SAP MM Guide Book

SAP MM – Materials Management

SAP

Materials Management INDEX

Introduction 1.0. Fundamental Procurement Process 2.0. Organizational Elements 3.1. Material Master 3.2. Vendor Master 3.3. Purchasing Master 4.1. Purchasing Documents 4.2. Notes on purchasing documents 4.3. Purchasing processing 5.1. Goods receipt 6.1. Invoice processing 7.1. Vendor Payment

3 4 5 6 6 7 9 11 11 14 16 17

8.0. PURCHASING 8.1. Materials planning and control 8.2. Quotations 8.3. Purchase order 8.4. Outline agreement 8.5. Contract 8.6.Scheduling Agreement 8.7. Purchasing info records 8.8. Source of supply 8.9. Master conditions

20 20 25 26 28 29 30 31 33 34

9.0. EXTERNAL SERVICES MANAGEMENT

37

10.0. VENDOR EVALUATION

44

11.0. INVENTORY MANAGEMENT

53

12.0. INVOICE VERIFICATION

65

13.0. WAREHOUSE MANAGEMENT

74

14.0. CONSUMPTION BASED PLANNING

88

15.0. MATERIAL LEDGER

101

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Materials Management

INTRODUCTION Materials Management covers all tasks within the supply chain, including consumptionbased planning, purchasing, vendor evaluation, and invoice verification. It also includes inventory and warehouse management to manage stock until usuage dictates the cycle should begin again The purpose of the MM-Materials Management module is to provide detailed support for the day-to-day activities of every type of business that entails the consumption of material. The Materials Management module of SAP R/3 consists of the following components:        

Purchasing. External Services Management. Vendor Evaluation. Inventory Management. Invoice Verification. Warehouse Management. Consumption Based Planning. Material Ledger.

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1.0. FUNDAMENTAL PROCUREMENT PROCESSES Requirements Determination -- Basically, how do we know we need something? The request for goods or services usually comes in the form of a purchase requisition. Purchase requisitions can be created manually or automatically by MRP (Material Requirements Planning). MRP is part of the Manufacturing Planning and Execution process introduced above. Simply put MRP determines the material needs based on current and future sales figures and automatically triggers the requirements when necessary. Source Determination -- The source of supply is determined for the needed item by the purchasing department or the system Vendor selection -- The requisition is assigned to a vendor Order processing -- A purchase order is requested with reference to the requisition Order follow-ups -- The system provides automated expediting and follows up reminders to ensure prompt delivery of the order Goods receipt and inventory management -- The goods are received into the warehouse via purchase order goods receipt Invoice verification -- The invoice is validated by comparing it to the original purchase order price and quantity received Payment -- Payment will be made based on payment terms and conditions defined 1.1. FOUR MAIN DOCUMENTS AND TRANSACTIONS IN THE PROCUREMENT PROCESSES. Purchase Requisitions -- Includes the first three steps of the procurement process, i.e. Requirements Determination, Source Determination and Vendor Selection. Purchase Orders -- Includes the steps four and five of the procurement process, i.e. Order processing, and Order Follow-Up Goods Receipt Posting -- Includes step six of the inventory process, i.e. Goods Receipt and Inventory Management Invoice Processing -- Steps seven and eight of the procurement process, i.e. Invoice Verification and Payment.

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2.0. ORGANISATIONAL ELEMENTS Client The client represents the highest level of the organizational hierarchy. It represents the corporate group level of an organization. Company code The company code represents an independent accounting unit within a client, i.e. a business unit for which balance sheets and profit and loss statements, required by law, are compiled. Plant A plant is an organizational unit within a company. A plant produces goods, renders services, or makes goods available for distribution. Note that a plant can be a manufacturing facility or a warehouse distribution center. Storage location A storage location is the actual physical location, within a plant, where the material stocks are located. Purchasing organization A purchasing organization is an organizational unit responsible for procuring materials and services for one or more plants and for negotiating prices and terms of delivery with the vendor. Purchasing group The purchasing group is a special subdivision within a purchasing organization that handles certain specific purchasing activities, namely the day-to-day buying. Please note that a purchasing group can perform this function for several purchasing organizations.

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3.1. MATERIAL MASTER 3.1.1. Organizational levels for inventory management General data Plant data Storage location data Valuation data 3.1.2. Material master views – primary views for procurement Purchasing view Engineering view Accounting view 3.1.3. Steps to create a material master  The material type and industry sector  The units of measure, such as the base unit (stock keeping unit), and the order unit  The purchasing group (buyer group) responsible for the material  Accounting data, such as the valuation class, price control, and standard or moving average price 3.2 VENDOR MASTER Vendor Master Records include general information such as name and address, currency used for the vendor, terms of payment, contact information, etc. Vendor master records comprise information for both the accounting and purchasing function as well as general vendor data. General data is data that applies to all company codes within the client. It includes such information as address, phone number, and the language spoken by the vendor. Accounting data includes accounting specific information such as payment transactions and reconciliation control account information. Purchasing data includes items such as contact persons, terms of delivery, etc. Because Accounting and Purchasing have different information needs, each is presented with a different view of the vendor master file. In the Accounting view, the accountant has access to the general and accounting data, and in the Purchasing view the purchasing agent has access to the general data and the purchasing data. 3.2.1.General functions    

Terms of payment One time vendor Blocking vendors Maintaining business partners – vendor, order recipient, goods supplier, invoicing party, payee

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3.3. PURCHASING MASTER In addition to vendor and material master data, Purchasing is supported in its everyday work by the following additional types of master data:  Purchasing info record  Source list  Quota arrangement  Conditions  Vendor evaluation 3.3.1. Purchasing info record Info record is short for Information record. The info record contains concise information about a vendor and a material that you already procure from that vendor. An info record thus represents a material-vendor relationship. For example, the info record indicates the units of measure in which materials are ordered from the vendor, and the applicable reminder levels. It also shows price changes made by the vendor for the material. This information can be useful in the process of evaluating quotations to determine the successful bidder. Info records are created automatically when you order a material. You can also create, change, and delete info records. The purchasing info record (also referred to in abbreviated form as the "info record") is a source of information for purchasing. It contains information on a specific material and a vendor supplying the material. For example, the vendor's current pricing is stored in the info record. The info record also allows buyers to quickly determine:  Which materials have been previously offered or supplied by a specific vendor  Which vendors have offered or supplied a specific material 3.3.1.1. The info record contains data such as:  Current prices and pricing conditions  The number of the last purchase order  Tolerance limits for over deliveries and under deliveries  The planned delivery time (lead time required by the vendor to deliver the material)  Vendor evaluation data  An indicator as to whether the vendor counts as the regular vendor for the material  The vendor sub-range to which the material belongs  The availability period during which the vendor can supply the material

3.3.1.2. There are two types of info record:

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Info records with a material master record (e.g. for stock material) This type of info record represents the relationship between a material or service (for which a master record exists) and a vendor. Info records without a material master record (e.g. for consumable materials) This type of info record represents the relationship between a material or service for which no master record exists and a vendor.



3.3.1.3. An info record contains general data and organizational data:  General data Data that is valid for each purchasing organization or each plant (for example, origin data, reminder levels, and the order unit).  Organizational data Data such as prices and pricing conditions that you can store for the relevant purchasing organization or plant. 3.3.2. Source list A source list specifies the possible sources of supply for a material over a given period of time. It shows the time period in which a material may be ordered from a given vendor or under a long-term agreement. The source list helps you determine which vendors or internal suppliers supply a material at a given point in time. It is also used in the automatic selection of vendors for a material. 3.3.3. Quota arrangement A quota arrangement is a mechanism for determining the source of supply to which to assign a material requirement on the basis of quotas. It enables you to determine which is the valid source for the procurement of the material listed in a purchase requisition at any given time. Setting quotas allows you to automatically apportion the total requirement of a material over a period among a number of different sources of supply. 3.3.4. Master conditions Master conditions are conditions that are defined centrally and which determine the value of purchase orders. They are used as the basis for calculating the effective price. 3.3.5. Vendor evaluation Vendor evaluation is the process of analyzing and assessing the performance of your suppliers. It also constitutes a basis for vendor selection. Vendors are awarded scores for a number of different criteria. Vendors' overall scores can be used to determine whether they are retained in or eliminated from your vendor base.

4.1. PURCHASING DOCUMENTS 4.1.1. The main documents and transactions in the procurement process are: EAS-SAP

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Materials Management Purchase Requisitions Purchase Orders Goods Receipt posting - updates both stock and financial records Vendor Invoice posting

4.1.1.1 Purchase Requisitions A purchase requisition defines a need for a material or service. It has the following characteristics:  It is the primary instrument for identifying materials or services that must be procured outside the company.  It authorizes the purchasing department to purchase materials in specified quantities within a specified time.  It is an internal document: it is not used outside the company. 4.1.1.2. RFQ (request for quotation) A request for quotation (RFQ) is an invitation to a vendor to indicate his terms and conditions (in particular, his price) for the supply of a material or the provision of a service by submitting a quotation. As in the case of the purchase requisition, the RFQ identifies the material, quantity, and delivery date. In addition, the RFQ contains information about the vendor to whom the RFQ is sent (for example, the vendor's name and address) and important dates for the RFQ (such as the closing date for applications, or pre-qualification date, and bid submission deadlines). 4.1.1.3. Quotation A quotation contains the vendor's pricing and conditions for providing the material or service stated in the RFQ. In MM Purchasing, the RFQ and quotation are the same document. You enter the vendor's pricing and conditions in the original RFQ. Then you can:  Use the price comparison list to help you determine the best quotation  Send rejection letters to the appropriate vendors  Store the pricing and terms of delivery for certain quotations in the info record for future reference.

4.1.1.4. Purchase Order (P.O) The purchase order represents the formal and final approval of a purchasing transaction with the vendor. It identifies:  The vendor  The material or service to be ordered EAS-SAP

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Materials Management The quantity The price The delivery date and terms of delivery The terms of payment

In addition, the purchase order determines whether the ordered material is placed in stock or consumed directly upon goods receipt. 4.1.2. Additional items can include:  Quantity and/or Value Contracts  Quota Arrangements  Scheduling Agreements 4.1.2.1. Contract A contract is a longer-term agreement with a vendor (one of the two forms of "outline agreement" in the SAP system) to supply a material or provide a service for a certain period of time. A number of different terms may be used for this concept in purchasing literature, including "blanket order", "blanket contract", "systems contract" and "period contract". The contract does not contain specific delivery dates or the individual delivery quantities. These are specified subsequently in release orders issued against the contract. 4.1.2.2. Scheduling agreement The scheduling agreement has similarities with a quantity contract: it states the target quantity of a material to be ordered from a vendor over a period of time, and the price. For each material to be procured, you create a scheduling agreement item. For each scheduling agreement item, you subsequently set up a rolling delivery schedule by creating a number of individual schedule lines. In vendor scheduling, vendors receive a scheduling agreement release (comprising a header and a rolling delivery schedule made up of individual schedule lines) rather than discrete purchase or release orders. (Note that in addition to standing for a method of ordering materials or services - as here, in the SAP System, the terms "release" and "releasing" may also be applied to an internal purchasing document approval or clearance process.) The delivery schedule specifies the quantities to be delivered, the delivery dates, and possibly also delivery time-spots, and may contain data on previous goods receipts. A delivery schedule may contain firm, semi-firm, or planned (forecast) delivery dates. 4.2. NOTES ON PURCHASING DOCUMENTS Purchasing documents are differentiated in the SAP system via the document type. This determines, for example, which is the relevant number range and which fields are offered for maintenance purposes. The relevant document type appears as a default value when you create a purchasing document. Document types are defined for RFQs, purchase

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orders, and contracts, for example. The standard SAP system includes certain document types. However, your enterprise can also define its own. Each document is assigned a unique number. (Note that the "number" may also be an alphanumeric code: see below). This number can be assigned internally or externally, depending on the policy of your enterprise. Internal number assignment means that the system assigns the number. External number assignment means that the person creating the document must supply it. Alphanumeric assignment is only possible in the latter case. Each purchasing document is subdivided into two main areas: the header and individual items. Each document will contain a header and can contain several items. The header contains information relevant to the whole document. The items specify the materials or services to be procured. For example, information about the vendor is contained in the document header, and the material description and quantity to order is specified in each item. The additional data includes additional information about the item, and has no direct connection with the procurement data of the item. Additional data includes, for example, account assignment data (such as cost center and G/L account) and the PO history for an item, which contains information on already recorded goods and invoice receipts relating to the item. Each item in a purchasing document represents a specific planned procurement. Purchasing transactions (involving requisitioning, ordering and monitoring) occur on an item-specific basis. 4.3. PURCHASING PROCESSING Requisitions may be entered directly or as a result of Materials Requirement Planning (MRP). Before a requisition is created, the source of supply must be determined. This may be via a number of different strategies depending on the type of product and industry concerned. For example: Your packing materials are purchased in large quantities on a regular basis from a single supplier. In this case a long-term contract may have been agreed with this supplier, and the purchase requisitions may call off quantity releases against the contract. If you wish to spread your purchasing across a number of suppliers, a quota arrangement may be drawn up that splits the purchase orders into predefined ratios.

4.3.1. How are requisitions created In the SAP System, requisitions can be created in the following ways: indirectly:  Via materials planning and control - the SAP component Consumption-Based Planning suggests materials that need to be ordered on the basis of past

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 

Materials Management consumption or usage figures and existing stock levels. The component also automatically determines the order quantity and the delivery date. Via networks from the SAP component PS Via plant maintenance orders from the SAP component PM

Directly: Someone from the requesting department enters a purchase requisition manually. The person creating the requisition determines what and how much to order, and the delivery date. The creation indicator in the requisition shows whether the requisition was created manually or through Materials Planning. It is displayed in analyses of requisitions and in the statistics data of a requisition item. Materials Planning can stipulate that a requisition be resubmitted to Purchasing if it is not processed within a predetermined period. Once the source of supply is determined, the requisition may have a release strategy assigned to it. This strategy requires specific authorization before a purchase order can be created. When the requisition is released, the data from the requisition is copied into a purchase order with the details from the purchase information record. 4.3.2. Purchase Order Processing.   



A purchase order is a formal request to a vendor to provide certain materials or services under specific conditions (quantity, price, delivery date, etc.) Like purchase requisitions, purchase orders may be entered directly. There are different types of purchase orders designed to handle various business situations. As a result of the order type, different account assignments can be made for the items, charging the items to cost centers, assets, projects, etc. It is possible to apportion the costs across several cost centers or projects when the order is created.

You can create a PO in three different ways: 1. Vendor known Use this procedure if you know which vendor is to receive the order. This procedure is described later in this section. 2. Vendor unknown Use this procedure if you want the system to select possible vendors. These suggestions are then made on the basis of sources of supply that have been predefined in the system. (Note: the term "source" covers outline purchase agreements, info records, and source lists). 3. From assigned requisitions Use this procedure to list the requisitions for your purchasing group that have already been assigned to a vendor (that is, those requisitions containing a vendor, outline agreement, or info record as a procurement option). POs can be generated from these requisitions automatically.

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5.1. GOODS RECEIPT When a company receives material from a vendor, a goods receipt is a recorded. A goods receipt (GR) is a goods movement with which the receipt of goods from a vendor or from production is posted. A goods receipt leads to an increase in warehouse stock. Goods receiving personnel can confirm the receipt of goods simply by entering the PO number. By specifying permissible tolerances, buyers can limit over- and underdeliveries of ordered goods.

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5.1.1. Accounting documents If the movement is relevant for Financial Accounting (that is, if it leads to an update of the G/L accounts), an accounting document is created parallel to the material document. In some cases, several accounting documents are created for a single material document. This might be the case, for example, if you have two material document items with different plants that belong to different company codes. The G/L accounts involved in a goods movement are updated through an automatic account assignment. 5.1.1.1G/L accounts: Stock, Consumption, GR/IR accounts. At goods receipt, the integration with FI (Financial Accounting) updates the General Ledger to reflect the increase in the stock value.  Stock Update. Which stocks are updated in the material master record depends on the destination of the goods:  Goods receipt into the warehouse. If the goods are destined for the warehouse, the system increases total valuated stock and the stock type (for example, the unrestricted-use stock) by the delivered quantity. The stock value is updated at the same time.  Goods receipt into consumption. If the goods are destined for consumption, only the consumption statistics are updated in the material master record.  Goods receipt into goods receipt blocked stock. If the goods receipt is posted into goods receipt blocked stock (see the section Goods Receipts Into Goods Receipt Blocked Stock), the stock remains unchanged. The goods are recorded only in goods receipt blocked stock of the purchase order history.  Goods receipt into a new storage location. If you book goods into a storage location, which does not yet exist for this material, the storage location data will automatically be created in the material master record when the goods receipt is posted.

5.1.2. Other Documents generated during Goods receipt posting 



A material document is generated that serves as proof of the movement and as a source of information for any applications that follow. A material document consists of a header and at least one item. The header contains general data about the movement (for example, its date). Each item describes one movement. Purchase order history. During goods receipt posting, a purchase order history record is automatically created. This record contains data essential for Purchasing, such as: the delivered quantity, the material document number and item, the movement type, and the posting date of the goods receipt. The vendor evaluation

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   

Materials Management is also updated which allows you to see if vendors are adhering to the requested delivery dates, etc. Order item. If the "delivery completed" indicator is set in the material document, the order item is considered closed, and the open purchase order quantity is set to zero. Transfer Order document Point of Consumption Cost Center Order document Stock Quantity Consumption statistics

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6.1. INVOICE PROCESSING Invoice verification validates the invoice by matching the purchase order price and purchase order receipt quantity to the invoice. This also updates the purchase order history and creates a financial accounting document. The system supports the checking and matching of invoices. The accounts payable clerk is notified of quantity and price variances because the system has access to PO and goods receipt data. This speeds the process of auditing and clearing invoices for payment. After a purchase order has been filed, a good receipt made, and a vendor invoice created, the invoice must be verified before the invoice is posted to the following areas:  G/L accounts  Assets  Cost Centers  Projects  Order

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7.1. VENDOR PAYMENT SAP's standard system contains the most common forms of payments. Each method has been defined separately for each country. The payment program has been developed for international transactions with vendors and customers, so you can carry out both incoming and outgoing payments. The standard payment methods include: 7.1.1. Check You can post the check payment manually or via the payment program. Checks issued by hand need to be dealt with separately in order to create a link between the check number and the payment document. It is advisable to reserve a separate number range for manually created checks in order to keep the use and management of such checks separate from that of automatically created checks. 7.1.2. Transfer Immediately after receiving the closing invoice, you can carry out a transfer posting of the clearable down payments. This transaction also supports the transfer posting of partial amounts. After this transfer posting, the corresponding amount is no longer displayed in the vendor account and in the General Ledger as a "down payment made", but rather as a "payment made" in the payables account. This payment made is taken into account when the invoice is paid, either manually or automatically. You must carry out a transfer posting of down payments manually in the following cases: 1. You want to prepare your year-end closing. You have received the closing invoice for a down payment and can no longer clear it with the payment program, since you will not run the payment program until after you next prepare the balance sheet. In this case, you clear the down payment with the closing invoice manually. 2. You want to allocate a down payment to a specific invoice, with which it is to be cleared. The system notes the document number of the invoice in the line item of the down payment. The payment program subtracts the down payment only when the corresponding invoice is paid. 3. You want to clear a down payment partially. That is, a down payment is cleared with several invoices, which are paid at different times. You must clear each down payment amount manually.

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7.1.3. Bill Of Exchange You can make payments to your vendor by bill of exchange using the payment program. You can also post the bill of exchange payment manually. To post a bill of exchange payment manually, proceed as follows: 1. Select Document entry -> Bill of exchange -> Payment. The system shows the screen for entering header data and for selecting a clearing procedure. 2. Enter the header data and select the clearing procedure Outgoing payment. On the bottom line, enter the posting key for posting a bill payable (39 in the standard system), the number of the vendor account, and the special G/L indicator for the bill posting (B in the standard system). Select ENTER. This accesses the screen for entering data on the bill of exchange. The most important fields are:  Drawer The address data of the vendor is suggested.  Drawee The address data of the company code is suggested.  Due date Enter the due date of the bill of exchange. Your bank pays the bill of exchange on this date. 3. If you want to post the bill liability to the bank sub-account and the corresponding clearing account, you enter these two line items first. To do this, you must make the corresponding G/L account posting on the bottom line of the screen. You can then change to the screen for processing open items to clear the bill payable. 4. Select Process -> Choose open items. You reach the selection screen for open items. The system suggests the required data, such as the vendor account number, the account type, and the company code. You can further limit the items to be processed by specifying selection criteria. 5. You then change to the screen for processing open items. All further steps for clearing open items are described in Clearing Open Items. 6. Post the document by selecting Document -> Post. The system clears the open payables and posts a bill payable to the vendor account and the special G/L account. Once the invoices are posted, Accounts Payable reads and pays all invoices that are due and are not blocked for payment. The payments are based on information (payment terms) that is specified in either the purchase order or in the vendor master file. This information can be changed manually on the invoice. Terms of payment represent stipulations concerning the time of payment of amounts due, including the specification of any discounts granted for prompt payment, together with the discount-qualifying periods (for example, the clause "payable in 30 days net", or "discount of 2% if payment is made within 10 days). In the latter example, the discount is deducted from the invoice amount if payment is made within the specified period. You specify the terms of payment in the vendor master record. When you place an order with the vendor, they automatically appear as default values; however, you can change

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Materials Management as

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Terms of payment can also be entered in the vendor's invoice. These are then the ones used by the payment program. 7.1.4. Blocking Invoices When an invoice is blocked, Financial Accounting cannot pay the invoice. The invoice must first be released in a separate step before it can be processed. An invoice can be blocked for payment due to one of the following reasons:  Variances in an Invoice Item  Amount of an Invoice Item  Stochastic Block  Manual Block Cash discount and blocked invoices: When an invoice is blocked, the period in which the vendor grants a cash discount may end before the invoice is released. In this case, blocking the invoice would be a disadvantage, since the payment program cannot deduct the cash discount. To avoid this, you can update the baseline date for payment when you release the invoice, so that the cash discount periods can be shifted forwards.

8.0. PURCHASING The R/3 System consists of various modules that are completely integrated with one another. This integration allows various departments in a company to share and maintain EAS-SAP

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the same information. Purchasing is a component of the Materials Management (MM) module. The MM module is fully integrated with other modules in the R/3 System. It supports all phases of materials management: materials planning and control, purchasing, goods receiving, inventory management, and invoice verification. Good communication between all participants in the procurement process is necessary for Purchasing to function smoothly. Purchasing communicates with other modules in the R/3 System to ensure a constant flow of information. For example, it works side by side the following modules: ·

Controlling (CO)

Orders for materials and services consumed directly illustrate the interface to the cost accounting system (Controlling). This is because they can be assigned to a cost center directly. ·

Financial Accounting (FI)

Purchasing and Accounting both maintain information on vendors. Information on each vendor is stored in a vendor master record, which contains both accounting and purchasing information. The vendor master record represents the vendor account in financial accounting. Through PO account assignment, Purchasing can also specify which G/L accounts are to be charged in the financial accounting system. ·

Sales and Distribution (SD)

Within the framework of material requirements planning (MRP), customer requirements from Sales can be passed on to Purchasing. In addition, when creating a requisition, you can assign it to a sales order. 8.1. MATERIALS PLANNING AND CONTROL This section provides an overview of materials planning and control and shows how the latter affects purchasing activities in the SAP system. The section discusses how the component Consumption-Based Planning:  Identifies which materials to order  Determines the quantity to order  Sets the delivery date 8.1.1. What is materials planning and control? Materials planning and control determines how much of which material, component, goods etc. is needed and when. This activity is the responsibility of the materials planner or controller. 8.1.2. Types of materials planning and control There are two forms of materials planning and control: Deterministic Deterministic materials planning (material requirements planning, or MRP) determines requirements on the basis of bills of material and outside demand. This procedure EAS-SAP

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involves the development of a production plan directly from bills of material. This form of materials planning is a component of the SAP application Production Planning (PP). Consumption-based Consumption-based planning forms part of the SAP application Materials Management (MM). It determines requirements on the basis of past consumption data. Note that in the SAP system both of the above may collectively be referred to as "MRP". Consumption-based planning The SAP component Consumption-Based Planning helps the responsible materials planner (or materials or inventory controller) to determine the following:  Which materials to order  The quantity required  When materials must be delivered to meet current and future requirements It bases its decisions on what to order on past consumption. The system can generate requisitions automatically. These can be assigned to a purchasing group (buyer group) or a materials planner/controller. The materials planner/controller or buyer can then convert the requisition into a standard purchase order or a release order issued against a contract. Identifying materials to order The Consumption-Based Planning module identifies material shortages using one of the following methods:  By reference to the reorder level (reorder point)  Using a forecasting model Whether requirements for a given material are determined by reference to the reorder level or using a forecasting model is defined in the material master record. Reorder level Consumption-Based Planning can suggest orders based by reference to the reorder level of a material. The system compares the material's reorder level with the sum of the available stock. If the available stock is less than the reorder level, the system flags the material for MRP. An order proposal is then generated during the next MRP run. The available stock is determined using the following formula: Available stock = (stock on hand in the warehouse + current orders) - reserved stock 8.1.3. Releasing Requisitions This section describes the release procedure for requisitions in Purchasing. (Note that in this context, "release" means giving approval, or clearance, to go ahead with the

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procurement of the materials or services set out in the requisition, and should not be confused with the issuing of orders against longer-term purchase agreements, which may also be referred to as "releasing" (US) or "calling off" (UK)). It discusses how the release (approval) of purchase requisitions is controlled, how you can determine who must release (approve) a purchase requisition, and how a purchase requisition is actually released (approved). Within Purchasing, there are two procedures for releasing purchase requisitions:  Release procedure 1 (without classification)  Release procedure 2 (with classification) Release procedure 1 This procedure serves as a correction and approval procedure for purchase requisitions. Its aim is to check the data on material, quantity, and dates for accuracy and ensure the correctness of the specified account assignment and source of supply. Purchase requisitions are released on an item by item basis. For example, suppose strategy S1, which is assigned to requisitions with a face value of more than $10,000, requires approvals as shown in the following table. Release prerequisites in the case of release strategy S1 Strategy Release point Strategy Prerequisites S1 1 - Project manager none 2 - Department manager none 3 - Cost center manager 1, 2 4 - Controller None 5 - CEO 1, 2, 3, 4 In addition, the following release prerequisites apply for release strategy S1: · Release points 1 - 4 must release a requisition before it is released by the CEO (release point 5). · Release point 4 may release at any time, but before release point 5. Release points 1 - 3 release · after a requisition; Purchasing may issue RFQs to potential vendors. This procedure is only available for purchase requisitions. Release procedure 2 The aim of this procedure is to replace manual written authorization procedures using signatures by an electronic one, while maintaining the dual control principle. The person responsible processes the relevant document in the system, thereby marking it with an

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"electronic signature" which can give the document legal force. A purchase order contains an item relating to 1,000 pieces of Steel 1 for plant 2. The material belongs to the material class Metal 05. The item has a value of 15,000 dollars. As soon as the item has been entered, the system passes on the field contents from MM Purchasing to MM Classification in a communication structure. Classification first selects the relevant characteristics and then checks the characteristic values. For example, let us assume that the Classification System has been set up as follows: System settings for 01-S4 (Group 01, purchase order, strategy S4) Characteristic Characteristic value Plant 1, 2, 3 Material class Metal 1 Value > $12,000

This means that the characteristics plant, material class, and value of item are relevant for the determination of the release strategy for purchase orders. The system determines the release strategy S4 on the basis of the characteristic values. This procedure is available not only for purchase requisitions but for all other purchasing documents as well. Release on an item-by-item basis is only possible in the case of requisitions, not in the case of the other purchasing documents. The reorder level can either be set manually by the materials planner/controller or automatically by the system. Manually The planner/controller enters the reorder level in the material master record manually. Automatically The system regularly compares the reorder level with future requirements. If the reorder level is too high or too low, it can be corrected using the formula: Reorder Level = safety stock + daily requirements * replenishment lead time where the replenishment lead time is in days. The daily requirements are determined using forecasting models. Forecasting Model Forecasting models identify a pattern of demand for a given material. Their purpose is to identify how much of a material is required at a given future date based on this pattern. Examples of forecasting models: Constant Demand values are scattered around an average value. Trend

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Demand either rises or falls steadily over a period of time. Seasonal Demand peaks at regular time intervals. These and other forecasting procedures are described in more detail in the MM Consumption-Based Planning Guide. Determining the order quantity The actual order quantity takes the following data in the material master record into account:  the lot-sizing procedure  Tolerances, such as the minimum and maximum lot size Lot sizing procedure The lot sizing procedure is used to calculate the order quantity on the basis of the lot size. The materials planner/controller defines the lot-sizing procedure used for a given material in the material master record. Tolerances Certain tolerances in the material master record also affect the order quantity. The minimum lot size and the maximum lot size, for example, limit the purchase order quantity to a certain range. If the material has to be ordered in fixed packaging units, the rounding value is used to round off the order quantity to the packaging unit size. Determining the delivery date For materials procured externally, the system suggests delivery dates based on:  The release date of the requisition  Certain tolerances in the material master record Release date The release date of a purchase requisition is the date on which it is activated by the materials planner/controller. Factors determining the delivery date The following factors influence the determination of the delivery date: · planned delivery time (in calendar days) - either from the material master record or from the purchasing info record · GR processing time (in workdays) defined in the material master record · purchasing department processing time (in workdays), which is defined for a given plant 8.2. QUOTATIONS This section provides general information on how requests for quotation and quotations are used in MM Purchasing. 8.2.1. What is a request for quotation?

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A request for quotation (RFQ) is an invitation to a vendor to indicate his terms and conditions (in particular, his price) for the supply of a material or the provision of a service by submitting a quotation. As in the case of the purchase requisition, the RFQ identifies the material, quantity, and delivery date. In addition, the RFQ contains information about the vendor to whom the RFQ is sent (for example, the vendor's name and address) and important dates for the RFQ (such as the closing date for applications, or pre-qualification date, and bid submission deadlines). RFQs can be subject to a release procedure. 8.2.2. Structure of an RFQ The RFQ is organized as other purchasing documents. The header contains general information about the RFQ, such as the vendor address. Each item identifies the individual materials for which a price is required from the vendor. One main difference between RFQs and other purchasing document types is the fact that you cannot enter account assignments for RFQ items. 8.2.3. What is a quotation? A quotation contains the vendor's pricing and conditions for providing the material or service stated in the RFQ. In MM Purchasing, the RFQ and quotation are the same document. You enter the vendor's pricing and conditions in the original RFQ. Then you can: · use the price comparison list to help you determine the best quotation · send rejection letters to the appropriate vendors · store the pricing and terms of delivery for certain quotations in the info record for future reference 8.2.4. Processing of RFQs and Quotations You do the following when processing RFQs and quotations: 1. You create an RFQ manually or by referencing a requisition. 2. You specify which vendors will receive the RFQ. A separate document is created for each addressee. 3. You enter the prices and conditions from the vendor's quotation into the RFQ. 4. You can monitor the status of the RFQ and quotation as it is further processed (that is, following creation of a contract or purchase order). 8.3. PURCHASE ORDER This section provides general information about purchase orders and how they are processed with MM Purchasing. 8.3.1. What is a purchase order?

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The purchase order represents the formal and final approval of a purchasing transaction with the vendor. It identifies  The vendor  The material or service to be ordered  The quantity  The price  The delivery date and terms of delivery  The terms of payment In addition, the purchase order determines whether the ordered material is placed in stock or consumed directly upon goods receipt. Purchase orders can be subject to a release procedure. 8.3.2. Structure of a purchase order As in the case of other purchasing documents, the PO consists of: · Header Containing information specific to the entire PO. For example, the terms of payment and the delivery terms are in the header. · Items Containing information specific to the material or service. For example: - Material number or short description ("short text") - Quantity - Price For each item, you can enter additional information such as time-spot schedule lines and item-specific texts. The PO history menu enables you to monitor deliveries and invoices received with regard to the item. 8.3.3. Item category The item category defines whether a purchase order item:  Requires a material number  Requires an account assignment  Will be placed in stock  Requires a goods receipt (GR) and/or an invoice receipt (IR) The following are the item categories defined in the standard system: 8.3.4. Standard items categories in POs Standard Provides for normal goods and invoice receipt Consignment - Material number required- no account assignments

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- Kept in stock - GR necessary - IR not necessary Subcontracting - GR allowed - IR necessary Stock transfer - Material number required - GR necessary - No IR Third-party - Account assignment required - GR and IR allowed Standard Items with the item category "Standard" are orders for goods that are to be procured externally. In this case, goods and invoice receipt are possible. Consignment Items with the item category "Consignment" are items relating to goods procured on a consignment basis. Account assignments cannot be made for material ordered on consignment. Consignment stocks are managed separately and are not valuated. Subcontracting Order items with the item category Subcontracting are used to order finished assemblies from a subcontractor, for example. Any components the subcontractor requires to assemble the final product are entered as "material to be provided." Stock transport order (inter-plant stock transfer order) The stock transport order is a mechanism facilitating the transfer of stock from one plant to another (that is, a transfer involving transport over a longer distance). The stock transport order is one of the special order types in Purchasing. Third-party order Part of a triangular business deal. A third-party order is an order placed with a vendor instructing the latter to supply goods to or perform a service for a third party (for example, one of your customers). The third-party order is specified in the item category field of a requisition or purchase order. The third-party order is one of the special order types in Purchasing. Item category and account assignment The item category requires an account assignment for materials that are consumed

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directly (that is, materials that are not taken into stock). In the case of stock material, an account assignment is possible, but not mandatory. PO 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 to an individual item You define which texts appear in which order on printouts in Customizing. You can enter several header or item texts, which you can identify by your own codes. 8.4. OUTLINE AGREEMENT 8.4.1. What is an outline agreement? This section provides general background information on the "outline agreements" (which, outside the SAP System, may also be referred to as blanket, master, framework or umbrella agreements) that are used in the MM Purchasing component. An outline agreement is a longer-term arrangement with a vendor regarding the supply of materials or the performance of services according to predetermined terms and conditions. In MM Purchasing, such agreements are subdivided into Contracts and Scheduling agreements Outline agreements may be subject to a release (approval or clearance) procedure. 8.4.2. Structure of an outline agreement As in the case of other purchasing documents, an outline agreement consists of the following elements: Document header: contains information specific to the entire agreement. For example: - The vendor information and header conditions are in the document header. Items: contain the information specific to the material or service. For example: - Statistics on ordering activities for the item - Quantity or price of the item - Pricing conditions, such as quantity discounts and surcharges Texts in outline agreements You can create your own texts from scratch in an agreement or change a text that has been suggested by the system. There are two kinds of agreement text: header text and item text. The texts are further subdivided into text types, for example, shipping and

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delivery instructions. The text type determines the print sequence on the document printout. 8.5. CONTRACT A contract is a longer-term agreement with a vendor (one of the two forms of "outline agreement" in the SAP system) to supply a material or provide a service for a certain period of time. A number of different terms may be used for this concept in purchasing literature, including "blanket order", "blanket contract", "systems contract" and "period contract". The contract does not contain specific delivery dates or the individual delivery quantities. These are specified subsequently in release orders issued against the contract. Contract types When creating a contract, you can choose between the following contract types: Value The contract is regarded as fulfilled when release orders totaling a given value have been issued. Use this contract type when the total value of all release orders should not exceed a certain amount. Quantity The contract is regarded as fulfilled when release orders totaling a given quantity have been issued. Use this contract type when the total quantity to order over the duration of the contract is known. Ways of creating contracts You can create a contract in one of the following ways: · Manually You enter all the contract data manually. · Using the referencing technique You can create a contract by referencing Purchase requisitions RFQs/quotations Other contracts You can also mix the two methods: you can create a contract by referencing an existing one, and then change or enter some items manually. 8.6. SCHEDULING AGREEMENT

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The scheduling agreement has similarities with a quantity contract: it states the target quantity of a material to be ordered from a vendor over a period of time, and the price. For each material to be procured, you create a scheduling agreement item. For each scheduling agreement item, you subsequently set up a rolling delivery schedule by creating a number of individual schedule lines. In vendor scheduling, vendors receive a scheduling agreement release (comprising a header and a rolling delivery schedule made up of individual schedule lines) rather than discrete purchase or release orders. (Note that in addition to standing for a method of ordering materials or services - as here, in the SAP System, the terms "release" and "releasing" may also be applied to an internal purchasing document approval or clearance process.) The delivery schedule specifies the quantities to be delivered, the delivery dates, and possibly also delivery time-spots, and may contain data on previous goods receipts. A delivery schedule may contain firm, semi-firm, or planned (forecast) delivery dates. If you are using scheduling agreements, you can work with or without release documentation. Working with such documentation affords the advantage that you can display the valid scheduling agreement releases transmitted to a vendor over a certain period whenever necessary. If you work with scheduling agreements without release documentation, the current schedule is automatically outputted via the message (output) control program. If you work with scheduling agreements with release documentation, internally you can make as many changes to the individual schedule lines as you wish. As soon as the schedule lines for a certain item have been finalized and the schedule is ready to be transmitted to the vendor, you generate a scheduling agreement release. This triggers the transmission of the relevant data to the vendor. The information is recorded in the system, allowing you to verify at any time exactly when you sent which data to which vendor. Advantages of vendor scheduling Procurement via scheduling agreements has several significant advantages: · streamlines paperwork, shortens processing times - one delivery schedule can replace many purchase orders or contract release orders. · promotes low inventories - you can specify the exact time to deliver, allowing for minimum stock levels and just-in-time (JIT) deliveries. · shorter vendor lead times - because the delivery schedule extends into the future, the vendor has less need to backlog orders, thus reducing the lead time for a delivery. · Automatic generation of delivery schedule lines via the MRP system (a precondition for this is that Purchasing must assign a scheduling agreement as a unique source of supply using the quota arrangement and source list mechanisms)

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8.7. PURCHASING INFO RECORDS 8.7.1. What is a purchasing info record? The purchasing info record (also referred to in abbreviated form as the "info record") is a source of information for purchasing. It contains information on a specific material and a vendor supplying the material. For example, the vendor's current pricing is stored in the info record. The info record also allows buyers to quickly determine:  which materials have been previously offered or supplied by a specific vendor  which vendors have offered or supplied a specific material 8.7.2. Contents of an info record The info record contains data such as:  current prices and pricing conditions  the number of the last purchase order  tolerance limits for overdeliveries and underdeliveries  the planned delivery time (lead time required by the vendor to deliver the material)  vendor evaluation data  an indicator as to whether the vendor counts as the regular vendor for the material  the vendor sub-range to which the material belongs  the availability period during which the vendor can supply the material The info record contains quotation and ordering data. The data in the info record (for example, prices) is also used as default data for purchase orders. For example, you can store the current and future quotation conditions (discounts, fixed costs etc.) in the info record, in order to be able to copy them into Pos. You can also maintain the vendor's conditions directly in the info record. 8.7.3. Types of info record There are two types of info record:  Info records with a material master record (e.g. for stock material) This type of info record represents the relationship between a material or service (for which a master record exists) and a vendor.  Info records without a material master record (e.g. for consumable materials) This type of info record represents the relationship between a material or service for which no master record exists and a vendor. Subcontractor info record A subcontractor info record contains ordering information for subcontract orders. For example, if you subcontract the assembly of a component, the subcontractor info record

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would include the vendor's (subcontractor's) price for assembling the component. Pipeline info record A pipeline info record contains information on a vendor's commodity that is supplied through a pipeline (for example, oil or water) or via similar means (for example, electricity through the mains). The info record contains the vendor's price for the consumption of such commodities by the buyer ("pipeline withdrawals"). You can store withdrawal/usage prices for different validity periods. Structure of an info record An info record contains general data and organizational data:  General data Data that is valid for each purchasing organization or each plant (for example, origin data, reminder levels, and the order unit).  Organizational data Data such as prices and pricing conditions that you can store for the relevant purchasing organization or plant. Texts in the info record The info record contains the following text types: Info record memo An internal note that is adopted in the PO item. The info record memo is not printed out PO text in info record This text serves to describe the order item and corresponds to the PO text in the material master record. It is adopted in the PO item and included in the printout. Short text For material that has a material master record, the short text (short description) is copied directly from the material master record into the PO or the outline purchase agreement. PO text in info record versus PO text in material master record For an info record linked to a material master record, you can specify for each purchasing organization whether  only the info record PO text is to be displayed and printed in purchasing documents.

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(To do so, set the indicator No m. text in the purchasing organization data of the info record). or  Both the info record PO text and the material master record PO text are to be displayed and printed in purchasing documents. Both texts are displayed and printed if the indicator No m. text is not set. 8.8. SOURCES OF SUPPLY In MM Purchasing, a source of supply may be a vendor or an outline agreement. You can manage sources of supply using source lists and quota arrangements. The former are used to define the preferred or allowed sources of a material. Quota arrangements are used to determine which portion of the total requirement of a material to procure from a given source. Aims of sourcing administration Source list records and quota arrangements are used in determining the effective source of a material. Source determination is the process of assigning a particular source of supply to a purchase requisition (or vice versa). 8.8.1. What is a source list? A source list specifies the allowed (and disallowed) sources of supply for a material within a plant. It also indicates the period for which the source is valid. Each source is defined in the source list by means of a source list record. The source list offers you the following options:  Definition of a source of supply as "fixed". Such sources count as preferred sources over a certain period of time.  Determination of the effective sources (that is, those sources that represent the preferred sources at a certain point in time).  Definition of a source of supply as "blocked". 8.9. MASTER CONDITIONS Master conditions are conditions that determine the effective price in the purchase order. They serve as a central repository of pricing for purchase orders. They are automatically included in the price calculation in the purchase order if the PO references a contract or an info record, or if it meets certain criteria defined in the extended conditions. There are three types of master condition: 1. Conditions in contracts - Conditions in a contract apply to all release orders issued against the contract. 2. Conditions in info records - Conditions in the info record apply to orders that specify the material and vendor contained in the info record.

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3. Extended conditions - These are a flexible way of setting vendor pricing. Extended conditions are master conditions that are included in the price calculation in a purchase order only if the PO meets certain criteria. One way to use extended conditions would be to define a 10% discount on all orders placed with a specific vendor that are created by a certain purchasing organization. In this case, the vendor number and purchasing organization are the two criteria a PO must meet before the price in the PO can be calculated. Extended conditions are more flexible than master conditions in info records or contracts because you can define which criteria they must meet before they are applied to a purchase order. The documentation on outline agreements and purchasing info records shows how the conditions specified in outline agreements and purchasing info records, respectively, influence the calculation of the effective price in the purchase order. In this chapter, you will learn how to specify conditions that apply to the pricing of all orders for any material with a vendor, not only for a specific material or material group as is the case with outline agreements and info records. 8.9.1. Conditions technique The conditions technique is used to define pricing across applications. For example, it is used in the SD (Sales & Distribution) module as well as in the MM module. The goal of the conditions technique is to calculate the effective price in a purchase order. Master conditions are simply conditions defined with the conditions technique. While this section is not essential to your understanding of master conditions in purchase orders, it does provide useful background information on the mechanism for determining pricing in Purchasing. 8.9.1.1. Basic elements of the conditions The conditions technique consists of four main elements:  Condition types  Condition tables  Access sequences  Calculation schema (pricing procedure)

technique

These concepts are important for understanding how the system determines pricing in master conditions. Condition type A condition type is a representation of a pricing element. Condition types exist for discounts, surcharges, and freight costs, for example. You use condition types to enter pricing in purchasing documents. You learned how to specify condition types when

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entering

pricing

in

quotations

and

purchase

orders,

for

example.

Condition table A condition table defines the combination of fields (the key) that identifies an individual condition record. The system stores the condition data you enter in the form of a condition record. For example, when you enter a vendor's pricing in a purchasing info record with reference to a material master record, the key of the condition table includes the vendor number and the material number. The actual pricing information - such as the gross price and any discounts - is stored in a condition record under this key. Access sequence An access sequence is a search strategy that the system uses to find condition records for a particular condition type. The access sequence determines the sequence in which the system searches condition records for a valid price. Price calculation schema (pricing procedure) A calculation schema (also known as a pricing procedure, but the same mechanism can also be used to calculate tax amounts, period-end rebates, or costs, for example) is a group of condition types, defined in a particular sequence. It enables the system to determine that a particular set of condition types, in a specified sequence, apply in given circumstances. For example, the calculation schema determines which condition types apply to the gross price. The calculation schema also determines that the condition types for discounts are calculated in the effective price automatically. With MM Customizing, you can define price calculation schemas for specific vendors and/or purchasing organizations. The system searches for pricing data in condition records. The criteria it uses in the search depend on the keys in the condition table. The sequence of the search depends on the access sequence specified for the condition type. Which condition types are used in the search are defined in the calculation schema. For example, suppose that you have just created an info record that specifies a 10% discount from the gross price. This condition is then stored in a condition record under the vendor and material number. When the material is ordered from the vendor in a PO, the system searches for the discount using the access sequence. The calculation schema ensures that the 10% discount is deducted from the gross price instead of the net price during the price calculation process. You

can

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conditions

in

35

the

following

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Prices With this method, you can list or maintain the conditions that determine the net price in a single info record or contract. You can enter the going market price for a material. Discounts and surcharges With this method, you can enter discounts or surcharges that apply to all info records or Contracts meeting your purchasing criteria. Other condition types If your company has defined its own condition types, access sequences, and condition tables, you can define master conditions that use these pricing elements. Price changes You can change pricing by a fixed amount globally.

9.0. EXTERNAL SERVICES MANAGEMENT MM External Services Management (MM SRV) is a program within the Materials Management (MM) module. It supports the complete cycle of bid invitation, award of contract, and acceptance of services. The MM External Services Management documentation  affords a general introduction to the procurement of externally performed services  indicates the organizational levels, master data, and documents of the application  describes the available functionality and how it works  explains the procedures for creating documents in the system 9.1. ESM Functionality The program offers the following functionality:  A service master database, in which the descriptions of all services that are to be procured can be stored.  A separate set of service specifications can be created for each concrete procurement project or proposed procurement in the purchasing document. Sets of service specifications may include both items with services and items with materials.  When creating such specifications, the user does not have to list individual services manually. Instead, the data is simply copied from the master data. Use of this referencing technique means that data only has to be entered once. The manual entry effort is reduced to a minimum.  There are two ways of entering services:

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Materials Management o o

as planned services as unplanned services

9.1.1. Planned Services By "planned services", we mean services whose precise nature and intended scope are already known at the beginning of a procurement project. At the time they are requested, they are either entered with the aid of a service master record, or set out in service specifications as short or long texts. Prices and quantities are stipulated in both cases. 9.1.2. Unplanned Services A procurement project may constitute or include a number of individual services which you initially cannot or do not wish to specify in detail (for example, the construction of an office building). Such initially undefined services, which are termed "unplanned services", thus have no descriptions. They are entered in the form of money value limits. Services may be performed up to a value not exceeding these limits. This allows you to exercise a degree of cost control in such situations. You can set a value limit at the uppermost level (for example, 5 million dollars for the construction of the aforementioned office building). In addition, you can set limits for individual contracts within the project (for example, 200,000 dollars for masonry works and 250,000 dollars for electrical installations). The system checks adherence to both these sub-limits and the overall limit. When the services have been performed, they are recorded in entry sheets and then accepted. The accepted service entry sheet constitutes the basis for subsequent invoice verification in the case of services. 9.2. Organizational Levels The organizational level at which services are procured is the purchasing organization. Depending on the size of the enterprise and the way Purchasing is set up, a purchasing organization can assume responsibility for all procurement (central purchasing) or the purchasing function can be split up among several purchasing organizations, each of which procures the particular services that have been assigned to it. The individual purchasing organizations can be subdivided into various purchasing groups (groups of buyers), each with its own responsibilities. 9.3. Master Data This section discusses the master data utilized by MM External Services Management:  Service master data  Vendor master data 9.3.1. Service master

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The service master database (comprising all the individual service master records) is used to store the descriptions of all services that have to be procured on an ongoing basis. In addition to the description of the service, a service master record contains information necessary for its procurement (for example, texts, units of measure, prices). The service master serves as a source of default data provided by the system during the subsequent creation of service specifications (in connection with a bid invitation procedure, for example). Here you can also maintain services from general, standardized sets of service specifications (known as standard service catalogs) such as the one for the construction industry. The individual service master records can be grouped according to different service types (for example, by sector or trade). SAP supplies a user exit enabling you, for example, to check whether the service number entered corresponds to the number in the standard service catalog. 9.3.2.Vendor master The vendor master database (comprising all the individual vendor master records) contains information on service providers. In addition to the name and address of the service provider, an individual vendor master record contains data on  the currency for transactions with this vendor,  terms of payment, and  names of contact persons As the vendor is also regarded as a creditor in Accounting, the vendor master record also contains accounting data such as the control account. The vendor master record is therefore maintained by both Purchasing and Accounting. 9.4. Purchasing Documents

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This section introduces the documents used in the procurement of services and discusses the structure of these documents in the SAP System. A purchasing document is an instrument used by Purchasing to procure materials or services. You will find more information on the individual purchasing documents in the MM Purchasing documentation. In addition to the documents for the standard materials purchasing function, there is a document for the entry of services actually performed by vendors or subcontractors. Furthermore, the invoice verification document is also relevant to services. Purchase requisition The purchase requisition defines the requirement of a material or a service. Requisitions originate outside the Purchasing Department, that is to say, in the user departments, within Plant Maintenance, and in the Project System. They represent a request to Purchasing to procure the specified quantities of the materials or services on or by the desired date. The purchase requisition is a document that is designed for internal use only. Request for quotation (RFQ) The RFQ is an invitation to a vendor to stipulate, through the submission of a quotation (bid), his prices and conditions (amongst other information) for supplying a material or performing a service. Quotation The quotation (bid) contains a vendor's prices and conditions for the supply or performance of the materials or services specified in the RFQ. Purchase order (PO) The PO is a binding request to a vendor to supply certain materials or perform certain services in accordance with specified terms and conditions. Contract

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In the SAP MM System, the term "contract" denotes a form of longer-term, volume purchasing agreement with a vendor covering the supply of a material or the performance of services. Fulfillment is on the basis of individual release orders issued by the buying entity according to need over the duration of the contract. Service specifications are entered in the contract (in exactly the same way as in the PO) at document item or sub-item level. Service entry sheet The service entry sheet is used to record services as they are actually performed by the vendor or subcontractor. In the case of planned services, the services actually performed are recorded in the entry sheet with reference to the specifications already entered in the PO. In the case of unplanned services (defined only in the form of money limits in the PO), the service entry sheet constitutes the document in which precise specifications are entered into the system for the first time. 9.5. Steps in procurement of services. The procurement of services may involve the following phases:  Creation of purchase requisition  Determination of possible sources  Invitation to potential service providers to submit bids (creation of RFQ)  Entry of quotations (bids)  Analysis and evaluation of quotations  Award of contract (order placement)  Entry of services actually performed  Acceptance of services performed  Checking and approving invoices submitted by vendors for services performed The following sections describe these steps in more detail: Creating a purchase requisition A purchase requisition is created in order to inform Purchasing that a certain service ist needed. You can specify which consumption account is to be charged. It is thus possible to make provision in the requisition for the costs of procurement to be assigned to a certain cost center or a sales order, for example (by specifying the relevant account assignment category). You can enter the account assignment category in the requisition or in the purchase order. Determining possible sources

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If a possible source exists for the procurement of a certain service, you can · have the system automatically find the source and assign the requisition to it, or · choose the desired source from a list generated by the system You can adopt a potential source of a service suggested by the system, but you are not obliged to. Source determination in the system When determining possible sources of a requested service, the system refers to the following information in the sequence shown: 1.

Vendor service conditions

The system first checks whether master conditions whose validity period covers the delivery date shown in the requisition exist for the service If master conditions exist for one or more vendors, the system suggests this vendor as the source. The prices and conditions of the relevant master conditions are then suggested when you create a purchase order with reference to the assigned requisition. 2.

Contracts

If contracts relating to either the material group or the service shown in the requisition exist, the system suggests these contracts as sources. If a requisition has been assigned to a contract, the system can generate release orders against it. Via the Customizing facility in Purchasing, you can define how the sources for services are to be determined. For example, you can specify that a contract is suggested as a source if it contains at least one service from the requisition. However, you can also specify that a contract is only to be suggested if it covers all the services set out in the requisition. You can also enter the source of the services set out in a requisition directly. For example, with this function you can assign the requisition to a vendor from whom you have not yet procured any services to date. Inviting bids (creating an RFQ) If a bid invitation process is to be initiated for services, you must set out the service descriptions in a request for quotation (RFQ). In doing so, you can simplify and speed up the data entry process by using data from the service master record. "Planned" services can be entered with precise descriptions. Alternatively, it is equally possible to enter just a money value limit covering "unplanned" services. "Unplanned" services are services whose exact nature is not clear at the time of the bid invitation phase. Entering value

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limits to cover such cases ensures that cost control can still be maintained. A bid invitation may involve planned services only, unplanned services only, or some combination of both. The RFQ is entered only once, and can then be assigned to any number of potential bidders. The system creates a separate RFQ with a unique number for each bidder. Entering quotations When a quotation is received from a bidder, the latter's prices and conditions are entered in the RFQ that already exists in the system. The status of this RFQ is then changed: the RFQ in fact becomes a quotation. In the SAP System, the RFQ and the quotation are effectively one and the same document. Analysis and evaluation of quotations When all quotations have been received and entered, the most favorable one is determined using the price comparison list. Rejection letters can be sent to unsuccessful bidders. Award of contract (order placement) The successful bidder can be sent a purchase order as a document of contractual nature for a once-only transaction. To minimize the time and effort expended in entering data, purchase orders (POs) can be created by referencing a quotation. If a longer-term cooperation with a vendor is planned, a contract with quantities and values can be set up. You can then release certain services against this longer-term contract on the desired dates by issuing release orders from time to time. You also have the option of storing prices for certain services. That is to say, you can use the contract as a price list. Entering services actually performed You enter services that have actually been performed by means of service entry sheets. In doing so, you can reference the PO. This procedure is suitable for the entry of planned services. At the time of entry, each individual item of the entry sheet is recorded together with its actual value. Unplanned services can be precisely specified as individual items at the time they are entered as having been performed. They are recorded with their exact value and are checked with regard to adherence to the value limits specified in the PO. You can evaluate the quality and timeliness of the services provided by your vendors. Two semi-automatic criteria are available in MM Vendor Evaluation for this purpose. Releasing (approving) the service entry sheet You can make service entry sheets subject to a release (approval) procedure. In the process, you can release each individual entry sheet (individual release) or several entry sheets at once (collective release). Assume an entry sheet to the value of $10,000 is

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subject to release strategy S3, in which three different points (individuals or departments) in your company must give their approval. The entry sheet counts as having been accepted when the third release point has released (approved) it. If a release procedure has been defined, an individual entry sheet cannot be directly manually accepted. Accepting services performed In the next step, the services listed in the entry sheet as having been performed are accepted. The acceptance and entry of services can be defined as separate steps. However, it is also possible to have entry and acceptance carried out by the same individual or department. Checking invoices for services The final phase of the service procurement cycle is verification that invoices submitted by vendors or subcontractors are correct. In the process, the highest-level value limit from the accepted entry sheet is taken and compared with the invoice. The taxes shown in the invoice are checked. If the value limit is exceeded, the system issues a warning message.

10.0 VENDOR EVALUATION Integration

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The Vendor Evaluation component has been completely integrated into MM Purchasing. Information such as delivery dates, prices, and quantities can be taken from purchase orders. Vendor Evaluation also uses data from Quality Management, such as the results of incoming inspections or quality audits. It also accesses basic data in Materials Management, such as goods receipt data from Inventory Management, and data from the Logistics Information System (LIS). What is Vendor Evaluation? The Vendor Evaluation System supports you in the optimization of your procurement processes in the case of both materials and services. Procurement of Materials The system helps you select sources of supply and facilitate the continual monitoring of existing supply relationships. It provides you with accurate information on prices, and terms of payment and delivery. By evaluating vendors, you can improve your enterprise's competitiveness. You can quickly determine and resolve any procurement problems that may arise on the basis of detailed information and in collaboration with the relevant vendors. Procurement of Services You can check the reliability of the vendors from which you procure services on a plantby-plant basis. You can determine whether the vendors perform the services within the specified timeframes and appraise the quality of the work carried out. Scores and Criteria The SAP Standard System offers you a scoring range from 1 to 100 points, which is used to measure the performance of your vendors on the basis of five main criteria. 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 the evaluation of vendors from whom you procure materials. You can also define other or further main criteria, as required. You can assign different weights to the individual criteria. The vendor's overall score is computed taking into

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account the weighted scores awarded for each of the main criteria. The 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 avoided. 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, but you can also define your own additional subcriteria. The scores for the subcriteria are calculated in three different ways. Automatic Scores are calculated by the system on the basis of existing data. Semi-automatic You enter individual scores for important materials, or for the quality and timeliness of a service performed, yourself. The system then calculates the higherlevel score from these. Manual You enter a blanket score for a sub criterion per vendor. You can decide yourself which of these methods you want to use. 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 overall score or ranking lists for specific materials. Changes to evaluations are recorded in logs, and you have the option of printing out evaluation sheets. 10.1. Organizational Level for Vendor Evaluation The organizational level for Vendor Evaluation is the purchasing organization: Each purchasing organization evaluates the vendors that have been assigned to it. The system does not support a comparison of Vendor Evaluations at the higher company code level. Vendor Evaluation uses the following master data:  Vendor master record  Material master record  Purchasing info record

This section describes the most important elements of Vendor Evaluation: Overall Score Main Criteria Subcriteria

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Scoring Range Weighting of Scores 10.1.1. Overall Score The overall score represents the complete evaluation of a vendor. It is a combination of the scores the vendor has achieved for all the main criteria. You can compare different vendors on the basis of their overall scores without generating a detailed analysis of their evaluations. Vendor Overall score out of 100 Smith 85 Brown 83 Jones 69 Thompson 57 Wilson 40 At a glance, you can see that out of the five vendors, Smith received the best overall score, and Wilson the worst. Smith and Brown scored almost the same points. 10.1.2. Main criteria The main criteria form the basis for assessing the performance of a vendor. The system calculates the overall score for a vendor from the main criteria scores. You can evaluate vendors according to several main criteria, which you consider important. The scores for the main criteria are a more accurate representation of the performance of a vendor than the overall score. By comparing scores at main criteria level, you can determine that vendor Jones achieved a lower overall score than vendor Smith, but vendor Jones scored better in the main criterion Price. If the price of the material is the decisive factor when you decide on your next procurement, then you would select vendor Jones. Necessary main criteria You can determine the type and number of main criteria yourself. The system supports a maximum of 99 main criteria. You can specify the number of main criteria for each purchasing organization and decide which main criteria are to be covered by the overall score. The following five main criteria are available in the standard system:  Price  Quality  Delivery  General service/support 10.1.3. Subcriteria Subcriteria are the smallest units to which scores can be assigned in Vendor Evaluation. The system calculates a score for the higher-level main criterion based on the scores a vendor receives for the various subcriteria. There are three types of subcriteria:  Manual

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Materials Management Semi-automatic Automatic

They are named after the different methods of scoring. The individual scoring methods fulfill different purposes and involve different kinds of maintenance. Please refer to Determining Scores. Necessary Subcriteria The automatic subcriteria provided in the standard system suffice for the evaluation of a vendor from whom you procure materials. That is to say, you do not necessarily have to maintain scores for manual or semi-automatic subcriteria in order to perform evaluations. The system provides for a maximum of twenty subcriteria for each main criterion. In the SAP Standard System there are two automatic subcriteria for the main criterion "Price", three for the main criterion "Quality", and four for the main criteria "Delivery". This means that you can determine up to 18, 17, and 16 additional subcriteria respectively for each of these main criteria. There are no automatic subcriteria for the main criteria "General service/support" and "External service". However, three semi-automatic subcriteria are included in the SAP Standard System for "General service/support" and two for "External service". This means that you can define up to 18 and 17 additional manual or semi-automatic subcriteria respectively for these two main criteria. When defining manual subcriteria, please note that you will retain a better overview if you keep the number of criteria low. By doing this, you will also minimize your maintenance effort. Short Description of Automatic Subcriteria This section briefly describes the individual automatic subcriteria. The automatic subcriteria are:  Price o Price level o Price history  Quality o Goods receipt o Quality audit o Complaints/rejection level  Delivery o On-time delivery performance o Quantity reliability o Compliance with shipping instructions o Confirmation date PriceLevel This subcriterion compares relationship of a vendor's price to the market price. If the vendor's price is lower than the market price, he/she receives a good score; if it is higher than the market price he/she is assigned a poor score. On the basis of the subcriterion

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Price Level you can compare a vendor's price to the current market price at a certain point in time. PriceHistory This subcriterion compares the development of the vendor's price with the market price. On the basis of the subcriterion Price History, you can determine whether the vendor's price has increased or decreased over a certain period in comparison with changes in the market price over the same period. Goods Receipt This subcriterion is used to evaluate the quality of the material that the vendor delivers. Quality inspection takes place at the time of goods receipt. Quality Audit This subcriterion is used to evaluate the quality assurance system used by a company in manufacturing products. Complaints/Rejection Level This subcriterion is used to evaluate whether the materials delivered by the vendor are regularly found to be faulty subsequent to incoming inspection (for example, on the shopfloor) leading to additional expense and loss of time (due to loss of production, reworking etc.). The score (QM key quality figure) is calculated in QM Quality Management and the data passed on to MM Vendor Evaluation, where it is used in the scoring system. On-Time Delivery Performance This subcriterion is used to determine how precisely a vendor has adhered to the specified delivery dates. Quantity Reliability This subcriterion is used to determine whether a vendor has delivered the quantity specified in the purchase order. "On-time delivery performance" and "Quantity reliability" always have to be seen together. You can specify for each material (in the material master record) or for all materials (in the system settings) the minimum quantity of the ordered materials that must be delivered in order for a goods receipt to be included in the evaluation. This enables you to avoid a situation in which a punctual goods receipt involving only a small quantity of ordered materials is included in the evaluation with a good score for "on-time delivery performance". If this minimum quantity is not delivered, the vendor is not awarded a score for the latter criterion, and obtains a low score for quantity reliability. Compliance With Shipping Instructions

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This subcriterion is used to determine how precisely a vendor complies with your instructions for the shipping or packing of a material. Confirmation Date This subcriterion is used to determine whether a vendor adheres to a previously confirmed delivery date (for example, the delivery date confirmed in a shipping notification). 10.1.4. Scoring Range To compare the performance of one vendor with another, it is necessary to establish a range (or scale) of possible scores. You can define your own scoring range from the worst- to the best-possible achievable score. The examples in this documentation are based on a scoring range of 1 to 100 points. This scale provides you with a good overview and also permits quite a finely differentiated rating of individual vendors. The scoring range is defined when the system is configured. 10.1.5. Weighting of Scores The scores a vendor is awarded for main criteria can be weighted differently to reflect differences in the significance of the criteria. Weighting Factor By using weighting factors, you can increase or reduce the importance of certain criteria when a score is calculated at the next highest level. Suppose a vendor receives 80 points for the criterion Price and 80 points for the criterion Service. Since the price of the material is more important to you than the service the vendor provides, you assign the criterion Price a weighting factor of 3 and the criterion Service a factor of 1. The 80 points for Price are then worth three times more than the 80 points for Service when the overall score is calculated. Weighting Keys A weighting key is an indentifier under which the weighting factors for a number of main criteria can be grouped together and saved. If you know that you will want to carry out an evaluation repeatedly with certain main criteria and certain weighting factors, you can save this combination under a weighting key. When you carry out the next vendor evaluation, just enter the relevant weighting key instead of entering a weighting factor for each individual criterion. The system then automatically sets all the weighting factors. There are two possible types of weighting key in the standard system:  Key 01  Key 02

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Key 01 permits the equal weighting of all criteria. Key 02 enables you to evaluate vendors supplying small parts, for example. The weighting factors under this key are distributed as follows: Price 5 Quality 3 Delivery 2 General service/support 1 External service 2 10.2. Evaluating Vendors The evaluation of vendors is subject to certain preconditions. Before you begin, you must consider the following:  Have you maintained the system settings?  Do you have the required authorizations?  Which vendor do you want to evaluate? (vendor key)  Which purchasing organization is to evaluate the vendor (purchasing organization key)?  Is this the first time the vendor has been evaluated?  If not, when was the last evaluation? Below are the steps you must carry out to evaluate a vendor:  Enter vendor information  Enter weighting key  Enter scores for manual subcriteria  Evaluate all main criteria

10.3 Calculating Scores Calculating the Overall Score The system derives the overall score from the scores for the various main criteria, taking the weighting factors assigned by Purchasing for each main criterion into account. You learn how to assign weighting factors in Customizing. The following example explains this process: Example The table below displays the scores for a vendor and their weighting factors: Main criterion Score Weighting factor

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Price Quality Delivery Service

70 85 50 50

40 20 10 1

Converting Weighting Factors into Percentages To make the weighting factors clearer to the user, the system converts them into percentages. 1. The system adds the factors together and equates the total with 100 %: 40 + 20 + 10 + 1 = 71 equals 100 % 2.To express the individual weighting factors as percentages of 100%, the system first divides 100% by the sum of the weighting factors: 100 / 71 = 1.4 % 3.Then the system multiplies the weighting factors the buyer assigned to the main criteria by this percentage: 40 x 1.4 = 56.0% 20 x 1.4 = 28.0% 10 x 1.4 = 14.0% 01 x 1.4 = 01.4% 4.The following table displays the results as a percentage of the overall score: Main criterion Score Percentage of overall score Price 70 56.0 % Quality 85 28.0 % Delivery 50 14.0 % Gen. Service 50 01.4 % However, internally, the system uses the weighting factors to compute the overall score. 1. The scores for the main criteria are multiplied by their weighting factors. 70 x 40 = 2800 points 85 x 20 = 1700 points 50 x 10 = 0500 points 50 x 01 = 0050 points 2. Total points = 5550. 3. This total is divided by the sum of the weighting factors: 5550 / 71 = 78 points The vendor is awarded an overall score of 78 points. Calculating the Score for a Main Criterion

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The scores for the individual main criteria are determined in the same way as the overall score: The system calculates the scores for all the subcriteria for a main criterion according to the weighting factors you assigned to them. Smoothing of Individual Scores A score for a new good receipt or the scores for a new service will change the existing scores for the current month. The new individual score does not have the same significance as the previous composite score, because the latter was calculated from a number of individual scores. For this reason, the new individual score is given a lower weighting (that is to say, it is smoothed). In carrying out this process, the system applies the relevant smoothing factors that you have defined for each individual score in Customizing.

11.0. INVENTORY MANAGEMENT SAP's Inventory Management system allows you to  Manage your stocks on a quantity and value basis  Plan, enter, and check any goods movements  Carry out physical inventory Managing Stocks by Quantity In the Inventory Management system, the physical stocks reflect all transactions resulting in a change in stock and thus in updated inventory levels. The user can easily obtain an overview of the current stocks of any given material. For each material, not only the stocks in the warehouse are shown, but also the stocks ordered but not yet delivered, reserved for production or for a customer, and the stocks in quality inspection can be

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monitored, for example. If a further subdivision by lots is required for a material, one batch per lot is possible. These batches are then managed individually in the stock. Special stocks from the vendor or from the customer (for example, consignment stocks) are managed separately from your company's own stock. Managing Stocks By Value The stocks are managed not only on a quantity basis but also by value - a prerequisite for cost accounting. With every goods movement, the following values are updated:  The stock value for inventory management  The account assignment for cost accounting  The corresponding G/L accounts for financial accounting via automatic account assignment Both the quantity and the value are updated automatically when entering a goods movement. Planning, Entry, and Proof of Goods Movements Goods movements include both "external" movements (goods receipts from external procurement, goods issues for sales orders) and "internal" movements (goods receipts from production, withdrawals of material for internal purposes, stock transfers, and transfer postings). For each goods movement a document is created which is used by the system to update quantities and values and serves as proof of goods movements. Goods receipt/issue slips are printed to facilitate physical movements and the monitoring of the individual stocks in the warehouse.

Physical Inventory The adjustment between the physical stocks and the book inventories can be carried out independently of the physical inventory method selected. The SAP System supports the following physical inventory methods:  Periodic inventory  Inventory sampling  Cycle counting The following links will provide more detailed information: For Inventory Management, you must maintain the following data: ·

Plant data

This data can be maintained via different views (for example, via Purchasing, Storage, Work scheduling). You have to maintain at least one view that requires the entry of the organizational level plant. ·

Valuation data

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Valuation data is required for managing the stock by value. You maintain this data via the Accounting view. ·

Storage location data

You maintain the storage location data via the Storage view. The views that are important for Inventory Management are described here. Each view is illustrated by an example. ·

Work Scheduling

Information for producing the material. Examples: production unit, overdelivery and underdelivery tolerances allowed. ·

Accounting

Price and accounting information. Examples: type of price control and valuation class. Maintenance of this view is mandatory for Inventory Management, if the material type indicates that the material is managed by value in stock. ·

MRP

Information for MRP. Examples: safety stock, reorder level, availability check. ·

Purchasing

Procurement information for a material. Examples: overdelivery and underdelivery tolerances, purchasing order unit of measure (order unit). ·

Classification

Typical data for classification of the material. Examples: class, characteristic. ·

Storage

Information for warehousing and storing the material. Examples: unit of issue, storage conditions, fixed bin location at the storage location. ·

Quality Management

Information for sampling and inspecting a material. Examples: indicator for goods receipt via quality inspection, sampling on a percentage basis. 11.1. Planned Goods Receipt The Inventory Management system can handle both planned goods receipts and unplanned goods receipts. Planning a goods receipt in advance means storing certain information that is important for the goods receipt before the actual goods receipt is posted, for example:  what? (which material?)  how much? (in which quantity?)  when? (on which delivery date?)  from where? (from which vendor or plant?)  to where? (to which destination, into which stock?) The goal of this planning is to simplify and accelerate the goods receipt process and to better organize the work at the goods receiving point, so that bottlenecks can be avoided, for example. Also, if goods receipts are planned, Material Requirements Planning (MRP) can monitor the stocks of ordered or manufactured materials and achieve an optimal inventory balance. Unless receipts are planned, the system cannot track materials that have been ordered. Planned receipts, therefore, are crucial to regulating the level of inventory in the warehouse. Planned receipts are also important for determining whether you have received materials promised by vendors or in-house production. Without them, the system cannot establish a link between orders and received material. EAS-SAP

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11.2. Three Types of Planned Goods Receipts Depending on the source of information (that is, the document in which the data relevant to planning is stored), the system distinguishes between three types of planned goods receipts: Planned goods receipts using purchase orders With the MM Purchasing component you do not need to plan goods receipts manually in the system. The purchase orders created by MM Purchasing contain all of the information needed for planning the goods receipt. Planned goods receipts using production orders With the PP Production Orders component you do not need to plan goods receipts from production manually. The orders contain all information necessary to plan a goods receipt. Planned goods receipts using reservations If your company does not have the MM Purchasing component or the PP Production Orders component, you enter reservations to plan goods receipts from the vendor or from production. Although reservations can be used to plan goods receipts, their main purpose is to plan goods issues (or withdrawals). Monitoring Planned Goods Receipts Both on the stock overview screen and on the plant stock availability screen, the planned goods receipts are displayed as follows (see the following table): Stock Types Used to Monitor Planned Goods Receipts Planned GRs via Stock Purchase order Open PO quantity (total) Order Open order quantity (total) Reservation Planned receipts 11.3. Goods receipts for purchase orders If your company uses the MM Purchasing component, deliveries from vendors are most likely the result of purchase orders initiated by the purchasing department. The purchase order is not only the document with which the purchasing department orders goods from the vendor; it is also an important planning and tracking tool for the following departments: Purchasing, Material Requirements Planning (MRP), Inventory Management, and Invoice Verification.

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Reference to a Purchase Order If a material is delivered for a purchase order, it is important for all of the departments involved that the goods receipt entry in the system references this purchase order, for the following reasons: Why Should You Refer to the Purchase Order?  Goods receiving can check whether the delivery actually 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 (overdeliveries and underdeliveries).  The delivery data is updated in the purchase order history, allowing the Purchasing department to monitor the purchase order history and initiate reminder procedures in the case of a late delivery.  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. How Do You Find the Correct Purchase Order? The purchase order number is usually listed on the delivery note, which is attached to the ordered goods and passed on by the vendor to the goods receiving point. If the purchase order number is not on the delivery note, you can search in the system for the purchase order that initiated the delivery using the material number or the vendor number. For details on searching for the purchase order, see Entering a Goods Receipt for a Purchase Order). Destination of the Goods Ordered goods can have the following destinations: Warehouse If the material is intended for the warehouse, the orderer can define a storage location. This storage location is then automatically proposed by the system during entry of the goods receipt, and you can accept or change it. If no storage location is entered in the purchase order, you must define a storage location when you enter the goods receipt. Goods receipts for the warehouse can be posted to three different stock types:  to unrestricted-use stock  to stock in quality inspection  to blocked stock It can already be defined in the purchase order whether or not the material is to be posted to stock in quality inspection. However, at the time of goods receipt you decide to which stock type the material is posted. Consumption

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If the material is intended for consumption (order items with account assignments), the Purchasing department can specify a recipient or an unloading point. Both specifications are then automatically proposed by the system during entry of the goods receipt. You can still change the unloading point when you enter the goods receipt, but you cannot change the recipient. Goods Receipt Blocked Stock You can conditionally accept a delivery. You record such deliveries in goods receipt blocked stock. Unlike goods receipts to the warehouse, the receipts posted to the goods receipt blocked stock are not yet part of the valuated stock. 11.4. Reservations What Is a Reservation? A reservation is a request to the warehouse to keep materials ready for a goods issue at a later date and for a certain purpose. A reservation for goods issue can be requested by various departments for various account assignment objects (such as cost center, order, asset, etc.). Purpose of a Reservation The purpose of a reservation is to ensure that a material will be available when it is needed. It is also to simplify and accelerate the goods issue process and to prepare the tasks at the point of goods issue. Also important is that Material Requirements Planning (MRP), which means that required materials are procured in time if they are out of stock, takes reservations into account. Information in a Reservation In a reservation, information is stored that is relevant for the goods issue and for MRP, for example:  what? (which material?)  how much? (in which quantity?)  when? (for which requirement date?)  from where? (from which plant or warehouse?)  to where? (to which recipient or customer?) Structure of a Reservation A reservation document consists of a header and at least one item. The header contains general data about the reservation (creator, movement type, account assignment). The items describe individual planned movements (material, quantity, requirement date). You can create a reservation for exactly one purpose only; that is, in a reservation, you can only enter one movement type and one account assignment object (for example, a cost center).

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Reservation Level Reservations are made at plant or storage-location level. For materials handled in batches, reservations can also be made at batch level. Manual/Automatic Reservations The SAP System supports manual and automatic reservations. Manual reservations are entered directly by the user. Automatic reservations are generated automatically by the system. There are two types of automatic reservations: Reservations for orders, networks, WBS elements: When a order, a network, or a project is created, the components from the warehouse are reserved automatically. Stock transfer reservations: If, at storage location level, reorder point planning is used for material requirements planning and the available stock on hand falls below the reorder point, the system generates a stock transfer reservation in the plant, with the reservation quantity corresponding to the replenishment quantity. You cannot maintain automatic reservations directly. For example, it is not possible to change reservations for a order directly. You have to change the components in the order. The system then updates the reservation automatically. What are the Results of a Reservation? When a reservation is entered, the following events occur in the system:  A reservation document, which serves as proof of the request, is created.  In the material master record, total stock and unrestricted-use stock of the material remain unchanged. Reserved stock is increased by the reserved quantity.  In MRP, available stock is reduced by the reserved quantity. This is visible in the current stock/requirements list. The reservation causes an entry to be made in the requirements planning file. Displaying Reserved Stock There are two functions available for displaying reserved stock: Stock overview at plant level: When you use this function, the system displays the total reserved stock of the material at plant level. From the stock overview, you can select Environment to display a list of the reservations for the material. Current stock/requirements list: When you use this function, the system lists all of the open reservations for the material at plant level, along with the reserved quantity for each.

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11.5. Goods issues Types of Goods Issues Companies usually distinguish between various types of goods issues, each of which is handled in the SAP System as follows: Deliveries to Customers Withdrawal, picking, and shipping of goods to customers are carried out in the Sales & Distribution (SD) system and are dealt with in detail in the SD document SD Shipping Guide. They are not discussed in detail in this manual. The Inventory Management system provides two movement types for posting goods issues to customers if your company does not use the SD module. These are the movement types "Consumption to sales order" and "Consumption to sales". Withdrawal of Material for Production Orders Inventory Management provides for staging the components for production. You enter withdrawals for production as goods issues with reference to the production orders for which the components are required. Other Internal Staging of Material Materials can be withdrawn not only for production but also for other purposes (for example, for cost center, CO order, maintenance order, or asset). Return Deliveries to Vendors As described in Goods Receipts for Purchase Orders, return deliveries to vendors are entered with the function Material document => Return delivery or with the function Goods receipt => For purchase order. Scrapping/Sampling If a material is no longer usable, it must be scrapped. Scrapping of a material is entered in the SAP System as a goods issue. The withdrawal of samples must also be entered as a goods issue. Entering Goods Issue With/Without Reference Document Before entering a goods issue, you have to find out whether any reference document or data exists in the system. When you enter a goods receipt, you can reference  Reservations  Production orders

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Materials Management Bills of material

If a reference document (reservation/order) exists, it is important to enter the goods issue with reference to this document, for the following reasons:  The goods issuing department can check whether what was requested is actually issued.  During entry of goods issue, the system can suggest data from the reference document (for example, account assignment, requested material, quantity, etc.). This simplifies both data entry and checking (overdeliveries and underdeliveries) when entering a goods issue.  After a withdrawal, the quantity withdrawn is updated in the reference document and the reserved quantity is reduced accordingly. Thus, Inventory Management can monitor the withdrawal process, and Material Requirements Planning (MRP) can update the stock/requirements list. If you do not reference the corresponding reference document during the goods issue, the reservation remains open and the requested quantity remains reserved, although the request no longer really exists. Consequently, available stock in MRP no longer corresponds to the stock actually available! How Do You Find the Reference Document? If you do not know the number of the reference document, you can find it in the system using the material number or the account assignment. 11.6. Transfer Postings and Stock Transfer In a company, goods movements do not only occur in the form of goods receipts and goods issues. Depending on the organization of the company (for example, decentralized storage) and its sales policy, internal stock transfers might also be necessary. 11.6.1. Stock Transfer Level Stock transfers can occur at three different levels:  from company code to company code  from plant to plant  from storage location to storage location (in the plant) 11.6.1.1. From Company Code to Company Code 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. 11.6.1.2. From Plant to Plant A stock transfer from plant to plant not only leads to a change in stock quantity in both plants; if both plants are assigned to different valuation areas, an accounting document is also created. This type of stock transfer can only be carried out from unrestricted-use stock of the issuing plant to unrestricted-use stock of the receiving plant. Stock transfers

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from plant to plant are relevant for Material Requirements Planning (MRP), since MRP operates at plant level. 11.6.1.3. From Storage Location to Storage Location (in the Plant) A stock transfer from storage location to storage location in the same plant simply causes an update of the stock quantities in both storage locations. The stock value remains unchanged, and the event is not relevant for accounting. A stock transfer from storage location to storage location is possible for all stock types. 11.7. Stock Transfers Versus Transfer Postings You can post both stock transfers and transfer postings in the Inventory Management system. 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. An example of transfer posting is the release from inspection into the company's own stock. In the Inventory Management menu, both stock transfers and transfer postings are located under the menu entry Transfer posting. 11.7.1 Stock Transfer Procedures There are three different procedures for carrying out a stock transfer:  Stock transfer via stock transfer posting using one-step procedure  Stock transfer via stock transfer posting using two-step procedure  Stock transfer via stock transport order 11.7.1.1. One-Step Procedure Versus Two-Step Procedure Both stock transfers and transfer postings consist of a "goods issue" from an issuing point and a "goods receipt" at a receiving point. You can post a stock transfer from storage location to storage location or from plant to plant either in one step or in two steps. The advantage of the one-step procedure is that you enter a single transaction in the system. The two-step procedure, on the other hand, allows you to monitor the stocks in transit. After the goods issue is posted at the issuing point, the stock appears "in stock transfer" at the receiving point and is managed as such in the system. The two-step procedure is also required if users decide to give authorizations only for their own plants. To carry out a stock transfer from plant to plant for a material that is split-valuated at the receiving point, you have to use the one-step procedure or a stock transport order for technical reasons. Material Documents for Stock Transfers During a one-step stock transfer, the system creates two material document items for every item you enter:

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Materials Management an item for removal from storage at the issuing point An item for placement into storage at the receiving point

These items are shown in the display of the material document. 11.7.1.2. During a two-step stock transfer, two material documents are created:  From issuing point: Upon the removal from storage at the issuing point, a material document is created. For every item you enter, two material document items are created, namely: o An item for the removal from storage at the issuing point o An item for the placement into stock in transfer at the receiving point  From receiving point: Upon the placement into storage at the receiving point, a material document is created. For every item you enter, only one material document item is created, because the quantity is only transferred from stock in transfer into unrestricted-use stock at the receiving point. 11.8. Physical Inventory Every company must carry out a physical inventory of its warehouse stocks at least once per fiscal year to balance its inventory. Various procedures can be implemented for this. 11.8.1. Physical Inventory Procedure The SAP System supports the following physical inventory procedures:  periodic inventory  continuous inventory  cycle counting  inventory sampling Periodic Inventory In a periodic inventory, all stocks of the company are physically counted on the balance sheet key date. In this case, every material must be counted. During counting, the entire warehouse must be blocked for material movements. Continuous Inventory With the continuous inventory procedure, stocks are counted continuously during the entire fiscal year. In this case, it is important to ensure that every material is physically counted at least once during 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 materials. Cycle Counting allows fast-moving items to be counted more frequently than slow-moving items, for example. Inventory Sampling In inventory sampling, randomly selected stocks of the company are physically counted

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on the balance sheet key date. If the variances between the result of the count and the book inventory balance are small enough, it is presumed that the book inventory balances for the other stocks are correct. Which Stocks Can Be Inventoried In the SAP System, physical inventory can be carried out both for a company's own stock and for special stock. Inventory for a company's stock and for special stocks (such as, consignment stock at customer, external consignment stock from vendor or returnable packaging) must be taken separately (in different physical inventory documents), however. Furthermore, the stock can be divided into stock types. In the standard system, a physical inventory can be carried out for the following stock types:  1 - unrestricted-use stock in the warehouse  2 - stock in quality inspection  4 - blocked stock If batch status management is active, stock type 1 covers both unrestricted-use stock and restricted-use stock. Inventory of all stock types mentioned can be taken in a single transaction. For the materials to be inventoried, one item is created in the physical inventory document for every stock type. Physical inventory takes place at storage location level. A separate physical inventory document is created for every storage location. If no storage location segment exists for a material, this means that no goods movement has ever taken place for the material in the storage location. The material therefore has never had any stock at the storage location and does not exist at stock management level in the storage location. It is therefore not possible to carry out a physical inventory for the material in this storage location. This is not to be confused with a material for which a goods movement has taken place and for which the stock balance is currently zero. A physical inventory must be carried out in this case. It is also possible to carry out a physical inventory since storage location data is not deleted when the stock balance is zero.

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12.0. INVOICE VERIFICATION The SAP system is made up of several components linked together so that different departments within a company can cooperate with one another. The Invoice Verification component is part of the Materials Management (MM) system. It provides the link between the Materials Management component and the Financial Accounting, Controlling, and Asset Accounting components. Invoice Verification in Materials Management serves the following purposes:  It completes the materials procurement process - which starts with the purchase requisition, continues with purchasing and goods receipt and ends with the invoice receipt  It allows invoices that do not originate in materials procurement (for example, services, expenses, course costs, etc.) to be processed  It allows credit memos to be processed, either as invoice cancellations or discounts Invoice Verification does not handle the payment or the analysis of invoices. The information required for these processes is passed on to other departments. Invoice Verification tasks include:  Entering invoices and credit memos that have been received  Checking the accuracy of invoices with respect to contents, prices, and arithmetic  Executing the account postings resulting from an invoice  Updating certain data in the SAP system, for example, open items and material prices  Checking invoices that were blocked because they varied too greatly from the purchase order The high degree of integration in the SAP system allows these tasks to be carried out smoothly and efficiently. As a rule, an invoice refers to a transaction for which the issuing party requests payment. Invoice Verification differs depending on the type of invoice involved:

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Materials Management 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. 12.1. Invoice Verification Process Each invoice contains various items of information. To post an invoice, you must enter this information into the system. If an invoice refers to an existing transaction, certain items of information will already be available in the system. The system proposes this information as default data so that you only need to compare it and, if necessary, correct any possible variances. If an invoice refers to a purchase order, for example, you only need to enter the number of the purchase order. The system selects the right transaction and proposes data from the purchase order, including the vendor, material, quantity ordered, terms of delivery, terms of payment. You can, of course, overwrite this default data if there are variances. You can display the purchase order history to see, for example, which quantities have been delivered and how much has already been invoiced. If there are variances between the purchase order or goods receipt and the invoice, the system will issue a warning on the screen. If the variances are within the preset tolerance limits, the system will allow the invoice to be posted but will automatically block it for payment. The invoice must then be released in a separate step. If the variances are not within the tolerances, the system will not allow the invoice to be posted. When the invoice is entered, the system also finds the relevant account. Automatic postings for sales tax, cash discount clearing, and price variances are also generated and the posting records displayed. If a balance is created, the user is required to make corrections, as an invoice can only be posted if the balance equals zero. As soon as the invoice is posted, certain data, such as the average price of the material ordered and the purchase order history, is updated in the system. The invoice posting completes Invoice Verification. The data necessary for the invoice to be paid is now contained in the system. The accounting department can retrieve the data and make the appropriate payments with the aid of the Financial Accounting component. 12.2. Invoice Data

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An invoice contains various information, such as:  Who issued the invoice?  Which transaction does the invoice refer to?  How much tax do you have to pay? If the invoice refers to a particular transaction, the system will automatically retrieve information pertaining to the transaction and propose values on the screen for you to check. Information that can be retrieved includes:  Terms of payment  Quantities to be invoiced  The amounts the system expects per item If the vendor's invoice contains different details, you can overwrite the data proposed. The system checks whether your entries are permissible and will display a warning or other message if anything is incorrect. The information known to the SAP system and the fields in which you can enter new information from the invoice are located on different screens. 12.3. Cash Discounts The cash discount agreements for a vendor can be stored in the vendor master record. They can then be copied from the purchase order, where they can be changed. When you enter an invoice, the agreements (from the purchase order, if available, otherwise from the vendor master record) are displayed as default values on the vendor screen in the section Payment control. These values can be overwritten. The following fields also have to be filled out: ·

Baseline date

This field specifies the starting date from which the days for the terms of payment are valid. The date proposed by the system can be changed, if required. ·

Discount base

If the amount qualifying for cash discount is different from the invoiced amount, you must enter the correct amount here. ·

Discount amount

In this field you can enter a fixed amount which the vendor in the invoice grants as a cash discount. If you fill out this field, the system will ignore the displayed terms of payment. ·

Terms of payment

In this field, the system displays a key for the terms of payment, if any are stored in the system. These agreements come from the purchase order or from the vendor master record. To the right of the screen, the system displays the actual terms, that is, the period in which cash discount is to be granted, the percentage discount, and the date on which the invoice is payable net. Both the key for the terms of payment and the values belonging to the key can be overwritten. If no values are proposed, you can either enter a key or the days and percentage rates. EAS-SAP

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12.3.1. Types of Cash Discounts There are two ways of posting the cash discount amounts: ·

Posting the gross amount

If you post the gross amount of an invoice, the system will ignore the cash discount amount when you enter the invoice data. The cash discount amount is posted to a separate income account when payment is later made. ·

Posting the net amount

If you post the net amount of an invoice, the cash discount amount is credited directly to the account to which the costs are posted. For example, if you are posting an amount to a cost center, only the invoice amount minus the cash discount amount is posted to the cost center. You specify the way in which cash discount is to be cleared on the initial screen in Invoice Verification in the field Document type. In the standard system, there are two document types: RE - Gross posting RN - Net posting 12.4. Tax Data As a rule, incoming invoices include sales tax. This is specified either as a percentage rate or as a set amount. This must be entered together with the general invoice data. The relevant postings are made automatically by the system. You enter the tax information contained in the invoice in the following fields: ·

Tax amount

In this field you enter the amount of the tax contained in the invoice. ·

Tax code

The tax code is a key that specifies the tax type and the tax percentage. The system allows only the tax codes defined by your system administrator. ·

Calculate tax

If the tax amount is not specified explicitly in the invoice, the system can calculate the tax amount itself. Your system administrator can determine how many tax amounts and codes can be entered in the vendor screen by making the appropriate settings in the Customizing system of Invoice Verification. The tax code entered for an item can be changed on the item screen (unless the tax code is contained in the G/L account). The system uses the tax code and the amounts on the individual items to determine the tax base for each tax code. When you choose Simulate or Post, the system checks

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whether the tax amounts are correct and ask you to make any necessary corrections. Posting Taxes Which taxes are to be paid and how they are to be posted in the system depends on the tax regulations defined by law in the country of the company concerned. The postings made are controlled by the tax code. A distinction is made between the following:  Deductible taxes  Non-deductible taxes Deductible taxes Input tax is paid to the vendor, who passes this on to the tax authorities. The offsetting entry for the tax payment is posted to a separate input tax account. On the basis of this account and the sales tax account, Financial Accounting can calculate the difference between the tax received and tax paid and pay the amount to the appropriate tax authority. The system creates a line for every tax code you enter. If various line items have the same tax code, the tax postings are summed up. Non-deductible taxes There are three different ways of processing non-deductible taxes: · Distribution among invoice items With this processing method, you post the invoice and tax amounts to the vendor account. The taxes are distributed among the G/L account line items and totaled in each case as a net value. Example: Distribution among Invoice Items · Separate posting lines With this processing method, you post the invoice amount and the tax amount to the vendor account. The offsetting entry is split: the offsetting entry for the invoice amount is posted to the stock account, and the offsetting entry for the tax amount is posted to separate tax accounts. Example: Separate Posting Lines · Sales tax not charged In this case, the invoice does not contain any taxes. The tax is determined by the tax code entered. You do not enter a tax amount. The tax expense is either distributed among the invoice items or posted separately. The offsetting entry is posted to separate tax accounts. Example: Sales Tax Not Charged In all three cases, the tax can be defined on multiple levels. The postings to the individual levels can be distributed to different accounts. The procedure, tax records, and the accounts to be posted are controlled via the tax code; you can maintain the settings in the Customizing system of Financial Accounting.

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12.5. Account Movements When you post an invoice, the system selects the accounts to be posted. Account assignment is based partly on your entries when you create an invoice and partly on information stored in the system.  Your entries provide the following information: o Is the invoice posted as a net or as a gross amount? o Which vendor account must be posted? o Which G/L accounts must be posted? o Which amounts must be posted?  The material master record provides the following information: o Which valuation class does the material belong to? o What type of price control is the material subject to? o Which account must be posted for the material? o Is the stock available smaller than the quantity invoiced?  Posted documents provide the following information: o What is the purchase order price? o Has there been a goods receipt for the purchase order? To post invoices correctly, your system administrator must define the accounts in the chart of accounts and the actions to be taken for the different postings when the SAP system is being installed in your company. The SAP accounts are defined in a chart of accounts. The following accounts are particularly important for Invoice Verification: ·

The vendor account

For each vendor there is a separate account in the sub-ledger to which all amounts concerning this vendor are posted. A posting to the vendor account is not the same as a payment. Payment is only executed when the Financial Accounting department posts the vendor's payment to a bank account, for example. ·

The stock account

In the SAP system, there is no separate account for each material. Instead, different materials with similar features are grouped together in a common account (for example, raw materials, acids). The account relevant for a material is defined in the system when the material master record is created. ·

The GR/IR clearing account

The GR/IR clearing account is an intermediate account between the warehouse stock sheet account and the vendor account. At goods receipt, the net invoice amount expected is posted from the stock account to the GR/IR clearing account. This posting is then cleared by an offsetting entry on the vendor account at invoice receipt.

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12.6. Invoices with variances Four different types of variances are possible: ·

Quantity variance

The quantity specified in the invoice is different from the quantity delivered and the quantity invoiced so far. Example: 100 pieces ordered at $10 per piece 50 pieces delivered 0 pieces already invoiced Invoice arrives for $800 for 80 pieces ·

Price variance

The price specified in the invoice is different from the price specified in the purchase order. Example: 100 pieces ordered at $1.30 per piece 100 pieces delivered 0 pieces already invoiced Invoice arrives for $124 for 100 pieces ·

Quantity and price variance

Here we have a variance in both quantity and price. Example: 100 pieces ordered at $10 per piece 60 pieces delivered 0 pieces already invoiced Invoice arrives for $1100 for 100 pieces ·

Variance in order price quantity

If the unit in which a material is priced is different from the unit in which a material is ordered, the quantity of a material ordered is referred to as the order price quantity (for example, the purchase order is issued for pieces, but the price is in $ per kg). If you have a purchase order with an order price quantity, there must be a conversion factor between the price unit and the quantity unit. If the conversion factor in the invoice is different from the conversion factor at goods receipt, there is a variance in order price quantity. If the invoice is received before the goods, the conversion factor in the invoice is compared with that of the purchase order. Example: 100 pieces (= 250 kg) ordered at $20 per kg 100 pieces delivered (= 240 kg) 0 pieces already invoiced Invoice arrives for $5200 for 100 pieces (= 260 kg) Thus, the conversion factor of the order price quantity and the order quantity is in the purchase order: 2.5 kg per piece at goods receipt: 2.4 kg per piece in the invoice: 2.6 kg per piece

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Tolerance Variances are allowed within certain tolerance limits. Your system administrator sets these. Each time a variance occurs, the system checks whether it is within the defined tolerance limit. If the variance is outside the tolerance limit, the system displays this in a warning message. If you do not adjust your entries, you can still post the invoice. If, however, the upper tolerance limit is exceeded, the system automatically blocks the invoice for payment. Financial Accounting can then only pay the invoice after the invoice has been released in a separate step. If the variance is within the tolerance limit, the system accepts the entry. In this case, there is no need for a warning message or a payment block. 12.7. Delivery costs In the SAP System, there are two types of delivery costs: Planned delivery costs are entered in the purchase order. Provisions are set up for the relevant costs at goods receipt. The delivery costs posted at goods receipt can be referenced at invoice entry. Unplanned delivery costs are only entered when the invoice is entered. No provision is made at goods receipt. Planned Delivery Costs Planned delivery costs can be divided up according to the following criteria:  Origin of costs o freight costs o customs duty Your system administrator can define further origin types using the conditions functionality in the Customizing system of Purchasing.  Calculation of costs o fixed amount, independent of delivered quantity o quantity-dependent amount o percentage value of goods delivered. Planned delivery costs are automatically posted to a clearing account when you enter the goods receipt. Each origin type has its own clearing account. When you post the invoice for these delivery costs, the corresponding clearing accounts are settled. In Invoice Verification, it is possible to list all the planned delivery costs for either a purchase order, a vendor, or a bill of lading. You can copy the relevant items from this list into the document. You do not have to specify a certain vendor for planned delivery costs. When you plan

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the delivery costs in a purchase order, you can enter a vendor (for example, a freight supplier or a customs office). In Invoice Verification, however, the delivery costs can be posted to another invoicing party. Planned delivery costs are entered on the purchase order for each item. At invoice receipt, they are allocated to the relevant items. Unplanned Delivery Costs Unplanned delivery costs are delivery costs that were not agreed upon in the purchase order and are not entered until the invoice is received. The following possibilities exist: · Unplanned delivery costs refer to a purchase order, but have not been entered in the purchase order.

If unplanned delivery costs refer to a purchase order, the system can determine the accounts to which the costs must be posted from the purchase order. If there are several items in the purchase order, the system automatically distributes the costs on the basis of the total values already invoiced. ·

Unplanned delivery costs do not refer to a purchase order.

When you enter an invoice for delivery costs that do not refer to a purchase order, the system cannot allocate the costs and you have to tell it which accounts the delivery costs should be posted to.  If you know the material for which the delivery costs were incurred, you can debit the costs directly to the material stock.  If you do not know the material, you can post the costs to a G/L account. In the standard system, there is a special G/L account for unplanned delivery costs that cannot be allocated to any specific account.

13.0. WAREHOUSE MANAGEMENT Computer support of the organization and management of warehouses has become imperative for efficient and effective processing of logistic requirements within a company. The SAP Warehouse Management (WM) system provides the flexible, efficient, automated support that enables you to: EAS-SAP

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

manage highly complex warehouse structures and several different types of warehousing facilities including automatic warehouses, custom-designed storage areas, high rack storage, block storage, fixed bin storage and all other commonly used storage areas define and adapt a variety of storage bins for use in your specific warehousing complex process all relevant warehousing activities and movement tasks, such as goods receipts, goods issues, internal and external stock transfers, automatic replenishment of fixed bins, material staging to production areas and stock difference handling utilize random slotting for multiple owners of goods display summary evaluations of all goods movements in the warehouse implement a variety of readily available put-away and picking strategies including self-designed strategies support the storage and retrieval of hazardous materials and all other goods that require special handling maintain up-to-the-minute inventory records at the storage bin level using realtime continuous inventory techniques support the use of automated barcode scanners and RF technology for all stock movements interface to external non-SAP warehousing systems fully integrate your Warehouse Management system for instantaneous interaction with other SAP components to include Materials Management (MM), Inventory Management (IM) Production Planning (PP), Quality Management (QM) and Sales and Distribution (SD).

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       

In addition to supporting the design of all typical storage areas, the WM system provides automated support for several advanced warehousing techniques, such as  the analysis of requirements and automatic assignment of goods to optimum locations in the warehouse using putaway strategies that can be easily defined to match the characteristics of each storage area  the configuration of areas for backorder staging and cross-docking of received goods  the setup of "forward pick" areas and production supply areas with automatic continuous replenishment from case or reserve storage when a certain threshold is reached. Beginning with the planning phase, the WM system carries out stock availability checks whenever transactions are initiated in each of the respective system components. Although it is possible to print material documents for each separate transaction in the warehouse, the WM system facilitates automatic flowthrough warehousing tasks that are virtually paperless. In the Warehouse Management system, you create transfer orders based on transfer requirements. Transfer orders trigger and control the physical movement of goods within the warehouse. The WM system supports the processing of all relevant movements,

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including goods receipts and goods issues initiated by the Inventory Management (IM) system, deliveries from the Sales and Distribution (SD) system, as well as movements that take place within the warehouse, such as internal stock transfers. With its inventory functions, the WM system ensures that book inventories in the Inventory Management system match the stock in the warehouse, at any time. Because SAP components are fully integrated, you do not need separate interface programs between the Inventory Management system and the Warehouse Management system. Integration with other SAP Modules The WM system is fully integrated into the SAP system as a whole. Most activities that take place within the WM system are initiated in the Inventory Management (IM) system. For example, goods receipts, most goods issues and posting changes are all initiated in the IM system and subsequently processed in the WM system. The WM system is also interfaced to the Sales and Distribution (SD) system through the Shipping module to process delivery documents for both the integrated system and the Decentralized WM system. The Warehouse Management interface to the Quality Management (QM) system allows warehouse administrators to track and manage inspection lots that are stored in the warehouse. The WM system is also interfaced to the Production Planning (PP) system to assist in providing materials to supply areas in production. Storage Unit Management Storage unit (SU) management in the Warehouse Management (WM) system provides the capability to manage and control material flow utilizing storage units within the warehouse. Decentralized Warehouse Management For users who already have the SAP R/2 System, it is possible to install the WM system as an R/3 component so that WM functions can be carried out independent of the availability of the central R/2 host system.

13.1. Warehouse structure Before you can use the Warehouse Management (WM) system to assist you in managing the warehousing functions in your company, you must first define:  The structure (physical layout) of your warehousing complex  Information about goods stored in your warehousing facilities

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You define this information in the warehouse master record, the storage type records and the material master records. The WM system uses the data stored in these records to optimize the process of stock movements. The physical storage facilities of a company may exist in one or more physical buildings and can consist of several types of storage (for example, high rack storage, block storage, picking areas) and other areas within the warehousing complex (such as interim staging areas for goods receipt and goods issue). You can define an entire physical warehousing complex in the Warehouse Management (WM) system using a single warehouse number. Each of the storage facilities or areas can be defined as a storage type by its spatial, technical or organizational factors. Physical Warehousing Complex A storage type generally consists of several storage spaces or slots. These are known as storage bins in the WM system. Within a storage type, you can classify storage bins according to the type of bin, for example, small bins or large bins. You can also assign storage bins to a storage section. Storage Bin Types and Storage Sections The existence of a quantity of material in a storage bin is referred to in the WM system as a quant. For each storage type, you can define whether quants for only a single material or quants from different materials or batches can be stored in a storage bin. 13.2. Interface with other SAP modules The management responsibilities of a warehousing department involve carrying out and monitoring the movement of goods into, out of, and within warehouses. The activities of a warehousing department can include the following:  receiving, identifying and sorting goods  placing goods into storage bins  taking inventory  monitoring and inspecting goods in storage  preplanning the distribution of materials stored in the warehouse  picking and accumulating orders  packaging, loading and shipping goods For some of these activities, such as receiving and shipping, the Warehouse Management (WM) system must interact with other components of the SAP system, such as Inventory Management (IM) and Sales and Distribution (SD). This interaction involves the exchange of data between the various systems. In this section we discuss how communication between these systems is handled.

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Stock Movements In the Warehouse Management (WM) system, there are two types of stock movements:  movements that affect only the warehouse, for example, stock transfers within a warehouse  movements that affect not only the warehouse but also other departments, such as stock transfers to customers or to production Stock movements in the Warehouse Management (WM) system are generally initiated by another system, such as the Inventory Management (IM) system or the Sales and Distribution (SD) system. Examples include:  goods receipt  goods issue  posting change Stock Movements between Storage Types Every movement of goods in the Warehouse Management (WM) system is carried out with a transfer order and involves the movement of materials from one storage type to another. When stock is moved, a source storage type and storage bin as well as a destination storage type and storage bin are used. For example, an ongoing record of stock is kept as it is moved from the goods receipt area to high rack storage and into row 21, stack 4, level 2, which is a physical storage bin. This means that every movement represents a stock transfer between two storage types. The actual or total amount of stock in the system, of course, does not change. Stock Movements Involving Interim Storage Areas Movements involving the Inventory Management (IM) system use storage types that are called interim storage areas. Interim storage areas are used to exchange quantity data between the two systems. A posting in the IM system, such as a goods receipt posting, updates the quantity of available stock in the IM system and simultaneously posts the respective quantity to the interim storage area in the WM system. The total quantity of stock in the WM system is updated by this posting. This ensures that the stock quantities are always the same in both systems. In summary, interim storage areas for goods receipt, goods issue, and differences are used to temporarily store data before it is posted to the storage areas in the warehouse. 13.3. Transfer requirements The transfer requirement document represents an existing requirement to move a specific quantity of material into the warehouse, out of the warehouse or from one storage bin to another within the warehouse. You create transfer requirements with or without Reference to other system documents. Using transfer requirements as planning documents, you create transfer orders that are then used to execute physical stock movements.

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A transfer requirement can answer several important questions about a planned stock movement:  What should be moved?  How much should be moved?  Who or what caused the movement (was it manually or automatically created)?  Has a quantity of stock already been transferred? You use transfer requirements to pass information about stock movements that are posted in the Inventory Management system to the WM system, but they are not limited to that function. You can also use transfer requirements to start stock movements within the WM system or to initiate the supply of materials to production storage bins at WIP locations using the Production Planning (PP) system. You can also use the transfer requirement reporting functions to retrieve an overview of stock that is to be moved. Stock Movements Not Initiated by Transfer Requirements You can also carry out stock movements without transfer requirements. For example, you do not have to use a transfer requirement if transfer orders are created from deliveries using the Sales and Distribution (SD) system. The delivery replaces the transfer requirement and you manually create a transfer order that is based on the delivery. How is a Transfer Requirement Structured? A transfer requirement consists of a header that contains general information about the entire requirement and one or more items. When you create a transfer requirement, you can enter values in all fields of the header except the fields in the Additional data section. These fields are maintained by the system. The first section of the screen item contains information from the header. In the second section, you enter information about the quantity to be transferred. The system maintains the data about the open quantity. In the third section, you enter information about the material to be transferred.

Transfer types A stock transfer is identified by a transfer type. You use transfer types to group together and select transfer requirements and transfer orders for further processing. 13.4. Transfer orders A transfer requirement contains information about a planned movement of stock in the warehouse. The corresponding transfer order contains the information the system needs to carry out the movement, that is, the physical movement of a specific quantity of material from one place to another. Goods are placed into a storage bin, removed from a storage bin, or transferred from one storage bin to another within the warehouse using

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transfer orders. Transfer orders are also used to track the "logical" transfers of stock. Logical transfers of stock occur, for example, when goods are returned from inspection and made available for general use. These logical transfers are called posting changes in the Warehouse Management (WM) system. You can print out transfer orders in the warehouse after they are created, so that the physical stock movement can be carried out immediately. You can also require that certain stock movements be confirmed. This means that the warehouse worker must indicate that the physical transfer took place. Sometimes the quantity that should be transferred is not the quantity that is actually transferred. You can enter this difference when the transfer order is confirmed. With the confirmation of the delivery and the entry of differences, the system can ensure that the book inventory is the same as the physical inventory. How is a Transfer Order Created? You can create transfer orders by referring to another document, such as a transfer requirement, a delivery document, or a material document. You can also create a transfer order without referring to any other document. What Information Does a Transfer Order Contain? In order to carry out its function, a transfer order must contain a material number, the quantity to be transferred, where the material is located, and where the material is to be delivered. The information that the transfer order needs comes from several sources:  material master record  warehouse management movement type  strategies for finding the source or destination storage bins  user entries  source documents, such as transfer requirements and deliveries

How is a Transfer Order Structured? The transfer order consists of a transfer order header, which contains general information about the entire order, and one or more items. Transfer Order Header The transfer order header identifies the transfer order number and the date that it was created and confirmed. It also identifies the transfer requirement on which it is based and the movement type. If the transfer order has been printed, the Trfr order printed check box is marked.

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Transfer Order Item A transfer order contains one or more items. The number of items depends on how many storage bins the system accesses in order to reach the total quantity of goods needed by the transfer requirement (stock removal) or how many bins are needed to store the goods (stock placement). An item within a transfer order contains two or three subsections that identify the direction of the stock movement  out of a warehouse or from an interim storage area (the source of the stock). This subsection contains the storage bin and the amount of material that is being transferred from a storage area.  into a warehouse or an interim storage area (the destination of the stock). This subsection contains the storage bin and the amount of material that is being transferred into a storage area.  return to storage. The system generates a return subsection when a quantity remains after the material, in the desired quantity, is removed from a storage bin. This can happen if, for example, a full issue is defined for the source storage type, but the entire quantity has not be requested. The return quantity is returned to its original storage bin or transferred to another one. The transfer order number and item number are displayed at the top of the item screen. The item screen provides specific information about the movement of a quantity of material from a source storage bin to a destination storage bin. If the actual quantity is the same as the required quantity, the difference quantity will be zero. 13.5. Transfers into the warehouse Information about Stock Placements When stock is placed into the warehouse, it generally is transferred from the interim storage area for goods receipts. Information about the source (interim storage type, interim storage section, and interim storage bin) is recorded in the transfer requirement or the system determines it from the WM movement type. Searching for a Storage Type The system must now determine into which storage type the material should be placed. You define this information in the storage type search table. In the storage type search table, you can define a search sequence with up to ten storage types. Be sure to enter an e (for stock placement) in the Act. column. This means that the system uses the search sequence to find a destination storage type. The list of storage types is hierarchical, that is, the system searches for empty storage bins in the first storage type, then in the second storage type, and so on. The table entries

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that the system uses for this search depend on the movement type and/or the material being placed into storage. You can also group materials together by the storage type indicator so that the system uses the same search sequence and stores the group of materials in the same storage type or types. To implement this you define:  a storage type indicator in the material master record (the Placement Storage Type indicator field)  a storage type indicator in the storage type search (in the Type Indicator field) Reference to Movement Type Entries in the Ref column of the storage type search table influence storage type search according to movement type. To link a movement type to a storage type search sequence, you enter a reference number in the Reference Type Search column of the table displayed. This same number will also appear in the Reference storage type search field for each movement type selected. Access Optimization for Storage Type Search Strategies When storage type indicators are used and several materials with different stock categories (such as special stock) exist, the number of entries in the storage type search table can become very large. To decrease the number of these entries, you can define an access strategy for the storage type search table using the access strategy table. Hazardous Materials You can also influence storage type search according to hazardous material storage classes and water pollution classes. Searching for a Storage Bin Once the storage type has been determined, the system then searches within the storage type to find an appropriate storage bin in which the material can be placed. To find a storage bin, the system uses a search strategy that has been defined for the storage type. For each storage type you can define one stock placement strategy. Regardless of the put-away strategy, there are two other factors that affect how the system searches for empty storage bins. · storage section · storage bin type Both of these factors are independent of the strategy that is used for stock placement. Both can be used with all stock placement strategies with the exception of fixed bin strategy, for which storage sections cannot be used. Storage sections

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You can divide a storage type into several storage sections in which various materials can be stored. You can use these storage sections, for example, to ensure that frequently used materials ("fast-moving" items) are stored in the front of the warehouse while seldom used materials ("slow-moving" items are stored in the back of the warehouse. A storage type is divided into storage sections on the basis of storage bins. When you create a storage bin you assign it to a storage section. If storage section checking is active for the storage type, then the system searches in the storage type only for those empty storage bins in storage sections that have been allowed for the material being placed into storage. When you are creating a transfer order and manually enter a storage bin, then the system checks whether the bin is in a storage section that is allowed for the material. Storage bin type search In one storage type you may have storage bins of different sizes. When the system places goods in storage, it can search for a storage bin that will accommodate a specific storage unit type. When you create a storage bin you assign it to a storage bin type. In the table for assigning storage unit types to storage types, you can define up to ten storage unit types that can be accommodated in each storage type. Next you must assign the storage bin type to each storage unit type. In the storage bin type search table, you can define up to ten storage bin types that can be used for each storage unit type in a storage type. As a final step, you must activate the storage unit type checking for a storage type. The connection between a material and storage unit type checking is made in the material master record. You can define up to three different palletizations (storage unit type and number of units of material per storage unit type) for a material. If storage unit type checking is active for the storage type, the system first determines if the storage unit type for the material can be placed in the storage type. Next the system searches for an empty storage bin in the first storage bin type that can accommodate the storage unit type. If it does not find a bin, it then searches in the second storage bin type, and so on. When you are creating a transfer order and manually enter a storage bin, then the system checks whether the bin belongs to one of the allowed storage bin types. 13.6. Transfer out of the warehouse Information about stock removals When stock is removed from the warehouse, it generally is transferred to the interim goods issue storage area. This information about the destination (interim storage type, interim storage section, and interim storage bin) is recorded in the transfer requirement or

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Materials Management system

determines

it

from

the

WM

movement

type.

Searching for a storage type The system must now determine from which storage type the material should be placed. You define this information in the storage type search table. In the storage type search table, you can define a search sequence with up to ten storage types. Be sure to enter a (for stock removal) in the Act. column. The list of storage types is hierarchical, that is, the system searches for the material in the first storage type, then in the second storage type, and so on. An entry of *** for the storage type means that the system searches throughout the entire warehouse for the oldest stock. The table entry that the system uses for this search depends on the material Being removed from storage. You can group materials together by a storage type indicator so that the system uses the same search sequence and removes materials from the same storage type or types. To implement this you define: · storage types in the material master record (the Removal Storage Type Indicator field) · a storage type indicator in the storage type search table (in the Type Indicator field) Searching for a storage bin Once the storage type has been determined, the system then searches within the storage type to find an appropriate storage bin from which the material can be removed. To find a storage bin, the system uses a search strategy that has been defined for the storage type. For each storage type you can define one stock removal strategy.

13.7. Goods receipt The receipt of goods into the Warehouse Management (WM) system is generally initiated with a posting in the IM system. With the IM posting, the system assigns a quantity of material to a storage bin in an interim storage area and creates a transfer requirement in the WM system. Subsequently you create a transfer order based on the information in the transfer requirement. Using a predetermined search strategy, the system determines where in the warehouse the goods should be placed. With this transfer order the goods are transferred from the interim storage area to a storage bin in the warehouse. The warehouse worker confirms that the goods have been transferred. Any discrepancies between the quantity requested and the quantity transferred into the warehouse are

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recorded in the WM system and then cleared into the IM system. At this point, the goods receipt is finished. Goods Receipt Process You can also post goods receipts first in the WM system by creating a transfer order. (No transfer requirement is needed.) The IM system initially has no information about this goods receipt. Subsequently you record this goods receipt in the IM system. The following table summarizes the goods receipts by IM task, movement type, and the interim storage area to which the goods are posted. Goods Receipt for IM Task Movement Type Storage Area Purchase order For purchase order * 101 902 No purchase order Other * 501 902 In-plant production Other * 521 901 Inspection For purchase order * 101 902 Inspection release Transfer posting ** 321 922 * from Goods movement => Goods receipt menu ** from Goods movement menu

13.8. Stock transfers and posting changes Stock transfers in the Materials Management system include the physical movement of materials from:  one plant to another plant  storage bin to storage bin (internal transfers)  warehouse to warehouse  storage location to storage location For stock transfers within the same warehouse, you can create, manage and display information about the movement of stock from the time it is received until it leaves the warehouse using the Warehouse Management (WM) system. For stock transfers from one storage location to another storage location, the process begins in the Inventory Management (IM) system and is completed in the WM system.

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Reasons for Making Posting Changes Posting changes are made for several reasons:  to release stock from inspection into available stock  to convert blocked stock to inspection stock  to designate available material as inspection stock  to change a material number  to split available materials into two or more batches  to convert special stock, such as consignment stock or returned stock, into the company's own stock · to change ownership of stock in the same warehouse from one plant to another Posting changes are initiated in the Inventory Management (IM) system (as transfer postings) and subsequently carried out in the Warehouse Management (WM) system. When a transfer posting is carried out in the IM system, a posting change notice is created in the WM system. Also, two quants of equal negative and positive amounts are created in the posting change interim storage area - a negative quant for the material to be removed and a positive quant for the material to be added. You use the WM system to create a transfer order to process the posting change notice and clear the posting change area. When you process the posting change notice, the material can then be posted back to the original storage bin or transferred to another bin within the warehouse. The position change notice list Posting changes initiated in the IM system can be viewed by displaying the posting change notice list in the WM system. When retrieving this list, you can display all posting change notices that are still open and/or those that are partially or fully cleared. 13.9. Inventory The practice of taking an annual inventory count at the end of the fiscal year often requires an enormous effort for large warehouse complexes. The costs to a company are relatively high, and the physical counting process in the warehouse is labor intensive. In many factories, an annual inventory count would result in lost output because of the effort required. Therefore, law under certain circumstances allows several variations to the conventional annual inventory count. The Warehouse Management (WM) system supports the following inventory methods:  Annual inventory count (also called periodic inventory)  Continuous inventory  Continuous inventory during stock placement  Continuous inventory based on zero stock check  Cycle counting  Inventory sampling

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For a storage type, you can define either an annual or a continuous inventory count. You can also select one or more of the other types of inventory methods, such as an inventory based on stock placement or based on stock removal (zero stock check). Unlike the material-related inventory in the Inventory Management (IM) system, you use the WM system to carry out an inventory on a storage bin level for the warehouses managed by the WM system. The inventory is regarded as completed if an inventory was taken for every storage bin in the warehouse at least once during the fiscal year. 13.10. Storage unit management With SU management, the primary input parameter is the storage unit number. Since much of the physical activity within your warehouse consists of moving storage units, you can manage this activity in the WM system using SU numbers. When SU management is active in your warehouse, at any given time you can know where each storage unit is located, the amount of material contained in it and which operations have been processed or planned for it. Functions In addition to the capabilities already available using the Warehouse Management system, the activation of storage unit management in your system enables you to access several functions that are specifically designed for working with storage units. Using SU management, you can:  create homogeneous storage units  create heterogeneous (mixed) storage units  place materials into storage using an identification (ID) point  confirm storage unit movements You can enter a separate storage unit number for each transfer order item. ·

transfer storage units internally

You can create internal transfer orders based on the storage unit number to move individual storage units to another location within the warehouse.  add stock to existing storage units  display the contents of storage units  print documents to accompany storage units All of these functions are fully integrated for storage unit management within the WM system.

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14.0. CONSUMPTION BASED PLANNING The central role of material requirements planning is to monitor stocks and, in particular, to automatically generate order proposals for purchasing and production (planned orders, purchase requisitions, or delivery schedules). This target is achieved by using various materials planning methods which each cover different procedures. Consumption-based planning procedures are straight forward materials planning procedures with which you can achieve set targets with relatively little effort. Therefore, these planning procedures are used in areas without in-house production and/or in production plants for planning both B- and C-parts and operating supplies. In contrast to consumption-based planning, MRP without BOM explosion concentrates on the exact requirement quantities, which are entered in the system in the form of sales orders and material reservations. Any unplanned requirements can be determined by the forecast. MRP provides a good solution to planning finished products. The following is valid for both planning methods: The type of order proposal which is automatically generated during materials planning depends on the procurement type of the material. For materials that are produced internally, a planned order is always created. For materials procured externally, the MRP controller has the choice between creating a planned order or a purchase requisition. If he decides to create a planned order, he must

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then convert it into a purchase requisition and make it available for the purchasing department. The advantage of creating a planned order is that the MRP controller has more control over the order proposals. It is only once he has checked the planned orders and then converted them into purchase requisitions that the purchasing department can order the material. If he creates a purchase requisition in the first instance then it is immediately made available to the purchasing department, which then takes over the responsibility for material availability and warehouse stocks. Since requirements planning are usually carried out at plant level, all available stock in the plant (from now on described as available warehouse stock) is taken into account during planning. However, stocks from individual storage locations can be excluded from requirements planning or they can be planned independently. Such stocks are then not included in material requirements planning at plant level. On the other hand, consignment stocks from the vendor are always included in MRP. 14.1. Materials planning procedure The

following

procedures

are

supported

in

consumption-based

planning:

14.1.1. Reorder point planning In the reorder point planning procedure, the system compares available warehouse stock with the reorder level. If available stock falls below the reorder level, an order proposal is generated. The reorder level (also known as the reorder point) is made up of the sum of the safety stock plus the expected average material consumption within the replenishment lead time. Therefore, when determining the reorder level, you must take safety stock, previous consumption values or future requirements and the replenishment lead time into account. Safety stock must be set at a level which covers both excess material consumption within the replenishment lead time and the additional requirements which may occur during delivery delays. You must, therefore, take previous consumption or future requirements, and the vendor's delivery timeliness or that of production into account when determining the safety stock level. 14.1.2. Forecast based planning Like reorder point planning, forecast-based planning operates using historical values and forecast values as future requirements are determined via the integrated forecasting program. However, in contrast to reorder point planning, these values then form the basis of the planning run in forecast-based planning. The forecast, which calculates future requirements using historical data, is carried out at regular intervals. This offers the advantage that requirements, which are automatically

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determined, are continually adapted to suit current consumption needs. If, during the current period, material has already been withdrawn from stock, then the forecast requirement is reduced by the quantity of material that was withdrawn. This means that the quantity of the forecast requirement that has already been used is not included in the planning run again. You can specify the period split for the forecast (daily, weekly, monthly or per accounting period) and the number of periods to be included in the forecast individually for each material. It is possible, however, that the forecast period split is not specific enough for planning purposes. Therefore, for each material, you can determine that the MRP forecast requirement values should be divided according to a finer period split. You can also determine how many forecast periods are to be taken into account during requirements planning. For a monthly forecast, the requirements date would be set on the first workday of the month because, for planning, it is assumed that the total requirement must be available at the beginning of the period. You can then divide this monthly requirement into either daily or weekly requirements. The requirements quantities forecast by the system are used in the planning run to carry out the net requirements calculation. During this calculation, every period is checked to make sure that the forecast requirements are covered either by available warehouse stock, by planned receipts from purchasing or by production. If the requirements forecast by the system are not met by these above mentioned possibilities, then an order proposal is generated. 14.1.3. Time-phased planning If a vendor always delivers a material on a particular day of the week, it makes sense to plan this material according to the same cycle in which it is delivered, but displaced by the delivery time. This is possible with the time-phased planning procedure. If a particular material is to be planned using this procedure, you must set the MRP type for time-phased planning and you must enter the planning cycle in the material master record. You enter the planning cycle in the form of a planning calendar in the Planning cycle field. You must also define a planned delivery time and the Lot-for-lot order quantity as the lot-size key. You can also use the optimum lot-sizing procedures for time-phased planning. They are used here in the same way as in Reorder Point Planning. Materials that are planned using the time-phased planning technique are provided with an MPR date in the planning file. This date is set when creating a material master record and is re-set after each planning run. It represents the date on which the material is to be planned again and is calculated on the basis of the planning cycle entered in the material master record. For materials that are planned using the time-phased planning procedure,

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the two indicators, the total change indicator and the net change-planning indicator are irrelevant. Therefore, they are not set by the system even if changes that are relevant to the planning run are made. By using this planning technique, you can set the system so that it only plans materials on specific pre-defined days. For example, if you assign the same planning cycle to all the materials of a particular vendor, the system will always plan these materials on the same day. The purchase requisitions that are created in the planning run to cover material shortages can be processed, per vendor, by the MRP controller in the SAP purchasing system. If you use the SAP Merchandise Management System, the system proposes the planning cycle from the vendor sub-range when you create a material master record. The vendor sub-range contains all the goods of a particular vendor that, from a logistical view, can be planned similarly. You can also enter an MRP date during the planning run, meaning that you can bring the planning run forward to an earlier date, if necessary. For example, if the planning run is set for Monday, you can bring it forward to Saturday instead. 14.2. MRP Parameters 14.2.1. General Parameters There are parameters in the material master record that you can determine for every material, independent of MRP and lot-sizing procedures: Procurement type The procurement type is automatically suggested by the system depending on the material type. However, you can overwrite the default value. A material can be produced in-house, it can be externally procured or it can be partly produced in-house and partly procured externally. If both procurement types are possible for a material but you only want to specify one, then you must enter the appropriate indicator here. MRP group The MRP group, groups together materials from the planning point of view for allocating special control parameters for the planning run. The MRP group is defined in Customizing where it is also provided with the control parameters. Special procurement type Entering a special procurement type makes it possible for you to specify the procurement type "in-house production" or "external procurement" more exactly. For example, setting this indicator would make it possible for you to determine that an externally procured

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Materials Management should

be

procured

via

consignment

orders.

MRP controller In this field, you must enter a key for a single MRP controller or for a group of MRP controllers who/which is responsible for the planning of a material. In the future, you can process the MRP results according to the MRP controller. Purchasing group In this field, you must enter a key for a buyer or for a group of buyers who/which is responsible for purchasing the material. As a result, during a planning run, order proposals for externally procured materials can immediately be allocated to the appropriate purchasing group. ABC indicator With the ABC indicator, you can classify the material according to its consumption value. This indicator is used within logistics controlling for analysis purposes. It can also be automatically specified by the system. PPC Planning calendar With the planning calendar, you can define flexible period lengths for grouping requirements together and for determining procurement dates. To make this possible, you must select the lot-sizing procedure, Period lot size according to planning calendar and you must also specify a planning calendar. The requirements quantities are then grouped together into a lot according to the period that you determined in the planning calendar. The procurement date is copied from the planning calendar. 14.2.2. Parameters Dependent on the MRP Procedures As well as the general parameters described above, you must also determine the MRP procedure in the material master record according to which the material is to be planned. You do this by specifying the so-called MRP type. MRP types and meaning: VB VM VV EAS-SAP

Manual reorder point planning: with manual calculation of the reorder level and safety stock Automatic reorder point planning procedure: with automatic calculation of the reorder level and safety stock Forecast-based planning: 90

V.Jayaram

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Materials Management with forecast for planning total stock Time-phased planning Time-phased planning: with automatic calculation of reorder level MRP without BOM explosion

VR R2 PD

After you have specified the MRP procedure, you enter the parameters dependent on the planning procedure that you selected. An overview of these parameters is provided in the following table. Parameters Dependent on the MRP Type For... You must maintainYou can maintain VB reorder level safety stock VM reorder level safety stock VV safety stock reorder level, but does not make sense VR planning cycle safety stock R2

planning cycle

PD

reorder level safety stock reorder level safety stock reorder level, but does not make sense

Planning cycle Key that determines on which days the material is to be planned and ordered. If a vendor always delivers a material on a certain days of the week, it makes sense to carry out the planning run according to the same cycle, but displaced by the delivery time. The planning cycle is entered as a planning calendar in the system. It is required for timephased planning. Safety stock The safety stock is used to prevent material shortfalls during the stocking-up period which may occur if consumption is unexpectedly high or if delivery dates are not kept. You have the choice between manually determining the safety stock or letting the system automatically determine it for you when carrying out the forecast. Safety stock forms a part of the reorder level and is not included in requirements planning. Service level If the safety stock level is to be calculated by the system then you must specify a service level. This level indicates the percentage of existing requirements which is to be covered by warehouse stock. The higher you specify the service level, the higher the system will

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calculate the safety stock level in order to compensate for additional consumption or delays in delivery. Reorder level The reorder level is only relevant for reorder point planning. In automatic reorder point planning, the system calculates the reorder level during forecasting. If a material master record is recreated, the reorder level must always be entered manually even if it is overwritten again by the system as is the case in automatic reorder point planning. It is thus possible to plan a material even if no forecast has yet been carried out for it. If you enter a reorder level for time-phased planning, the system uses a mixture of the two planning procedures, reorder point planning and time-phased planning: materials that are planned using time-phased planning are not only included in the planning run on the MRP date, but they are also replanned if material stock falls below the reorder level due to a goods issue. The following fields are only significant if the forecast must be carried out because of the MRP type which was chosen. For example, this is the case for automatic reorder point planning, for forecast-based planning, and for time-phased planning. Period indicator The period indicator specifies the time period for which the system is to store historical or forecast values. You can define the period indicator when maintaining the MRP parameters as well as when you are maintaining the forecast parameters. Fiscal year variant You must enter the fiscal year variant if you want to create a flexible period length equal to the accounting period for the material. Splitting indicator If you specify a splitting indicator, the system will only take a certain number of periods into account for requirements planning and it will also split them into smaller time periods (as long as the period indicator is not set to daily quantities). The splitting indicator is irrelevant for reorder point planning. 14.2.3. Parameters for Scheduling In scheduling, the system determines the basic dates for all the order proposals that it created during material requirements planning. To be able to plan these order proposals exactly, the following parameters are important when you are maintaining the material master record: Scheduling margin key The scheduling margin key is used to allocate floats to the material for calcualating basic

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dates and for carrying out lead time scheduling for the planned order - for materials that are produced in-house. The float is the opening period for determining basic dates and the float before production and the float after production for lead time scheduling. You maintain the floats in Customizing and they are calculated in workdays. Planned delivery time The planned delivery time determines the time required to obtain a material by means of external procurement. You must only enter the planned delivery time if the material is externally procured. In-house production time The in-house production time determines the length of time required to produce an assembly or a finished product. The in-house production time is independent of the order quantity. You must only enter this indicator if the material in question is to be produced in-house. Goods receipt processing time The goods receipt processing time specifies the time required to inspect the material and to transfer it to stock. It represents the time span (in workdays) between the receipt of the goods and the inward stock movement. The system also takes goods receipt processing time into account during scheduling. 14.2.4. Parameters for Calculating the Lot Size Once you have specified an MRP procedure and the appropriate parameters for this particular procedure, you must also enter the procedure according to which the system is to calculate the lot size for material requirements planning. Depending on the selected lot-sizing procedure, you can/must specify either one or several of the parameters given in the following Table: Parameters required for lot-size calculation Do you use... Lot-for-lot order quantity

You must maintain

Fixed lot size Fixed lot size Replenish up to maximum stock quantity Period lot size

You can maintain Minimum lot size Maximum lot size Rounding profile Rounding value Maximum stock Minimum lot size Maximum lot size Rounding profile Rounding value

Optimum lot size Lot size independent costs Minimum lot size Storage costs indicator Maximum lot size Rounding profile Rounding value

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Period and optimum lot-sizing procedures are irrelevant as far as manual reorder point planning is concerned as these two procedures need the future requirement values for lotsizing which can only be determined by using the forecast. The lot-sizing procedure, "replenish up to maximum stock level" can only be used for reorder point planning. Minimum lot size By setting a minimum lot size, you are instructing the system (during lot-size calculation) to create an order proposal for at least the amount which is specified here even if a smaller quantity would have been sufficient. Maximum lot size By entering a maximum lot size, you can determine that during the lot-size calculation, the system will not exceed the quantity specified here for order proposals. Rounding profile You use the rounding profile to instruct the system to adjust the order quantity to a deliverable unit. In Customizing, enter a threshold value per deliverable unit from which the system is to round up to the next unit. Rounding value By entering a rounding value, you are instructing the system to round up the receipt quantity to a multiple of the value specified here. For the "fixed lot size with splitting and overlapping" procedure, the rounding value is also used to determine the partial quantities into which the total quantity of the planned order (field fixed lot size) is split. Fixed lot size By entering a fixed lot size, you are instructing the system to create order proposals for the amount of the fixed lot size specified here. It only makes sense to use the fixed lot size if you selected either the "fixed lot-sizing procedure" or the "fixed lot size with splitting/overlapping". Cycle time If you select the lot-sizing procedure, "fixed lot size with splitting and overlapping", then you must also enter a cycle time. The cycle time specifies the time interval in which the planned orders, which are created using this lot-sizing procedure, may overlap. Maximum stock level In this case, the system will create an order proposal for the amount that results from subtracting the available stock from the maximum stock level during the lot-sizing procedure, "replenish up to maximum stock level". Lot size independent costs

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The system only requires the lot size independent costs for the optimum lot-sizing procedure. In this case, the most economical lot size is determined by means of the lot size independent costs and the storage costs Storage costs indicator The system only requires the storage costs indicator for optimum lot-sizing procedures. With this indicator, you can determine the storage cost percentage which the system uses during the lot size calculation. 14.2.5. Parameters for storage location MRP If you want the system to treat certain storage locations as independent units during a planning run, then you must specify this in the material master record for the storage locations in question. To do this, you must enter the storage location in question in the Organizational Levels/Profiles pop-up window and then you must enter the following parameters in the MRP 3 data screen: MRP Indicator By determining the MRP indicator, you are instructing the system how to treat the storage location during requirements planning. You can exclude the storage location from MRP or it can be replenished with goods from the plant warehouse. Reorder level and replenishment quantity You only have to maintain these fields if storage location stock is to be replenished by plant stock. If storage location stock is less than the reorder level which you determined then the system will create a stock transfer reservation from plant stock to storage location stock for the replenishment quantity which you specified. 14.3. Forecast When a series of consumption values is analysed, certain patterns can usually be detected. From these patterns it is then possible to differentiate between various forecast models:  Constant  Trend  Seasonal  Seasonal trend A constant consumption flow applies if consumption values vary very little from a stable mean value. With a trend model, consumption values fall or rise constantly over a long period of time with only occasional deviations. If periodically recurring peak or low values, which differ significantly from a stable mean

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Materials Management are

observed,

it

is

a

case

of

a

seasonal

consumption

flow.

A seasonal trend consumption model is characterized by a continual increase or decrease of the mean value. If none of the above patterns can be detected in a series of past consumption values, then we have an irregular consumption flow. 14.4. Maintaining MRP Parameters You can maintain MRP parameters and forecast parameters using profiles. A profile is a collection of information used to configure certain objects. It stores standard information that you need repeatedly in almost identical combinations when maintaining different objects. Thus, a profile simplifies data entry and data management. In a profile you specify;  which fields are filled with values when data on an object is entered,  which values these fields contain and  which of these values can be overwritten (default values) and which cannot be overwritten (fixed values). In the material master, the objects are the material master records and the object data is the MRP or forecast data. There are two kinds of profile: · ·

MRP Forecast

profile profile

You can assign a profile to a material master record when you create it. This has the effect that fixed values that are copied from the profile into a data screen cannot be changed in the material master record. By contrast, you may overwrite default values. The values are written in the material master record when you save it. 14.5. Safety stock and reorder level If a warehouse that stores material has to be ready for delivery at all times, then there has to be a high level of safety stock in this warehouse, as forecasting error cannot always be ruled out. This would also entail a high level of warehousing costs. The level of safety stock depends on the service level you select, on the replenishment lead time and on the accuracy of the forecast. In order to keep the safety stock and therefore the storage costs as low as possible, the MRP controller usually specifies a service level for each material. From a mathematical point of view, the service level represents an organization's ability to avoid a shortfall occurring during replenishment lead time. If you opt for a relatively high service level, then the safety stock level calculated by the

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system will also be high. If you opt for a low service level, then the safety stock level will also be low. The replenishment lead time refers to the in-house production time for in-house production and the planned delivery time for external procurement. It represents the time between the initiation of a procurement procedure and transferring the material into the warehouse. The replenishment lead time is stored at plant level in the material master record by the MRP controller. Since the probability of a shortfall is higher in a longer period, the safety stock level must also be set higher for long replenishment lead times. Finally, the safety stock level also depends on the accuracy of the forecast. If the forecast deviates greatly from the actual consumption values, then the safety stock level will also be unusually high. In addition to the safety stock level, the system recalculates the reorder level for materials which are subject to automatic reorder level adjustment. The reorder level is the sum of the safety stock and the forecast requirement within the replenishment lead time or the overall lead time for materials produced in-house. The system compares "static" availability during material withdrawal; that is current availability, without taking future requirements into consideration, with the reorder level. In other words, it compares the remaining stock with the reorder level. If remaining stock falls below the reorder level, then the system marks the material for the planning run by making an entry in the planning file. During the next planning run, the system automatically generates a purchase requisition or a planned order for the material. 14.6. Planning results Depending on the creation indicator, the system creates MRP lists during the planning run. These lists contain the planning results for the material. The MRP list always displays the future stock/requirements situation at the time of the last planning run and it also provides a work basis for the MRP controller. The MRP list is stored in the system until it is either deleted manually or replaced by the new list from the next planning run. Each MRP list is divided into a header and items. In the MRP header material data is recorded, such as the material number, the plant, and MRP parameters, for example. The items, on the other hand, contain information on the individual MRP elements (planned orders, purchase orders, reservations, sales orders, and so on). The individual columns for the items include the MRP date, data concerning the MRP element (for example, the short text, the number, the item, and so on), the key to the exception message, the rescheduling date, receipts and requirements, as well as the available quantity which represents planned warehouse stock. The items can be grouped together into individual segments according to the different planning types. Therefore, for example, you can have two segments in the MRP list for

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storage location MRP: firstly, a segment for net requirements calculation including all the elements, for which net requirements calculation was carried out at plant level, and secondly, a segment for storage location MRP for elements that are affected by the storage location. Net requirements calculation is carried out separately for each segment. 14.7. Stock/requirements list In the stock/requirements list, the most up-to-date development of stocks and requirements is displayed. The layout of the list on the screen is the same as that of the MRP list. The main difference between the MRP list and the stock/requirements list is that each time the stock/requirements list is called up, the system re-reads the various MRP elements and displays the most up-to-date situation. As a result, you always see the most recent availability situation for the material in the stock/requirements list whereas the MRP list reflects the stock and requirements situation at the time the last planning was carried out and changes which have taken place after the planning date are not included. 14.8. Planned orders A planned order shows a planned receipt for a particular material in a plant. Basically, it specifies when the receipt is to take place and the quantity of goods that is to be received. Planned orders are generally created automatically during the planning run. Here, the system determines the materials to be procured automatically and it also calculates the requirement quantities and dates. Planned orders can also be created manually by the MRP controller. In this case, the MRP controller determines which material is to be procured, how much is to be procured when it is to be procured and whether externally or internally. Planned orders are converted into production orders in the case of in-house production and they are converted into purchase requisitions in the case of external procurement. A planned order has the following features:  It is an internal document that is not used outside the company and it is not binding in any way. It is purely a purchase order proposal from MRP which is used for covering demand and which can be changed at any time.  It serves the purpose of an order proposal for external as well as for internal procurement. The procurement source is determined either during the creation of the planned order or when processing the planned order.

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Materials Management It can generate dependent requirements and can be used in the capacity calculation.

A planned order consists of a header and one or more items.

15.0. MATERIAL LEDGER A ledger in accounting is a framework for displaying transaction figures in a way that is relevant for certain reporting or evaluation purposes. The Material Ledger is a form of sub ledger accounting for materials with a material master record in the R/3 System. The Material Ledger contains material ledger records for materials, distinguished by their material numbers along with the valuation area and valuation type (in split valuations). Each material ledger record collects data from transactions relevant to valuation in order to calculate a price for valuating this material. A material ledger record can contain prices in up to three currencies. The material ledger supports:  New price control methods for material valuation that allow you to control when and how new prices are to be calculated. For example, you can keep constant material price constant for a certain period of time. This is of particular importance in cost accounting, because values for constant material prices are more meaningful than values that refer to constantly fluctuating material prices. The material ledger supplies information about how new prices are calculated, which postings were made to a material and which transactions had an effect on the new prices.  The possibility of simultaneously storing inventory values for a material in three currencies, taking historical exchange rates into consideration. This possibility is important when preparing balance sheets for corporate groups operating in more than one country.

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15.1. Price Control The R/3 System contains two price controls for material valuation; they are distinguished via a price control indicator in the material master record for each material. The price control indicators are: · Sprice control using a standard price · Vprice control using an average price You can enter the price control indicator for each material and valuation area in the material master record. The R/3 System behaves differently for these price controls depending on whether the Material Ledger is active in a specific valuation area:  If the Material Ledger is not active, materials with S price control are valuated using the standard price, and materials with V price control are valuated using the moving average price.  If the Material Ledger is active, materials with S price control are valuated using the standard price, and materials with V price control are valuated using the periodic unit price. 15.2. Periodic Unit Price A new Periodic Unit Price is calculated when you carry out material ledger closing for a material. If the material has S price control in its master record, the system uses the standard price for valuation, and the new periodic unit price is purely informational. If the material has V price control, the system uses the new periodic unit price for valuation. The system calculates the periodic unit price in parallel in three currencies. How the system calculates a new periodic unit price is described as follows: 1. The stock at the time of the material ledger closing (closing inventory quantity) is valuated with the periodic unit price valid till now. 2. Differences between the resulting inventory value and the actual value resulting from postings that were collected in the material ledger are taken into consideration in such a way that the closing inventory value is adjusted. Based on these differences, the system changes the inventory value proportional to the inventory quantity present at the time of material ledger closing. If there is insufficient inventory to apply the total difference (inventory shortage), the portion of the difference not applied is posted to the price difference account (transaction key PRY). 3. The adjusted closing inventory value is divided by the closing inventory quantity (number of units) to determine the new periodic unit price. Examples The following examples show you how the periodic unit price is calculated in different cases. The examples refer to differences arising from invoice receipts.

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Invoice Receipts Quantity is Less than the Goods Receipts Quantity If the total invoice receipts quantity (IRQ) is less than the total goods receipts quantity (GRQ) or if these quantities are equal, the system calculates the difference in the ending inventory value as follows: IRQ x (average purchase price - periodic unit price) Invoice Receipts Quantity is Greater than the Goods Receipts Quantity If the total invoice receipts quantity (IRQ) is greater than the total goods receipts quantity (GRQ), the system calculates the difference in the ending inventory value as follows: GRQ x (average purchase price - periodic unit price) 15.3. Material ledger closing: overview Material ledger closing:  valuates material stocks in up to three currencies  calculates a new periodic unit price in up to three currencies  releases valid, marked standard cost estimates  activates valid, future valuation prices  facilitates manual price changes You can carry out material ledger closing for a single material, for all materials or for only certain materials in a plant. 15.3.1.Materials with S Price Control When you carry out and save the material ledger closing, the prices of materials with standard price control remain unchanged except in the following cases: 

If a standard cost estimate that is valid on the day of material ledger closing exists for a material, this standard cost estimate is released. The results of the standard cost estimate therefore become the current standard price. The translation of the price from the standard cost estimate takes place at the time of the marking.



If a marked standard cost estimate does not exist for a material, but rather a future valuation price that is valid on the day of the material ledger closing, this price becomes the current standard price.

The translation of the future valuation price takes place at the time of entry or when the future valuation price was last changed. If new standard prices arise, the inventory values are calculated in the currencies. The standard price in local currency is stored in the material master record. The standard prices in local currency and in the additional currencies are stored in the material ledger master data.

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The system calculates the periodic unit price as statistical information. The new (statistical) periodic unit price in local currency is updated in the material master record. The new (statistical) periodic unit price is updated in local currency and in the additional currencies in the material ledger master data. The material continues to be valuated with the standard price in local currency. 15.3.2. Material with V Price control When you carry out and save material ledger closing, the system also calculates a new periodic unit price in up to three currencies and also calculates the inventory values in these currencies. The system writes the new periodic unit price in local currency to the material master record. The new periodic unit prices in local currency and the additional currencies are also written to the material ledger master data. The material is valuated using the new periodic unit price in local currency. The periodic unit price remains constant until the next material ledger closing. 15.4. Material ledger closing: when? When material ledger closing is carried out depends on the indicator controlling the material ledger closing: · 1 - periodic · 2 - transaction-related The Closing control indicator is displayed in the material master record and in the material ledger header. The periodic closing is currently the standard setting. It is valid for all materials in a valuation area. 15.4.1. Periodic closing With periodic closing, you can define how often a new periodic unit price is to be calculated for a material or for all materials in a valuation area. In this way, the periodic unit price can remain constant for a day or a week, for example. You should close the material ledger for all materials with valuation-relevant transaction data at least once every accounting period. You should do this before you carry out the period closing program. If a material is not closed in this time, price differences from revaluation and postings to the period before the previous period cannot be taken into account in the material's inventory value at the next material ledger closing. 15.4.2. Transaction Related Closing

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With transaction-related closing, a new periodic unit price is automatically calculated and updated after each valuation-relevant transaction. The price corresponds to the moving average price and has the advantage that you can store it in up to three currencies. 15.5. Material Ledger Closing Posting Movements for a material that is valuated with the material ledger are always carried out using the valuation price. If the price control indicator in the material master record is S, movements for the material are carried out with the standard price. If the price control indicator in the material master record is V, movements for the material are carried out with the periodic unit price. When postings such as invoice receipts occur, the prices can differ from the valuation price. These differences are collected and totaled by the material ledger and taken into account during material ledger closing.

15.5.1. Before material ledger closing Differences between the valuation price that occur when postings are made are collected the following categories: ·

GR/IR (goods receipt/invoice receipt)

Differences between actual values and the valuation price that may occur due to invoice receipts are collected here. Differences can occur between a goods receipt and an invoice receipt, because the invoice price is unknown at the time of goods receipt. Values from invoice receipts are posted to a GR/IR clearing account and the offsetting entry is made in the vendor account. ·

Value Variances

Differences between actual values and the valuation price that can occur due the to the following are collected here:  goods receipts for the production order  transfer postings  goods issues  initial entries of inventory data with a specified amount  deliveries free of charge  inward movements from consignment inventory to the company's own stock  purchase order-related goods receipts Values from goods receipts are posted to a GR/IR clearing account; the offsetting entry takes place in the material inventory account. If the the order price differs from the valuation price in the goods receipt, the system posts an offsetting entry to the material stock account and the price difference account (transaction key PRD). Such differences are totaled in the material ledger and indicated as to be closed.

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With goods receipts that are not based on a purchase order item, price difference are posted directly to the price difference accounts. ·

Posting to a Prior Period

Variances are collected here when a posting is made to the previous period using a valuation price other than the one in the current period. 15.5.2. At the material ledger closing At material ledger closing, the system takes the differences arising in the above categories into account, depending on the price control of the material. If you carry out material ledger closing for a single material (without saving), you can display which postings the material ledger would make and with what amounts if you were to save the material ledger closing at this time. Materials with S price control (standard price) The system calculates for each material, the balance on the GR/IR clearing account and posts this amount to a price difference account (transaction key PRY). Differences that were collected in the Value variances category were posted to various price difference accounts before material ledger closing. These postings are not changed. Differences that were collected in the Posting to a prior period category were posted to the revaluation account before material ledger closing. These postings are not changed. A

new

periodic

unit

price

is

calculated

for

statistical

information.

Materials with V price control (periodic unit price) The system calculates the balance on the GR/IR clearing account and posts this amount to the material stock account in proportion to the current inventory quantity. The portion of the balances with which the material inventory cannot be debited are posted to a price difference account (transaction key PRY). Differences that were collected in the Value variances category were posted to various price difference accounts before material ledger closing. These postings are offset in total against a separate price difference account at material ledger closing (transaction key PRY). The system calculates the balance and posts this amount to the material stock account in proportion to the current inventory quantity. The portion of the balances with which the material inventory cannot be debited are posted to a price difference account (transaction key PRY). Differences that were collected in the Posting to a prior period category were posted to the revaluation account before material ledger closing. The system calculates the balance on this account and posts this amount to the material stock account in proportion to the EAS-SAP

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current inventory quantity. The portion of the balances with which the material inventory cannot be debited are posted to a price difference account (transaction key PRY). The postings to the material stock account result in a new periodic unit price for the material, found by dividing the inventory value by the inventory quantity. 15.6. Multiple Currencies The system stores valuation data for a material in its material ledger in up to three currencies. You specify in which currencies the system stores this valuation data in Customizing for Valuation and Account Assignment. When you, for example, post an invoice receipt, the system translates the amount into the other currencies specified using the current exchange rate. This means that the Material Ledger has information based on historical exchange rates. You can display and maintain current exchange rates either in Customizing for Financial Accounting or by choosing the menu options Accounting => Financial accounting => General ledger => Environment => Current settings. If information already exists in more than on currency outside of the material ledger, the values with currency types corresponding to those of the material ledger type are transferred. A production order or a standard cost estimate can, for example, contain information in company code currency and in controlling area currency. If the material ledger stores both of these currency types, the values are not converted, but rather transferred to the material ledger when the production order is settled or the standard cost estimate is marked. The system stores the different currency values in the material ledger record. During material ledger closing, the system totals these values separately in each currency and calculates a separate periodic unit price in each currency. This method means that inventory values and prices for materials with V price control are calculated independently in the different currencies. The system calculates the periodic unit price in parallel in three currencies. The system does not translate the periodic unit price itself. The values from the transactions are translated with the exchange rate valid at the time of the transaction and collected in the material ledger. At material ledger closing, a new periodic unit price is calculated for every currency. The periodic unit price can therefore rise in one currency and fall in another at closing depending on exchange rates on different days.

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