Objective The domain of logistics in SAP now includes following areas, as they could be se en at following official site of SAP.

http://help.sap.com/saphelp_46C/helpdata/EN/bf/70463423530444e10000009b38f83b/fr ameset.htm 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Logistics general (LO) Material management (MM) Sales and distribution (SD) Quality management (QM) Plant maintenance (PM) Production planning (PP) Customer service (CS) Logistics execution (LE) Project system (PS) Environment management (EHS) SAP retail

The purpose of this article is to define the features about procurement in SAP, it defines What is and not the How to, next articles that are under progress will c omplete this series of What is then the subsequent articles will define How to mak e different transactions in purchasing domain. The source of information in this article are extracted from the official site o f sap. You are welcomed to send comments about this article at nasir_zee@hotmail.com

Procurement in SAP In the following lines we are going to make a view about the procurement that is part of material management, that is also written as MM in short. What is Procurement In the process of procurement goods or services are delivered from the provider to requester. Normally a purchase order is raised from requester that defines th e requirements and may also include schedule of deliveries to some supply source . A purchase order is a formal request from client to a vendor to supply goods or to provide services at or by the certain point of time. Internal / External purchases

Service providers against a purchase order may not only belong to external sourc es but they may be internal also. A purchase order is raised whether it is fulf illed from outside sources or from inside sources, that are termed as internal a nd external purchases. Internal sources may be locations that are requested to provide services or good s to some other locations in same company. Purpose of procurement Procurement may be performed with the reference of following two scopes. 1. For storage A. It is a kind of stock that stores at some location. B. When moved in or out from stores then stocks are updated. C. When ordered, system does not require an account assignment since the ma terial ordered assigned an account already. D. Such type of material must have a master record. 2. For consumption A. Material required to consume may or may not have a material master recor d. B. System demands to assign an account to the material being ordered, that may be a cost center or a sales order, it is used as a consumption account. C. At receipt of material, the consumption accounts are posted. D. Existing stocks are not affected at receipts of consumable material.

Forms of external procurement There are following forms of purchasing supported by SAP. 1. A. . B. rchase One time purchasing It is performed for materials or services that are irregularly purchased For such type of purchasing a PO can be created with the reference of pu requisition, RFQ or from some other purchase order.

2. Longer term contracts with subsequent issues of release orders A. These are used for materials that are required regularly and in sufficie nt quantity within some specified period. B. Each contract defines the validity period and total required qty. C. When goods / services are required then release orders with the referenc e of these contracts are raised that signals the vendor to fulfill the requireme nts. 3. Longer term scheduling agreements with delivery schedules. A. These are used for materials that are required regularly and at exact sc hedule. B. Each contract defines exact quantity and their delivery schedule.

Organization structure The SAP logistic permits variety of organizational constructs to handle and mana ge different domains like purchasing, sales/distribution and materials. The structure of an enterprise with the reference of purchasing is represented b y the following organizational levels. Client This is a grouping or combination of legal, organizational, business and/or admi nistrative units with a common purpose. A corporate group having many companies may be declared as client. Company code This level represents an independent accounting unit within a client. Each compa ny code has its own balance sheet and its own profit and loss statement. A subsi diary company or a member of a corporate group could be considered as a company. Plant Operational unit within a company code, these may include production units, bra nch offices, stock locations. Purchasing organization An organizational unit responsible for procuring materials or services for one o r more plants and for negotiating general conditions of purchase with vendors, t he purchasing organization assumes legal responsibility for all external purchas e transactions. Purchasing group The purchasing organization is further subdivided into purchasing groups or buye r groups, which are responsible for day-to-day buying activities. A purchasing group can also act for several purchasing organizations.

Integration with other modules Purchasing communicates with other modules in the SAP System to ensure a constan t flow of information. For example, it works side by side with the following mod ules: Controlling (CO) The interface to the cost accounting system can be seen in all the cases of purc hase orders that are intended for direct consumption and for services, since the se can be directly assigned to a cost center or a production order. Financial Accounting (FI) Through PO account assignment, Purchasing can also specify which G/L accounts ar e to be charged in the financial accounting system. Vendors are managed jointly in purchasing and in financial side also, because a vendor is not only a source of supply but it is a invoicing party also.

Sales and Distribution (SD) Within the framework of materials planning and control, a requirement that has a risen in the Sales area can be passed on to purchasing domain. In addition, when a purchase requisition is created, it can be directly assigned to a sales order .

Purchase order process flow A purchase order life cycle is featured with following stages. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Determination of requirements. Supply source determination. RFQ (Request for quotations) generating to vendors. Receiving of quotation from vendors. Comparison of quotations and vendor selection. Generation of Purchase order. Release of purchase order. Confirmation of vendor about delivery schedule and prices. Follow ups. Receiving of goods. Invoicing. Payments.

Purchasing Document(s) The following list shows the external purchasing documents available in the stan dard SAP System. Note: Purchase requisitions are not included in this list because it is usually regarded as internal document and it is generated from users or MRP system or so me other component about requirement of material or service. 1. Request for quotation (RFQ) A RFQ transmits a requirement defined in a requisition for a material or service to potential vendors. 2. Quotation It contains price and delivery terms and conditions defined by vendor, it also p lays vital role in vendor selection. 3. Purchase order (PO) It is buying entitys request or instruction to a vendor (external supplier) to su pply certain materials or perform certain services. 4.Contract The contract is a binding commitment to procure a certain material or service fr om a vendor over a certain period of time. These are represented in following en

tities. 1. Centrally agreed contracts. 2. Distributed contracts. 3. Scheduled agreements. Normally release orders are generated to vendors against contracts to receive go ods or services that are defined in contracts. Structure of Purchase order Each purchasing document is subdivided into two main areas: the header and indiv idual items that may be several in numbers. The header contains information relevant to the whole document, while the items specify the materials or services to be procured. For example, information about the vendor and the document number is contained i n the document header, and the material description, order quantity and delivery schedules are specified at item level. Additional data could also be defined that provides extra information about the item, and has no direct connection with the item procurement data. Additional da ta includes account assignment data (such as cost center and G/L account) and th e PO history for an item, which contains information on already recorded goods a nd invoice receipts relating to the item. Purchasing operations that involves requisitioning, ordering and follow-up proce sses occur on an item-specific basis. Differentiations among Purchasing Documents In the SAP System, different kinds of purchasing documents are distinguished fro m one another by means of the document type. The latter determines the relevant number range and the fields that are offered to you for data maintenance purpose s. Document types are defined for RFQs, purchase orders, and contracts, because a s tandard SAP system includes certain document types. However, your enterprise can also define its own. Following document types are already available. Standard Subcontracting Consignment Stock transfer External service Numbers in Purchasing Documents Each document is assigned a unique number ,that may be auto generated by system (internal number) or may be entered by the user (external number) depending on t he policy of your company. Alphanumeric numbers are only possible in assignment of external numbers.

Release Procedure This component is used to set up approval procedures for purchase requisitions o r other purchasing documents. If a purchase requisition or external purchasing document fulfills certain condi tions (e.g. the total order value exceeds $10,000), it has to be approved (by th e cost center manager, for instance) before it can be processed further. This pr ocess of approving (clearing, or giving the "green light" to) a proposed item of expenditure is replicated in the SAP System by the "release procedure".

Features Each person involved in the release procedure effects release (signifies approva l) via a release transaction, using his or her release code. Once effected, a re lease can also be cancelled with the same code (that is to say, the original sta tus is reinstated). Release procedures can be defined for the following documents: o Purchase Requisition o The external purchasing documents purchase order (PO), contract, schedul ing agreement, request for quotation (RFQ), and service entry sheet. Release Procedure for Purchase Requisitions Two different procedures are available for requisitions: With classification With this procedure, requisitions can be released both at item level (i.e. itemby-item) and in total. The latter approach is also termed "overall release". Without classification With this procedure, requisitions can only be released at item level. The two procedures are mutually exclusive (that is to say, you must decide in fa vor of one of them only - you cannot use both). Release Procedure for External Purchasing Documents External purchasing documents (i.e. purchasing documents other than requisitions ) are released at header level, Item-by-item release is not possible. These docu ments can only be released using the release procedure with classification.