Wednesday, September 18, 2013

SAP MM notes.

1.4.1 Basics of Supply Chain Management


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.

1.4.2 Organizational Management


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:

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.
Used in production such as fuel to run Diesel Generator sets, Coolants, Welding Rods.
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.

1.4.3 Procurement

Item Category
3rd Party
Stock Transfer

Account Assignment Category
Third Party
Sales Order
Cost Center

Pricing Steps:
  1. Condition Table
  2. Access Sequences
  3. Condition Types
  4. Calculation Schema
  5. Schema Group
  6. 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

ME47 - Maintain
ME49 - Price Comparison

Account Postings in a Procurement Cycle:
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

1.4.4 Procurement Optimization

Possible ways to optimize the procurement process:
  1. automated  source determination
  2. delivery schedule
  3. respective department can raise PO
  4. order quantity.

Automatic determination of source depends:
  1. outline agreement
  2. information record
  3. quota arrangement
  4. source list

Types of outline purchase agreement:
  1. contract  
  • centrally agreed contract (no plant assign)
  • Distributed Contract agreement (Plant assigned)
     2.  scheduling agreements

Contract types:

Contact Type
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.

1.4.5 Order Quantity

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

1.4.7 Inventory Management

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:
Goods receipt for a purchase order
Goods issue for a production Order
Goods issue for a cost centre
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)
1.4.9 Logistic Invoice Verification

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.

1.4.10 MM Configuration

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
Raw Material
Trading goods
Non- stock material
Finished Product
Packaging Material

1.4.11 Special Procurement Process

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.

1.4.12 Analysis And Reporting

Various reporting features are available for SAP MM.  Some of them are listed below:

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:

Most of the field can be sorted on either ascending or descending order.
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
Possible to calculate totals on numeric fields
Display details
Which displays the key fields of the document as a snapshot.


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