to the respective locations along with delivery plant with respect to purchase order to receiving plant. This
challans material will be posted to stock in transit till goods receipt is done
at receiving plant. The direct goods receipt posting is also possible
Business Requirements
while issuing the materials from issuing plant.
Provision should be provided for transfer of finished products
When MRN is made at the receiving plant the receipt is made with
form plant to plant or depot. Excise duties will be added and sent
reference to the Goods Issue or Outbound Delivery document
along with the materials. There will be no sale tax
prepared at the issuing plant. Excise invoice accompanies the
Goods Issue. A Performa Invoice can also be generated with
reference to the Goods Issue at the Issuing plant.
Gaps:

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A
4.5.3 Sub-Process Scope: Goods Receipt against Service Orders
AS-IS Business Process Suggested Business Process
Services are performed and delivered by the respective vendors Purchase orders shall be created for services and Service entry
with reference to the service purchase orders. sheets shall be created for the quantity of Service received. Part
service of the total quantity of service mentioned in the PO can be
received and Invoice verification shall be done for the invoice
Business Requirements raised by the service vendor based on the service entry sheet
Provision for receipt of services procured should be done in created.
system. Gaps:
Returnable gate pass procedure shall be applied for service A
materials that are going out physically for repair or services and
track of the sent out materials shall also be facilitated.

4.5.4 Sub-Process Scope: Goods Receipt against Job Work / Subcontracting Orders

AS-IS Business Process Suggested Business Process


At Kajaria Ceramics, semi finished materials or raw materials are Separate Purchase orders shall be created for Jobwork /
sent for Job work or sub-contracting process and, is received the Subcontracting with item category ‘L’. The semi finished or raw
final product back against subcontracting challan. The final materials shall be sent for final product processing, can be entered
product is checked and inspected as per the quality parameters in same.
prior to making GR entry. And the invoice of the sub-contracting
GR against job work/ subcontracting can be sorted/viewed in a
vendor is processed for payment release, after the satisfactory
system as per desired selection criteria.
GR and inspection report

Gaps:
Business Requirements
A
The subcontracting process shall be operated through the SAP
standard system.

The raw materials or semi finished products shall be sent through


sub-contracting purchase order and received the final product
through standard goods receipt procedure.

Delivery notes shall be prepared for outgoing material while

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sending to subcontractor for Job work

Needed to monitor the materials, which have been provided to


sub-contractor at their premises.

4.5.5 Sub-Process Scope: Screen Manufacturing


AS-IS Business Process Suggested Business Process
Screens are required in production. Gailpur plant manufactures Screen requirement at Sikanderabad Plant will be captured as
screens required in production for fulfilling its own requirement Stock transport process where the screens are procured from
as well as for Sikanderabad plant. The material required for Gailpur Plant.
screen production is procured at Gailpur plant only.
Gaps:
Sikanderabad plant provides only the frames for its own
A
requirement.
The frames are sent from Sikanderabad plant to Gailpur plant
through Returnable gate pass. After screen manufacturing the
screens are send back to Sikanderabad. The value of screen is
calculated as follows:
MRP (Max. Retail Price) +15% profit
+16% excise duty
2.5% Edu. Cess on excise duty value
Sikanderabad plant takes the credit of excise duty paid.
The iron frames in case get destroyed are sold as scrap. The
value of frame is paid to Sikanderabad plant.
Business Requirements
STO process will be mapped as per Standard SAP process
The scrapped frames or the value of frames need to be returned.

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4.5.6 Sub-Process Scope: Goods Receipt of Customer Returned Materials

AS-IS Business Process Suggested Business Process


Some times, at Kajaria Ceramics, the customers shall return the Customer returned goods will be taken into stock against Return
materials due to quality or quantity reasons and the materials are Sales Order. It will have reference to earlier invoice.
received into the plant.
Inspection related activities, will be covered in QM module.
Upon satisfactory quality inspection the material is transferred to
Business Requirements Finished Goods / Customer Returns storage location or if rejected
The returned materials are received through Goods Receipt the same transferred to Scrap Yard.
entry, physically and entered into finished products stock.
Gaps:
Customer return materials should be received against sales A
return order and go through the dispatch section and quality
inspection’s discretion in terms of quality and authorisations. And
the GR shall be prepared, for the quantity purpose, by the stores
personnel.
4.5.7 Sub-Process Scope: Rejection Handling while GR

AS-IS Business Process Suggested Business Process


At Kajaria Ceramics, some incoming materials that are found Inspection related activities will be covered in QM module.
defective or rejected during the inspection, are sent back to
Incoming material (local) rejected by Quality can be sent back to
vendor and intimated about the same with return slip and gate
supplier for replacement/ as return by making return delivery using
pass with authorised signatory. The rejection handling shall be
movement type ‘122’.
processed by stores and purchasing dept

Gaps:
Business Requirements
A
The returns of materials to vendor should be routed through the
SAP standard system and the tracking of the details like date of
return, qty, material number, document number and reason for
rejection should be able to see in the system.

4.5.8 Sub-Process Scope: Excise Transactions while GR

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AS-IS Business Process Suggested Business Process


Local Procurement Incoming Excise Invoice
After MRN entry, stores person forwards excise copy to excise In The incoming excise invoice can be captured against a purchase
charge. order, Stock transport order, outbound delivery etc. The Excise
details are based on the combination of material, vendor, Chapter
No entry in excise registers i.e. for Raw materials – RG23A
id, Vendor Status (SSI or Normal, etc.,) and Tax code applicable in
Excise entry for Capital items/ spares – RG23C (Part I/II) the PO.

In case of Service tax, Credit is taken only after payment of Local


service is made The normal procedure of Part 1 then GRN and Part 2 can be done
At month end Monthly Return Report (i.e. RT12 - Cenvat Credit or Part 1 and Part 2 entries can be simultaneously updated after
Availed in a month) is prepared the GRN. In case of Partial CENVAT (for Capital goods) the On Hold
account is updated by 50% and the CENVAT Availed account is
Cenvat Utilization is done at month end. Excise payable on updated by the 50%. It is possible to get a list of all the entries
account of sale is adjusted against Excise credit availed (against against which the rest 50% can be availed.
purchase) If diff. is negative, then same amount is deposited in
PLA a/c via TR6 challan. Such PLA register is also maintained. The subcontracting challan for sending the goods to the
Subcontracting Vendor is also possible.
A Yearly Summary Report is generated for RT12 details
The other transactions that shall be configured are Excise Invoice
for Sales, Return of Goods, Subsequent Invoices, Excise JVs, and
Import procurement Creation of Excise Invoice for other movements.

The GR process for the import materials shall be similar to that of Imports
domestic GR process. Here the relevant CVD details and excise In case of Imports, the CVD that is claimed back is processed
details if applicable shall be entered into the excise registers. differently from the normal procurement process. In this case, the
Invoice verification for CVD is done first and then part1 is taken,
GR is done and then part 2 is posted. This now creates the CENVAT
Business Requirements postings.
During the GR entry process, the applicable excise duties with Cancellation of Incoming Excise Invoice:
respect to vendor and materials to be calculated and net value
for excise payable, to be provided by the system in order to The cancellation of excise invoice can be done in case the entries
maintain them in the excise registers are done wrong or incorrect excise invoice has been issued by the
vendor. The cancellation can be done with a rejection code, which
can be used for knowing the reason for cancellation of the invoice.
KCL shall provide the different reasons for such cancellations,
which will be used in the configuration.

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4.6 Goods Issue


AS-IS Business Process Suggested Business Process
At Kajaria Ceramics Goods are issued for the following processes Using Goods Issue component, one can post a material withdrawal
or a material issue. A goods issue leads to a reduction in storage
Goods issue to Production
location stock.
Goods issue to Subcontractor
Standard SAP system allows goods issue against
Goods issue of Consumables
• Production Order
Goods issue of Capital items
• Cost Centre
• Subcontracting PO
Business Requirements
Requisitions for Production order gets generated through MRP run.
Goods issue to various departments, should be routed through SAP
As per the BOM, the material & their qty. will appear in requisition.
standard system and the consumption in quantities and values to
be accounted and updated to the concerned departments
respectively
4.6.1 Goods Issue to Production
AS-IS Business Process Suggested Business Process
At Kajaria Ceramics, all the materials are issued and consumed to MRP run generates internal Production Orders. Also depending on
production directly without any requisition documents. BOM, the reservation gets created at the same time. The material
can be issued against Production order.
Reservations can be created manually. The material can be issued
Business Requirements
against such reservations using movement type ‘261’.
All the materials that are issued and consumed should be routed
Gaps:
through SAP standard system. This is covered in PP module.
A
This is covered in PP module

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4.6.2 Goods Issue of Consumables

AS-IS Business Process Suggested Business Process


Machine oils, lubricants are issued to Engineering Dept Consumables can be issued to the requisitioning dept. against the
purchase order raised. The movement type ‘201’ helps in this case.
The account assignment of Cost Centre & G/L account is picked up
Business Requirements from PO.
The consumables are issued from stores, against the requirement Gaps:
comes from the maintenance dept
A

4.6.3 Goods Issue of Capital Items

AS-IS Business Process Suggested Business Process


Capital items yet be finalised by Kajaria Ceramics Capital items can be issued to the requisitioning dept. against the
Purchase Order raised. The movement type ‘201’ helps in this case.
The account assignment of Cost Centre & G/L account is picked up
Business Requirements from PO.
In case of services availed, bill passing entry is done after the work
done by supplier.

4.6.4 Sub Process Scope: Goods Issue against Job Work Purchase orders
AS-IS Business Process Suggested Business Process
At Kajaria Ceramics, Jobwork or subcontracting process is The material to be produced by the vendor can be ordered as a
undertaken. Semi finished or Raw materials are sent to the subcontract item in a purchase requisition, purchase order or
subcontractor, for the process of final product and the same shall scheduling agreement. Each subcontract item has one or more
be received from the subcontracting vendor. And the service sub-items which contain the individual components the vendor
charges, pertaining to the job work, shall be liable for payment needs to perform the subcontract work or value-added service.
The components that are provided to the subcontractor are
managed as stock provided to vendor. Components in a
Business Requirements
subcontract order that are consumed can only be debited from the
The system should be able to send the semi finished or finished stock of the material provided to the particular vendor.
goods to the subcontracting vendor, for performing the services
ME2O transaction can be used for monitoring the stocks with
for converting them into final product and the same has to be
subcontractor.
received and accounted appropriately for its’ consumption
quantity and stock account quantity

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4.7 Scrap Handling


AS-IS Business Process Suggested Business Process
Scrap is called here as “process waste” which is generated at Scrap entries at various production locations are captured through
production running at the level of green tile. It is periodically on PP module. Then scrap material has to be directed to Scrap Stores
a random quantity-base sent for recycling.

Gaps:
Business Requirements
A
And all the scrap, which is accumulated on a daily basis, on
random qty, will be sent to the reprocessing unit, for converting
the same into raw materials and send to the bin again. And this
should be carried out on continuous and on-going process which
needs to be brought into the system
No scrap sale is required to be added in the system as there is no
scrap is generated from the production process and if any scrap
sale is done, for miscellaneous scrap, that can be done on
manual financial documents
4.8 Logistics Invoice Verification
AS-IS Business Process Suggested Business Process
At Kajaria Ceramics, after receipt of material or services, the Logistics Invoice Verification checks incoming invoices for accuracy
store dept. user’s dept (only Quality Check) checks the vendor’s with regards to content, price, and accounting.
invoice for the correct prices, taxes, surcharges, value as per the
The main task of Logistics Invoice Verification is to complete the
purchase order document, and if it’s found satisfactory then
procedure of materials procurement by posting the vendor invoice
forwards the vendors’ invoices, along with GR copy to accounts
and to pass on information concerning the invoice to Financial
department for payment release.
Accounting and subsequent applications.
Business Requirements
For each incoming invoice, Logistics Invoice Verification creates an
The process of vendors’ invoice verification and payment release MM invoice document and an FI invoice document.
should be routed through the SAP standard system.
The invoice documents update data in:
The invoice entry shall me made with reference purchase order • Materials Management
document and the PO document is always available for cross-
• Financial Accounting
checking its terms and conditions.
The Accounts department does invoice entry after the stores user
The system should also be able to block the invoices for
makes relevant entries & verifies conditions in the PO (e.g. Price,
payments on certain circumstances / reasons and shall be

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released as and when required. Excise duty, freight sales tax and payment terms). If the conditions
in the PO are satisfied then the Invoice forwarded to finance
The list of open invoices and released invoices shall be available
department.
in the system
The Invoice Verification involves the following processes:
1. Invoice
2. Credit Memo
3. Subsequent Debit
4. Subsequent Credit
Invoice option is used when the payment is to be made to the
vendor.
Credit memo is used for materials returned back to the vendor.
During invoice verification the system shall display the materials
returned back to the vendor for which deductions will be made.
Subsequent debit shall be used for transactions where the Original
invoice has already been cleared and a subsequent invoice has
been raised by the vendor for materials already sent. Example:
Rate change with retrospective effect.
Subsequent Credit shall be used when any deduction is to be levied
on the vendor.
There are 3 options that can be used for Invoice Verification.
1. Goods / Service Item
2. Delivery Costs
3. Goods/Service Item + Delivery costs
Based on the Goods/Service and delivery vendors, the option shall
be selected. For Advance payments – expenses are to be booked
as Prepaid Expenses in FICO & then payment has to made time to
time after intimation by Purchase
Local Vendor
Local vendor invoice shall be entered with reference to Purchase
Order. More than one purchase order can also be processed at one
time for one vendor. If required the vendor can be changed from
the original vendor to whom the payment is to be done. If any

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Invoice verification has been done for any GR for a PO, the
quantity for this GR will not appear in the list. In case where the
freight vendor is different, only those entries related to the delivery
costs will be chosen for the payments to this vendor. It is also
possible to raise credit memo against the goods returned to the
vendor. In case of Subsequent debit/credit to be made to the
vendor account, (reasons can be change of rates for previous
supplies made, etc), the entries are made using the Invoice
Verification.
Adjustments to other accounts like Insurance claims Account, etc.
can be entered with invoice verification.
Unplanned delivery costs are costs which are not known at the
time of creation of purchase orders and these are charged in the
invoice sent by the vendor can also be entered during invoice
verification.
In these adjustments wherever the invoice involves the CENVAT,
based on the Tax code maintained, vendor and material tax details
CENVAT clearing account is prompted and will be updated on
saving. Simulation facility is available for checking the accounting
effect.
Import Vendor
Imports invoice verification is slightly different from the normal
invoice verification. In this case the CVD applicable is taken into
RG23 Registers. In Import PO the CVD and other conditions are
maintained as delivery condition types hence the Invoice
verification for the CVD part is to be done first before the GR is
done. Then RG part1 entries are done then GR is done and then RG
part2 entries are posted. Invoice verification is done for the
Purchase Order. In this case No GR based Invoice verification is
possible (This is specific to Imports only).
The other functions as mentioned under Local Vendor Invoice
verification are also applicable for Import Vendor.
4.8.1 Sub-Process Scope: Invoice Variance and Vendor Invoice Block
AS-IS Business Process Suggested Business Process
Variance and invoice Block

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There is no provision currently to block the invoice for payment. If there are variances between the expected invoice values and the
Business Requirements values in the vendor invoice, the system can automatically block
invoices with variances for payment. Invoices can be reduced by a
This functionality is required.
specific difference amount, or can be accepted for small variances
based on totals. Before a blocked invoice can be paid, it must be
released in a separate step.

Variances can be due to, for example, that one of the vendors
sometimes sends an invoice for a higher amount than that agreed
upon in the purchase order. Sometimes, the vendor might include
the entire quantity on the invoice; although all the goods have not
yet been received The invoice blocking functionality ensures that
the vendor is not paid until these differences have been corrected.

The system can automatically block invoices, for example, if there


is a price difference or when the invoice is selected for blocking at
random. Automatic blocking utilizes the tolerance limits that have
been set up.

In addition to the blocks set automatically by the system, Invoices


can also be blocked manually also.

There are several blocking reasons for variances in invoice items.


The tolerances are defined for:
• Quantity variance
• Price variance
• Purchase order price quantity variances
• Date variance
Tolerances for lower and upper limits are defined. If a variance in
an invoice item is accepted and the default value is overwritten,
the system checks whether the variances are within the tolerance
limits.
If the tolerance limit is exceeded, the system issues a relevant
message. Still the invoice can be posted in the system, but it is
automatically blocked for payment.
The invoice block applies to all items in an invoice. Even if only one

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item in the invoice shows a variance, the entire invoice is blocked


for payment.
An invoice can be blocked due to a quality inspection.
For the materials that are meant for Quality Inspection at the time
of Goods Receipt, in the material master record of these materials
it is defined the material is subject to inspection at the time of GR.
In this case, an inspection lot is created for every goods receipt for
this material.
The system sets blocking reason Quality for an item in the
following cases:
Goods-Receipt-Based Invoice Verification
The invoice is blocked if no usage decision has been made about
the inspection lot for the goods receipt concerned or if the
inspection lot has been rejected.
No Goods-Receipt-Based Invoice Verification
The invoice is blocked if no usage decision has been made for any
inspection lot for the purchase order item or if the inspection lot
has been rejected.
Following tolerance keys will be defined for KCL:

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S No Tolerance Limit
Key
1 AN Amount for item without order
reference
2 AP Amount for item with order
reference
3 BD Form small differences
automatically
4 BR Percentage OPUn variance (IR
before GR)
5 BW Percentage OPUn variance (GR
before IR)
6 DQ Exceed amount: quantity variance
7 DW Quantity variance when GR qty =
zero
8 KW Var. from condition value
9 PP Price Variance
10 ST Date Variance
11 VP Moving Average Price Variance
Gaps:
A
4.8.2 Sub-Process Scope: Releasing Blocked Invoices
AS-IS Business Process Suggested Business Process
There is no provision in legacy system to automatically block If an invoice is blocked for payment, it must be released in a
invoices. The payment is blocked for vendors, if and when separate step. The invoice cannot be paid before it is released. The
required. release can be performed manually or automatically.
Most blocked invoices are automatically released for payment
when the balance of the goods is received or the purchase order
Business Requirements
price is adjusted.
The functionality will be incorporated as per SAP standard
If the variances are justified, the department can release the
process.

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invoice for payment despite the variance.


If an invoice is blocked for payment when it was posted, the
Payment block indicator is selected in the vendor line item of the
invoice document.
Financial Accounting is then unable to pay the invoice
automatically. If all blocking reasons for an invoice are deleted, the
invoice is automatically released.
For automatic release, the system checks each blocking reason to
see whether it is still valid. This can occur for invoices that were
automatically blocked due to quantity, price, or date variances, or
due to quality checks. If the reason is no longer valid, the system
deletes it.
For manual release, the system first shows a list of blocked
invoices. From this list, delete individual blocking reasons, or
release entire invoices.
In the time between the blocking and releasing of an invoice, the
cash discount period could expire. When you release an invoice,
you have the opportunity to change the baseline date for payment.
This extends the payment period when you release the invoice.
Gaps:
A
4.8.3 Sub-Process Scope: Subsequent Debit/Credit
AS-IS Business Process Suggested Business Process
As required subsequent debit and credit are done. KCL also A subsequent debit/credit arises if a transaction has already been
receives credit memos from vendors. KCL are generates debit settled, and a further invoice or credit memo is received
note. afterwards.
Business Requirements A subsequent debit/credit changes the total invoice value of a
purchase order item; the total invoice quantity remains
The process will be handled in SAP.
unchanged. Therefore, only a value-based update of the
purchasing transaction takes place. There is no quantity-based
update.
An invoice is entered as a subsequent debit if a purchase order
item has already been invoiced and further costs are incurred.

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(Example: A vendor has inadvertently invoiced at too low a price


and then sends a second invoice for the difference.)
Enter a credit memo as a subsequent credit if a purchase order
item was invoiced at too high a price and later a credit memo is
received. (Example: A vendor has inadvertently invoiced at too
high a price and then sends a credit memo for the difference.)
When a subsequent debit/credit is entered, the system suggests
the entire invoiced quantity, but no value. The maximum quantity
that can be subsequently debited or credited is the quantity that
has already been invoiced. A subsequent debit/credit for a
purchase order item can be entered if an invoice has already been
posted for that item.
A subsequent debit/credit cannot refer to a particular invoice.
When a subsequent debit/credit is posted, the system posts the
invoice amount to the vendor account.
If the quantity to be subsequently debited or credited has already
been delivered, the system makes the offsetting entry to the stock
account or the price difference account, depending on the type of
price control used.
For purchase order items with account assignment, the system
makes the offsetting entry to the consumption account.
If the quantity for subsequent debit/credit has not yet been
delivered, the posting is made to the GR/IR clearing account.
Later, when the goods receipt is posted - depending on the price
control - the system posts the debit/credit to the stock account or
the price difference account, or for PO items with account
assignment it posts to the consumption account.

Gaps:
A
4.8.4 Sub-Process Scope: Delivery cost- Planned/Unplanned Delivery Cost
AS-IS Business Process Suggested Business Process
Unplanned delivery costs are covered in Freight section. See

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details Freight charges can be planned in the purchase order. More often,
they are not known in detail when the purchase order is created
Business Requirements
and are entered only in Invoice Verification on the basis of the
The process will be handled in SAP. invoice.
In the SAP system, delivery costs are divided into:
• Planned delivery costs
• Unplanned delivery costs
Planned delivery costs are entered when the purchase order is
created.
Unplanned delivery costs are not known at the time of the
purchase order, and are first entered at invoice receipt.
Delivery costs can be settled together with goods items, or an
invoice containing only delivery costs can be entered.
Planned delivery costs are delivery costs that were agreed with the
vendor, a freight forwarding agent, or a customs authority before
the purchase order was made, and that are therefore entered
when you enter the purchase order. It is entered item-by-item in
the purchase order. They are assigned accordingly at invoice
receipt.
The advantage of planned delivery costs is that the delivery costs
become a part of the valuation of a material at goods receipt, or -
for a purchase order with account assignment - are debited to the
account assignment object.
Planned delivery costs are not binding to one specific vendor. When
planning the delivery costs in the purchase order, you can enter a
specific vendor for the delivery costs (such as a freight vendor or a
customs authority). However, in Invoice Verification, these delivery
costs can also be posted to a different invoicing party if you enter
the different vendor on the Detail tab page.
Planned delivery costs can be divided into:
• Freight costs
• Customs
Delivery costs can be invoiced in one of three ways:

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• Fixed amount, independent of scope of supply


• Quantity-dependent amount
• Percentage of value of goods to be delivered
For planned delivery costs, at goods receipt the system posts
relevant provisions to a clearing account. Depending on the origin
type, you can set up a specific clearing account in Customizing.
This clearing account is balanced when the corresponding invoice is
posted.
If no price differences arise between the planned delivery costs
from the purchase order and the requested delivery costs in the
invoice, the material master record does not change when you
post the invoice.
If price differences do arise, these are treated in the same way as
price variances for ordered materials.
Unplanned delivery costs are delivery costs that were not agreed
upon in the purchase order, and that are first entered at invoice
receipt. When you enter the invoice, you enter the total amount of
the unplanned delivery costs on the Detail tab page.
You can specify whether the system automatically posts the
unplanned delivery costs to the individual items, or to a separate
G/L account.
During automatic distribution to the invoice items, the amounts in
the items are automatically increased by the delivery costs part
when you post the invoice, and therefore are treated as price
variances. However, the system does not perform a price check
after automatically distributing the delivery costs. Unplanned
delivery costs that were distributed to individual items are not
listed separately in the PO history. They are already a part of the
calculated value.
If the unplanned delivery costs are posted to a separate G/L
account, the unplanned delivery costs are not debited to the stocks
or the account assignment objects. The system does not show
unplanned delivery costs that are posted to a separate G/L
account, in the PO history.

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You can only post an invoice containing only unplanned delivery


costs with reference to a purchase order, if at least one invoice has
already been posted for the purchase order. Otherwise all the
invoiced values would be zero, and it would not be possible to
distribute the delivery costs.
The system apportions unplanned delivery costs to the items in
proportion to the total value invoiced so far and the values in the
current invoice.
You can also distribute unplanned delivery costs manually to
individual invoice items, by changing the amounts of the invoice
items. Since in this case the delivery costs are entered in the same
way as price variances, the system performs a price check, and
the invoices are blocked wherever the tolerances set in
Customizing are exceeded.
In the case of unplanned delivery costs, the costs are not split up
according to their origin. The way in which the system posts
unplanned delivery costs depends on the settings in Customizing.
They are either distributed automatically to the individual invoice
items, or posted to a separate G/L account.
During automatic distribution, the unplanned delivery costs are
posted according to the price control.
For a material with moving average price, the system posts to the
stock account as long as there is a stock coverage.
For a material with standard price, the system posts the unplanned
delivery costs to the price difference account you have set up.

Gaps:
A

4.8.5 GR/IR Account Maintenance

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AS-IS Business Process Suggested Business Process


The functionality is not there in Legacy system. The adjustments GR/IR Account Maintenance
are made manually in books. The goods receipt/invoice receipt clearing account is used for
clearing goods receipts and invoices. In the case of quantity
Business Requirements
differences between goods receipts and invoice receipts, some
The process will be handled in SAP. items remain open on the GR/IR clearing account. If further
deliveries, return deliveries, invoices, or credit memos do not clear
a quantity difference for a purchase order item, the GR/IR clearing
account for this item have to be maintained.
The GR/IR clearing account is balanced after the procurement
process is completed for an item. If this is not the case, the
balance must be cleared manually.
The GR/IR clearing account is cleared for a purchase order item
when the delivered quantity and the invoiced quantity are the
same.
If the invoiced quantity is greater than the delivered quantity, the
system expects another goods receipt.
If the delivered quantity is greater than the invoiced quantity, the
system expects another invoice.
Any differences on the GR/IR clearing account must be cleared. If
the differences are not cleared by another goods receipt (or a
credit memo) or by an invoice (or a return delivery), you must
maintain the GR/IR clearing account manually.
Before maintaining the GR/IR clearing account, it should be
established that no further goods receipts or invoices are to be
posted for a purchase order item.
Clearing the GR/IR clearing account is usually performed
periodically, or at the end of the fiscal year, for those PO items for
which no further goods receipts or invoice receipts will be posted.
If quantity differences between the goods receipt and invoice
receipt for a purchase order are cleared using account
maintenance, the system generates an account maintenance
document.
The system creates an open item on the GR/IR clearing account as

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a result of the difference between the delivered quantity and the


invoiced quantity.
If further goods receipts (or credit memos) or invoice receipts (or
return deliveries) are expected for this purchase order, you must
clear the balance manually.
For a material with moving average price, the offsetting posting to
clear the GR/IR clearing account is made to the stock account,
unless there is no stock coverage. If the material stock is smaller
than the quantity to clear, the system only partially credits/debits
the actual existing stock. The remaining amount is posted to the
price difference account. For a material with a standard price, the
system makes the offsetting posting to the price difference
account. For a purchase order item with account assignment, the
system makes the offsetting entry to the consumption account.

4.9 Physical Inventory


AS-IS Business Process Suggested Business Process
At Kajaria Ceramics, physical inventory is carried out for all the Physical inventory component allows the carrying out of physical
materials on half yearly and yearly basis inventory of the company’s warehouse stock for balance sheet
purpose. There are different types of physical inventory procedures
Business Requirements
like Periodic Processing, Continuous inventory, Cycle counting. Any
All the materials are required physically to count at least once in of these techniques can be used for this process.
three months and feed the figures in the SAP system and the
Periodic Inventory
post the differences, if found any.
In this process all the stocks in the company are physically counted
on the balance sheet key date. The entire warehouse must be
blocked for materials movement
Continuous Inventory
Continuous inventory ensures that all the material is counted at
least once during the year. Stocks are counted throughout 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

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materials. It allows fast-moving items to be counted more


frequently than slow-moving items.
4.10 Vendor Evaluation
AS-IS Business Process Suggested Business Process
At Kajaria Ceramics, vendor evaluation is taken care by purchase Vendor Evaluation helps to select sources of supply and facilitate
dept., manually, for each vendor, for raw materials and packaging the continual monitoring of existing supply relationships. It
materials and it’s calculated based on the delivery, price, service provides you with accurate information on prices, and terms of
and quality parameters like weightage is given as per the points payment and delivery. By evaluating vendors, you can improve
fixed for each criteria, your enterprise's competitiveness.
The criteria, includes Vendor Evaluation is completely integrated with Materials
Management. This means that information such as delivery dates,
a) Price
prices, and quantities can be taken from purchase orders. Also
b)Quality details about goods receipt are accessed from Inventory
c)Delivery Management.

d) Service Vendor Evaluation also uses data from the Quality Management
component, such as the results of incoming inspections or quality
audits.
Business Requirements
Scores and Criteria
Vendor evaluation shall be maintained through SAP standard
SAP System offers a scoring range from 1 to 100 points, which is
system, for desired vendors, based the scoring, rating, scales
used to measure the performance of your vendors on the basis of
and criteria analysis for a specified period and this is based on
five main criteria.
the Price, Quality, Delivery and Service.
You can determine and compare the performance of your vendors
by reference to their overall scores.

The main criteria available in the standard system are:


• Price
• Quality
• Delivery
• General service/support
These four main criteria serve as a basis for evaluating vendors
from whom you procure materials.
• External service provision
This main criterion serves as a basis for evaluating those vendors

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you employ as external service providers.


You can assign different weights to the individual criteria. The
vendor’s overall score is computed taking into account the
weighted scores awarded for each of the main criteria.
Vendor Evaluation System ensures that evaluation of vendors is
objective, since all vendors are assessed according to uniform
criteria and the scores are computed automatically. In this way,
subjective impressions and judgments can be largely eliminated.
To create a detailed evaluation, each main criterion can be divided
into several subcriteria.
The standard system provides you with certain subcriteria, which
suffice as a basis for evaluation. You can also define your own
additional subcriteria.
Scoring Methods
The scores for the subcriteria are calculated in different ways.
• Fully automatically
• Semi-automatically
• Manually
Analyses
The results of vendor evaluation are displayed in the form of
analyses. For example, you can generate ranking lists of the best
vendors according to their overall scores or ranking lists for specific
materials.

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