Chapter 4

The Procurement Process

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 Learning Objectives
1. Describe the major organizational levels
associated with the procurement process.
2. Discuss the four basic categories of
master data that are utilized during the
procurement process.
3. Explain the key concepts associated with
the procurement process
4. Identify the key steps in the procurement
process and the data, documents, and
information

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 A Basic Procurement Process

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 Outline
Organizational data
Master data
Key concepts
Process
Reporting

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 Organizational Data
Client
Company code (CC)
Plant
Storage location (S Loc)
Purchasing organization (P Org)
Purchasing group

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 Plant
Many definitions or uses. A location
That holds valuated stock (for distribution)
Where production planning is carried out
Where products and services are created
That contains service or maintenance
facilities
Factory, warehouse, distribution center
Can be assigned to one CC only
A CC can have many plants

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 Storage Location
A place, within a plant, where materials are
stored
Areas designated for different types of
material (raw material, work-in-process,
finished goods)
More sophisticated divisions including
storage bins, cabinets, trays
A plant must have at least one storage
location
A storage location can belong to only one
plant
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 GBI Storage Locations

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 Purchasing Organization
Identify and select vendors
Negotiate general conditions of purchase
and contracts for one or more plants or
companies.
Determine pricing conditions
Typically three models for Purchasing
Organization
Enterprise-Level
Company-Level
Plant-Level

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Enterprise-Level Purchasing
Organization
Also known as cross-company code model
One Purchasing Organization assigned to
all CC in a client
Purchasing for all plants across all CC
Highly centralized – corporate Purchasing
Org

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Enterprise-Level Purchasing
Organization

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Company-Level Purchasing
Organization
Also known as cross-plant model
Different Purchasing Organizations are
assigned to each CC
Purchasing for all plants in one or more CC

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Company-Level Purchasing
Organization

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 Plant-Level Purchasing
Organization
Also known as plant-specific model
Each plant has its own Purchasing
Organization
Highly decentralized

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 Plant-Level Purchasing
Organization

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 Reference Purchasing
Organization
A hybrid model
One centralized Purchase Org for high-level
decisions across the enterprise
Multiple CC-specific and plant-specific
Purchase Org

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 Purchasing Group
A buyer or group of buyers responsible for
certain materials or groups of materials
Can be internal to the company or external
Decide to purchase land, but use a realtor
(external purchasing group) to execute the
purchase
Not assigned to or related to purchasing
org

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 Master Data
Material Master
Vendor Master
Purchasing info record
Conditions

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 Material Master
Data needed to execute transactions
related to materials (along with org data)
Data are grouped by different user areas
(views)
Data are specific to (defined for) for
different organizational levels

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 Material Master – Views
 Basic data  Plant / Storage
 Purchasing  Work Scheduling
 Accounting  MRP
 Forecasting  Classification
 Sales  Warehouse
Management

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 Material Master – Views
Basic data
Description, unit of measure, weight, material
group
Purchasing
Purchasing group, GR processing time, delivery
(under / over) tolerances
Accounting
Currency, valuation class (link to G/L), price
control (moving price, standard price, future price)
Plant / Storage
Storage requirements (hazard, temperature, etc.)
Shelf life
Weight, volume

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 Material Master - Views
Views for other processes
Forecasting (Material Planning process)
Sales (Fulfillment process)
Work Scheduling (Production process)
MRP (Production process)
Classification (PLM process)
Warehouse Management (WM process)

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 Material Master - Views
Different material types have different
required views
Examples:
Raw material: no sales view
Finished Goods: no purchasing view
Trading goods: no production related views

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 Vendor Master
Data needed to do business with vendors
Data needed to execute transactions
related to vendors (along with org data)
Data are specific to (defined for) different
organizational levels. The three segments
are:
Client level data (General)
Company code level data (Accounting)
Purchasing organization level data
(Purchasing)

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 Vendor Master Segments

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 Data in the Vendor Master

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 Vendor – General Data
Client-level data
Valid across all CC in a client
Examples
Name,
Address
Communication (phone, fax)
Search term

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 Vendor – Accounting Data
Company code specific data
Valid for the entire company code across
purchasing areas
Examples
Account information
Bank information
Reconciliation account
Payment terms and methods
Communication (dunning)

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 Vendor – Purchasing Data
Separate for each Purchasing Organization
Applies to the specified Purchase Org
Examples
Partner functions (vendor, invoicing party,
payment recipient)
InCoTerms （ International Commercial Term
s ） : defines responsibilities and costs of
shipment
 Freight, insurance, customs clearance, locations

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 Purchasing Info Record
is an intersection or a combination of
material and vendor data
It contains data specific to one vendor and
one material (or material group)
General data
Conditions: pricing, discounts, free goods
(current and future)
Vendor data
Texts (notes)

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 Purchasing Info Record

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 Purchasing Info Record

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 Conditions
Pricing Conditions
Gross price
Discounts and surcharges
Freight / shipping
Obtained from
Purchasing info records
Contracts and agreements
Other sources

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 Key Concepts
Item categories
Account determination
Stock type/status
Goods movement

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 Item Categories
determine which process steps and data are needed
when a
company purchases materials or services
 Categories:
Standard : most common
Subcontracting
 Send material to vendor; semi-finished product received
Consignment
 Pay the vendor only when it use or sell materials, no invoice receipt
step
Service: do not involve receiving material
Stock transfer: internal procurement
Third party order
 Ship to third party(customer); bill to us;

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 Account Determination
Which GL account to assign to PO?
based on data contained in material master
(valuation class)
Account assignment categories
Determine specific accounting data
Assets, Production Order, Cost Center, Sales
Order, Project
Automatic GL account determination based
on category

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 Stock Types / Status
Based on usability of material
Unrestricted use
In quality inspection
Blocked stock (damaged, unusable; wrong
delivery)
Stock in transit

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 Goods Movement
A transaction that causes a change in stock
(value or status)
Categories of Goods Movement
Specific Movement types

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 Goods Movements
Goods Receipt
From vendor or production process
Increase in quantity and value of stock
Goods Issue
To sales order or internal consumption
Decrease in warehouse stock
Stock Transfer
Physical movement of material between storage
locations
 Sloc to Sloc
 Plant to Plant
 CC to CC

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 Goods Movements
Transfer Posting
Results in a change in material status
 In-quality inspection/ blocked/ unrestricted use
 One material type to another
May or may not include a change in location
(Sloc, plant)

material document
records data related to a goods movement

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 Structure of a Material
Document

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 Process Steps
Trigger
Data
Task details
Outcomes

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 A Detailed Procurement
Process

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 GBI Story
Inventory of t-shirts (SHRT1000) is low
(<=50) in the Miami plant
Therefore it is necessary to procure more t-
shirts
Spy Gear is the only supplier of t-shirts
Quantity purchased is 500
Purchase price is $15 per t-shirt

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 Elements of the Purchase
Requisition Step

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 Purchase Requisition
Trigger
Other processes
Manually
Data
User input: Dates, materials, quantities
Master data: Material master, Vendor, Info record
Organizational data: Client, CC, P Group
Task details: none
Output
Document: Purchase requisition
Subsequent steps
Purchase Order
RFQ

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 Purchase Requisition

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 Data in a Purchase
Requisition

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 Converting a Purchase
Requisition to a Purchase
Order

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 GBI Scenario
 Material planning process has determined
Re-order point = 50
Order quantity = 500
Miami plant employee reviews inventory
report and determines that it is necessary
to reorder
Requisition:
500 SHRT1000 to be delivered at the Miami
plant by a specified date

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 Elements of the Purchase Order
Step

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 Purchase Order
Creation
Manually or automatically
With or without reference to other documents
Data
Documents: Purchase requisition, Purchase
order, RFQ, Quotation
Master data:
Material (characteristics)
Vendor (terms)
Info record (pricing)
Conditions (pricing)

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 Purchase Order

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 Data in a Purchase Order

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 Purchase Order
Tasks
Data automatically included from input sources
Source determination using info records,
agreements and contracts, and source lists
Outcomes
Purchase order
Purchase requisition history – PO added
Communicate
with vendor (external procurement) using
messages: fax, EDI, print
Plant (internal procurement) using transfer
orders

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 Purchase Order Structure
Header
Document number, dates
Vendor, currency, terms
PO total
Line items
Material number, description
Quantity, price, item total
Delivery date

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 The Structure of a Purchase
Order

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Purchase Requisition to Purchase
Order

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 Communicating with vendors

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 Purchase Order Processing
Options

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 GBI Scenario
Create purchase order
Material: SHRT1000
Quantity: 500
Vendor: Spy Gear (from source list or manual
entry)
Receiving plant: Miami
Reference document: purchase requisition
Price: $15 each (from info record)
Total PO value: $7500

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 Elements of the Goods Receipt
Step

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 Goods Receipt
Data
Documents: PO, Delivery document (packing list)
Master data
Task
Verify materials receipt
Create GR document
Outcomes
Material documents
 Header: Document number, date, reference
 Details (items): Material, quantity, location, movement
type
Financial Accounting documents
 Header: Document number, date, reference, currency
 Details (Items): GL accounts, description, amount

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 Goods Receipt
Outcomes
Notifications
Material master: stock and value
GL accounts (Stock/Consumption, GR/IR)
PO history – Material document added
Quality management
 Quality inspection lot
 Warehouse management

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 A Goods Receipt Document

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 Data In The Goods Receipt
Step

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 Financial Impact of Goods
Receipt

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 Material and Accounting
Documents from a Goods
Receipt

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Elements of the Invoice
Verification Step

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 Invoice Verification
Data
Vendor invoice
Purchase order
Material document
Tasks
Three-way match
Outcomes
Financial Accounting documents

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 A Vender Invoice

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 Data needed for Invoice
Verification

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 Invoice Verification
Outcomes
GL: vendor account, A/P, GR/IR
PO history - invoice document added
Material master :
 Stock value,
 Moving average price (if using moving price vs.
standard price)

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 Financial Impact of Invoice
Verification

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 Elements of the Payment
Step

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 Payment Processing
Creation: manually or via automatic
payment program
Data
Three-way match (or other process)
Payment method, account, items to pay,
Tasks
Calculate payment amount (discounts)
Post payment document (accounting
document)

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 Payment Processing
Outcomes
Financial Accounting Documents
Payments (checks, EFT, notifications)
Updates
 GL accounts
 Material master :Moving average price (if using
moving price vs. standard price)

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 Data needed for Vendor
Payment

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 Financial Impact of Vendor
Payment

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 Reporting - Standard
Process level reporting
Standard reports / List displays
Logistics Information System

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Reporting – Logistics Information
System
Components
Purchasing Information System
Sales Information System
Quality Management Information System
Inventory Control
Transportation Information System
Shop Floor Information System
Plant Maintenance Information System

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Reporting – Logistics Information
System
Information Structures
Special tables of statistics from various
modules that is constantly updated
Selection criteria (types of information)
Key figures: variables of interest
 Quantitative values on measurable facts
 Numbers (of orders, deliveries)
 Quantities (of material)
 Cost, delivery time
Characteristics: used to organize key figures
 Vendors, material, organizational levels
Timeframe: day, week, month, etc.

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 Standard Analysis

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 Flexible Analysis

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