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1.4.1 Basics of Supply Chain Management
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PROCUREMENT
1. PR (Purchase Requisition)
by internal requester
2. Source Determination
RFQ (Request for Quotation) - external
3. PO (Purchase Order) - professional layout
- purchase department only
- supplier
- must have a price
- CRO - Contract Request Order (no need RFQ/QT anymore)
- PO - agreed price and condition
4. GR - Goods receipts
5. IR - Invoice Receipt from Vendor
LIV - logistic Invoice Verification
6. AP (Payment)
Supply Chain influence:
- Production
- Inventory
- Location
- Transportation
- Information
Push Process: Make to stock (not actual demand)
Pull Process: Make to order (base on actual demand, shorter cycle time, real-time customer demand)
Make To Order (MTO) - production is based on actual demand from the customers.
Make to Stock (MTS) - production is not based on actual demand, in supply chain management.
Assemble to order (ATO) - product or service is assembled on receipt of sales order.
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1.4.2 Organizational Management
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ENTERPRISE STRUCTURE
1. Client
- DEV
- QA - testing
- PROD - user interact daily to perform business transaction.
2. Company code : independent accounting unit.
3. Plant : an organizational unit for dividing an enterprise according to production, procurement, maintenance, and materials planning.
- central organization unit
- entity that conduct operation not warehouse
- procurement plant, where it should be delivered
- business operation happen
4. Storage Location: stock/stored of material. A business unit which allows differentiation of material stocks within a plant.
5. Purchasing Organization (Department): an organizational unit that has the responsibility, either complete or in part, to the purchasing requirements of an Organization.
6. Purchasing Group: Person/ Group that is the buyer. Stand alone not assign to others.
Below are the primary activities of manufacturing organization.
• Procurement of Material and Services.
• Production of Finished Goods.
• Planning Production activities.
• Planning for Resources such as material, equipment, utilities etc.
• Sale and post-sales services.
Purchase Organization:
1. Corporate-group-wide purchasing
Buys for different company codes
Plants of different company codes are assigned to the purchasing organization
2. Company-specific purchasing
Buys for single company code
The company code and its plant (s) are assigned to the purchasing organization
3. Plant-specific purchasing
Buys for single company code
The plant is assigned to the purchasing organization
Material type
is generally categories as per their nature of material or on the basis of
nature business. On broadly we can list
the various type of material as below:
Material
|
Description
|
Assets
|
Such as
laptops, air-condition systems, vehichels, plant equipment, etc.
|
Raw
Material
|
Used in
producing the finished material. Example
like computer chips, mouse, and mother boards are the raw materials for
finished material that is desktop.
|
Consumables
|
Used in
production such as fuel to run Diesel Generator sets, Coolants,
Welding Rods.
|
Semi-finished
|
Which are
the outputs of one stage of production and goes as an input into another
stage of production. Example is
the screen of a desk top is a semi-finished product as screen cannot be used
alone with out the CPU.
|
Finished
Product
|
To be sold
to the end-users/customers. Example
is the desk top itself.
|
Production
Resources & Tools
|
Use in
Production to assemble such as spanners.
|
Packaging Material
|
Used to
pack the finished products. Example
the box and plastic wraps to pack the desktop.
|
Material Classification:
Critical Item
|
High value with high business impact
|
Bottle neck Item
|
Low value with high business impact
|
Leverage item
|
High value with low business impact
|
Routine item
|
Low value with low business impact
|
Organization Level in MM:
Master Data:
1. Material Master record:
Represents the material used by an organization
Maintained for organizational units depending on the corresponding usage (plant :production)
Can represent various types of materials
2. A Vendor Master record:
Represents the vendor of the organization
Maintained for Purchasing Organization in SAP MM; for Company Code in SAP FI
Can represent various types of vendors; external as well as internal;
3. A Purchasing Information record:
Contain information related to individual vendor’s and the materials which they supply.
Stores information about material supplied from vendor with respect to there units of measure in which they are ordered, Purchase order price, applicable reminder levels etc.
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1.4.3 Procurement
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Item Category
|
Space
|
Standard
|
K
|
Consignment
|
L
|
Subcontracting
|
S
|
3rd Party
|
U
|
Stock Transfer
|
D
|
Services
|
Account Assignment Category
|
I
|
Third Party
|
Z
|
SP IDES M
|
A
|
Asset
|
C
|
Sales Order
|
K
|
Cost Center
|
F
|
Order
|
U
|
Unknown
|
Pricing Steps:
- Condition Table
- Access Sequences
- Condition Types
- Calculation Schema
- Schema Group
- Schema Determination
Procurement
cycle has the following Steps:
- Determination of Requirements
- Determination of the source of
supply
- Vendor Selection
- PO Processing
- PO Monitoring
- Good Receipt
- Invoice Verification
- Payment processing.
Documents
created in Procurement Cycle:
- Purchase Requisition
- Request for Quotation
- Quotation
- Contracts
- Scheduling Agreement
- Purchase Order
- Goods Receipt
- Invoice Verification
- Outgoing Payment
Activities
required to be done for PO release procedure:
- Create Class
- Release Group
- Release Codes
- Release Indicators
- The Changeability Indicator
- Release Strategies
- Release Prerequisites
- Release Statuses
- Classification
- Release Simulation
Purchase Requisition:
ME51N - Create
ME52N - Change
ME53N - Display
ME54N / ME55 - Release
Purchase Order:
ME21N - Create
ME22N - Change
ME23N - Display
ME29N / ME28 - Release
ME9F - Printout
Request for Quotation (RFQ):
ME41 - Create
ME42 - Change
ME43 - Display
ME45 - Release
ME9A - Printout
Quotation:
ME47 - Maintain
ME49 - Price Comparison
Account Postings in a Procurement Cycle:
DR
|
CR
|
Goods Receipt
|
Stock account
|
GR/IR account
|
Logistics Invoice
Verification
|
GR/IR account &
Taxes Accounts
|
Vendor account
|
Service Entry
|
Expense account
|
GR/IR clearing account
|
Logistics Invoice
verification for service entry sheet
|
GR/IR clearing account
and Service taxes
|
Vendor account
|
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1.4.4 Procurement Optimization
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Possible ways to optimize the procurement process:
- automated source determination
- delivery schedule
- respective department can raise PO
- order quantity.
Automatic determination of source depends:
- outline agreement
- information record
- quota arrangement
- source list
Types of outline purchase agreement:
- contract
- centrally agreed contract (no plant assign)
- Distributed Contract agreement (Plant assigned)
2. scheduling agreements
Contract types:
Contact Type
|
Description
|
Master Contract
|
A master contract is a contract in which you group other contracts as lower-level contracts.
|
Quantity Contracts
|
Quantity contract are used mainly to limit the quantity the customer can buy and to offer special pricing.
Generally, quantity contract are used when the demand for a material is greater than the available supply and the business has to implement measures to limit supplied quantity evenly between its customers.
|
Value Contracts
|
The value contract is similar to quantity contract in that it limits the material or services to customer.
However, instead of limiting due to quantity of stock the contact and its ceiling is based upon total value.
|
Service Contracts
|
The service contract is a legal agreement between the receiver of the service and the business supplying the service.
|
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1.4.5 Order Quantity
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Inventory: materials that organizations carry to sell or to provide as inputs to the manufacturing process. It forms a substantial part of Asset of an Organization Inventories are "cash in the form of material".
Below are few
challenges which face commonly in managing inventory:
- Inaccurate forecasting and
production scheduling.
- Excess inventory carrying costs
- Increased administrative costs
- Expedited shipments and
associated premium freight charges.
- Reduce emergency shipments and
premium freight charges
- Unscheduled production downtime.
There are 2
models which help us to determine effective order quantities:
- Just in Time (JIT): It refers to a collection of
practices that is intended to get rid of the waste. These organizational practices include the
entire logistic flow of materials from purchasing through production and
distribution.
- Economic Order Quantity (EOQ): is that size of order which gives maximum economy in
purchasing any material and ultimately contributes towards maintaining the
materials at the optimum level and at the minimum cost.
Three of
these EOQ variants are:
- EOQ Model with Different Rates of
Demand
- Demand rate is different in
different cycles
- EOQ Model with shortages allowed
(backorders)
- Shortages are allowed and they
occur regularly.
- EOQ model with uniform
replenishment.
Static
lot-sizing procedures: In static lot-sizing procedures, the procurement
quantity is calculated exclusively by means of the quantity specifications
entered in the material master.
The following
static lot-sizing procedures are available:
- Lot-for-lot order quantity
- Fixed lot size
- Fixed lot size with splitting and
overlapping
- Replenishment up to maximum stock
level
There are 4
types of material planning available in SAP:
- Consumption-Based Planning
- Reorder Point Planning
- Forecast-Based Planning
- Time-Phased Planning
The following
MRP procedures are available:
- Reorder point procedure
- Forecast-based planning
- Time-phased material planning
The following
values are important for defining the reorder point:
- Safety Stock
- Average consumption
- Replenishment lead time
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1.4.7 Inventory Management
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Inventory
Management includes the following tasks:
- Managing the material stocks by
quantity and value
- Planning, creating, and verifying
all goods movements
- Carrying out the physical
inventory
Goods
Movements always result in stock change. Below are the broad level categories
of goods movements.
- Goods receipt
- Goods issue
- Stock transfer
- Transfer posting
When goods
movement is carried out, the following chain of events occur in system:
- A material document is generated.
- If the movement is relevant for
Financial Accounting, one or more accounting documents are generated.
- The stock quantities of the
material are updated.
- The stock values in the material
master record are updated.
- Additional updates are carried
out in participating applications.
Below
documents are created after goods movements:
- Material Document
- Accounting Document
Outcome of
Goods Receipt Postings:
- Goods receipts are posted when
stores department physically receives the Stock
- Goods receipt into the warehouse
- Goods receipt into consumption
- Goods receipt into goods receipt
blocked stock
When Goods
movement is to be created in the system a movement type is to be specified.
Every Movement type has its own purpose and impact on stock movements.
Follow are
few of the movement types:
Movement
Type:
|
Description:
|
101
|
Goods
receipt for a purchase order
|
261
|
Goods issue
for a production Order
|
201
|
Goods issue
for a cost centre
|
321
|
Release
from quality inspection stock
|
Stock
transfers can occur at three different levels:
- Stock transfer from company code
to company code.
- Stock transfer from plant to
plant.
- From storage location to storage
location (in one plant).
Example of
the movement types as below:
- 301: Transfer from plant to plant
- Goods issue: 303 (Remove from
storage to plant)
- Goods receipt: 305 (Put away in
plant)
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1.4.9 Logistic Invoice Verification
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Invoice
Verification differs depending on the type of invoice involved:
·
Invoices
based on purchase orders
With
purchase-order-based Invoice Verification, all the items of a purchase order
can be settled together, regardless of whether an item has been received in
several partial deliveries. All the deliveries are totaled and posted as one
item.
·
Invoices
based on goods receipt
With
goods-receipt-based Invoice Verification, each individual goods receipt is
invoiced separately.
·
Invoices
without an order reference
When there is
no reference to a purchase order, it is possible to post the transaction
directly to a material account, a G/L account, or an asset account.
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1.4.10 MM Configuration
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The material
type determines:
- Which departments can maintain the material master
records.
- Whether the material number is assigned internally
or externally.
- Which number range interval the material number
comes from.
- Which screens appear and in which sequence.
- Which department specific data we have to enter.
- Whether quantity changes in the material master
record are updated.
- Whether value changes to financial accounting stock
accounts are updated.
A few common
material types are:
Material Type
|
Description
|
ROH
|
Raw
Material
|
HAWA
|
Trading
goods
|
NLAG
|
Non- stock
material
|
FERT
|
Finished
Product
|
VERP
|
Packaging
Material
|
DIEN
|
Services
|
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1.4.11 Special Procurement Process
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Special stock
is the stock special procured and reserved for specific account functions. It is stored separately in particular
location with identification as a special stock.
Broadly it is
divided as:
- Company’s own Special Stocks
- Externally-Owned Special Stocks.
Various type
of special stock identified in SAP:
- Consignment
- Subcontracting
- Stock transfer using stock
transport
- Third-party processing
- Returnable transport packaging
- Pipeline handling
- Sales order stock
- Project stock.
Transfer postings differ from stock transfers in that transfer postings are generally NOT connected with a physical goods movement. They usually involve a change in stock type, batch number, or material number.
A stock
transfer from company code to company code corresponds to a stock transfer from
plant to plant, with both plants belonging to different company codes.
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1.4.12 Analysis And Reporting
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Various
reporting features are available for SAP MM.
Some of them are listed below:
Features
|
Description
|
List
Displays
|
Used for
displaying documents generated by the application components and perform
simple analysis.
|
Standard
Analysis
|
Which uses
the standard information structures and its characteristics and key figures
for analysis.
|
Flexible
Analysis
|
Through
which self-define evaluation structures and analysis base on that can be
created.
|
Standard
Reports
|
Which are
ready-to-use reports available in MM
|
General
Analysis
|
A feature
specific to MM-Purchasing
|
Features
available in General Analysis are:
Sorting
|
Most of the
field can be sorted on either ascending or descending order.
|
Filtering
|
Can filter
the output of general analysis based on specific values or range of values.
|
Export to
Excel
|
Possible to
export the output of general analysis to Excel
|
Graphical
Display
|
Possible to
show the results as charts
|
Sigma
|
Possible to
calculate totals on numeric fields
|
Display
details
|
Which
displays the key fields of the document as a snapshot.
|
