Procurement

Main Process

 

Creation of Purchase Requisitions

A purchase requisition is a request or instruction to Purchasing to procure a certain quantity of a material or a service so that it is available at a certain point in time. Requisitions can be created either directly or indirectly.

„Directly“ means that either someone from the requesting department or from a purchasing department enters a purchase requisition manually. The person creating the requisition determines what and how much to order, and the delivery date. Direct (manual) creation of purchase requisitions may happen with or without master records, via access to purchasing catalogs or via referencing technique. Referencing technique saves time especially for complex requisitions which requires a lot of manual data entry. The user can reference either to existing requisitions, to templates (general purchase requisition templates as well as specific templates for service specifications – so called MSS Model Service Specifications).

„Indirectly“ means that the purchase requisition is initiated via another SAP component. Indirect creation may happen via materials planning and control, via a network (from component PS Project System), via maintenance orders (from the components PM Plant Maintenance and Service Management), via production orders (from the component PP Production Planning and Control) or via a shopping cart (from components EBP Enterprise Buyer Professional).

Purchase requisitions can be subject to a release (clearance or approval) procedure.

Manual creation of Shopping Carts

Empowers employees to create and manage their own requisitions for products or services. It relieves your purchasing department of this administrative burden while making the procurement process both faster and more responsive. Providing catalogs of the most frequently ordered materials ensures that employees can easily manage their own requisitions in accordance with your organization's rules.

When employees have filled their shopping cart, they can either place an order straight away or hold it for subsequent completion. Users can check the status of their shopping at any time.

From Demand to Purchase Order

• Sourcing: The source determination facility helps to find the most suitable source for a certain requirement from the large volume of data that is available, i.e. it suggests a suitable outline agreement or vendor for ordering purposes. As a rule, a system will contain a large number of vendors and outline purchase agreements representing external sources of supply (external procurement), as well as plants belonging to your firm representing internal sources of supply (internal procurement).
  
  The following objects represent the basic data upon which the source determination process for requisitions and purchase orders depends: Outline Agreement, Info Record, Plant, Quota Arrangement and Source List. The source of supply of a requested material can be determined automatically, by searching for respective sources of supply in the background. If a unique source of supply can not be determined, the system does not assign a source at all. The source must then be assigned manually by a user in an online process.
• External Sourcing: Issuing a one-time purchase order or determining a new source through the more time-consuming process of requesting and processing quotations are functions that will often only take place after discovering that there is no suitable source for a certain material or service in the system. ERP offers eSOA based interfaces which allows to send a demand to an external sourcing platform (e.g. via SAP SRM Bidding Engine). Triggering an external sourcing process may happen automatically via customizable settings or manually by decision of a user. After the source of supply is determined externally, all follow on activieties (e.g. creation of outline agreements and purchase orders) will happen in SAP ERP.
• Conversion of Requisitions to Purchase Orders: Requisitions that have been assigned to sources can automatically convert into purchase orders. This function can be performed either online or in the background. During conversion, the system attempts to consolidate as many requisition items as possible to form one purchase order. Usually, one PO whose contents can be regarded as belonging together is created for each purchasing organization, vendor, and contract.
  
  If the system is unable to complete the source determination and further processing functions for all items (e.g. due to missing data or the absence of unique sources), it generates a list of unprocessed items which needs to be processed manually.

Purchasing Optimization

In Purchasing Optimizing, the system combines the quantities in open purchase requisitions and purchase orders and rounds off the total quantity. This enables you to make best possible use of the transport capacity available.

• Load Building is used to, minimize transport costs by making best possible use of the means of transport and achieve more favorable purchase price conditions by ordering whole truck loads. The system attempts to optimize quantities for procurement and converts existing purchase requisitions to purchase orders, if necessary generating new purchase orders. Several purchase orders are combined in a load under the one collective number.
• Investment Buying - helps you decide whether you could best cover future requirements by purchasing articles now that are due to increase in price. The purpose of investment buying is to buy efficient quantities of suitable articles just before the price goes up.

Purchase Order Types

You can procure materials for direct consumption or for stock. You can also procure services. Furthermore, the special procurement types "subcontracting", "third-party" (involving triangular business deals and direct-to-customer shipments) and "consignment" are possible. You can use purchase orders to cover your requirements using external sources (i.e. a vendor supplies a material or performs a service). You can also use a purchase order to procure a material that is needed in one of your plants from an internal source, i.e. from another plant. Such transactions involve longer-distance stock transfers. The activities following on from purchase orders (such as the receipt of goods and invoices) are logged, enabling you to monitor the procurement process.

You can use purchase orders for once-only procurement transactions. If, for example, you wish to procure a material from a vendor only once, you create a purchase order. If you are thinking of entering into a longer-term supply relationship with this vendor, it is advisable to set up an outline agreement, since this usually results in more favorable conditions of purchase.

Because not all materials or services to be procured justify the effort involved in individual monitoring, you can also create a purchase order with an extended, predefined validity period and a value limit. (You may wish to do this when procuring office supplies, for example.) This type of purchase order is similar in nature to the "contract". In this case, you need not specify the individual materials or expend any effort with respect to goods receiving activities. You can also reduce the amount of work involved in invoice verification to a minimum by employing automatic processes.

Procurement Using Scheduling Agreements

Working with scheduling agreements can shorten processing times and reduce the amount of paperwork you are faced with. One delivery schedule can replace a large number of discrete purchase orders or contract release orders. Inventories can be reduced to a minimum. You can carry out your manufacturing operations on the Just-in-Time (JIT) principle.

Your vendors require shorter lead times. Smaller deliveries are required, which can be spaced out over a longer period. Delivery scheduling enables vendors to plan and allocate their resources more efficiently.

Scheduling agreement releases provide information to vendors regarding the quantities of a material that are to be delivered and the desired delivery dates. A scheduling agreement release enables you to record the current status of the lines of a delivery schedule stored in the system for a scheduling agreement item and then transmit this status to the vendor. In repetitive manufacturing involving large quantities, it is desirable for releases to be generated against a scheduling agreement automatically. In the ERP System, you can use the application component PP Material Requirements Planning for this purpose. Schedule lines can also be created manually.

Order Management

Complete purchase orders can then be sent to the supplier as a printout, or by e-mail, fax or XML. The communication channel is defined in the vendor master and can be overwritten individually in the purchasing document. Processing the purchase order via SAP Supplier Self-Services or SAP Supply Network Collaboration allows for enhanced and automated order collaboration processes not only for order and order confirmation processes but also for follow up processes like Advanced Shipping Notifivation (ASN) Goods Receipt and Invoice processing.

Several types of purchase order responses can be received from the supplier (for example, order acknowledgements, loading confirmations, or shipping notifications). Depending on the rules that have been customized, reminders are sent automatically if follow-on activities (for example, a confirmation or delivery by the supplier) are missing or delayed. If the order confirmation from the supplier deviates from the original purchase order data (e.g. due to changes in quantity or delivery date), a workflow is triggered to the inbox of the buyer. These allows the buyer to take appropriated actions like accepting the changed data or canceling the original order and ordering by a different supplier.

Functions for transportation management and foreign trade are available for both the inbound and outbound sides. Monitoring functions provide an overview of the status of all running procurement processes.  

• Goods Receipt

The confirmation of the quantity received is created centrally and forms the basis of the information flow to the planning and purchasing departments. These departments can consider the new stock or requirement situation and see the receipt in the order history. If the receipt is relevant for warehouse management, the receipt confirmation is linked to physical inbound processing. The receipt confirmation automatically triggers the material valuation and creation of documents for accounting. Documents for controlling are also created if necessary.

• Service Entry Sheet

This process is used to confirm working times, materials used, and expenses for services performed. To simplify the task of confirmation, you can plan these confirmation items in a service process (for example, a service order) or an in-house repair order. The field service representative then references the process or order and copies the relevant planned items to a service confirmation document.

Confirmation data is automatically posted to integrated SAP ERP systems to enable an update of stock data, working times, and controlling data.

When services are rendered, a Service Entry Sheet has to be created. According to the purchasing policies on the degree of supplier integration, you can choose two ways of creating a Service Entry Sheet.

The first option is to transfer the workload of entering the Service Entry Sheet data to the supplier or the respective service agent using Supplier Self-Services.

The second option is that a clerk in the buying organization enters the performed times and expenses according to an information given by the service agent.

After services that have been performed have been recorded in the service entry sheet, one or more responsible persons can check that the work is satisfactory and formally accept the services. The process of service acceptance can be separated from that of service entry in order to maintain the dual control principle. However, it is also possible to have entry and acceptance carried out by the same individual or department in your enterprise.

• Returns handling

Should the delivered goods turn out to be faulty or damaged, you can return either the entire or partial quantity to the supplier. In the case of an existing goods receipt, you can return either parts of single items or all items to the vendor.

Invoice Verification

Incoming invoices can be received electronically or entered manually.

The logistics invoice verification checks incoming invoices for correctness in terms of their content, prices, and arithmetic, thus defining the basis for the payment run. The price and conditions are compared to the conditions in the purchase order, or the invoiced quantity is compared to the received quantity. If differences exceed customized limits, the invoice is blocked for payment automatically. Tax calculation and settlement of delivery costs are also integrated.

You can park invoices if you want to involve several persons or departments in the invoice verification process. Workflow features help to control this process.

Invoices that have been blocked can be released for payment using a monitor function. The automated release of invoices for which the blocking reasons have been clarified is also possible. Workflow features support the release process.

Evaluated Receipt Settlement (ERS)

ERS is a procedure for generating and settling invoices automatically. Using Evaluated Receipt Settlement (ERS) means that you have an agreement with your suppliers that they do not create invoices for ordering transactions, but you post them yourself based on the information contained in purchase orders, goods receipt and service entry documents. Thus, ERS has the following advantages:

• Purchasing transactions are closed more quickly.
• Communication errors are avoided.
• There are no price and quantity variances in Invoice Verification.

Invoicing Plan

The invoicing plan is a utility allowing you to specify when and for which amount you wish to create invoices. The creation of the invoice is independent of the receipt of the goods or the service (service entry).

In agreement with your vendor, you can have invoices created automatically on the basis of invoicing plan data and initiate their payment. In this case, the system employs the Evaluated Receipt Settlement (ERS) process.

Managing Catalog Content

Catalog Data Search

As a catalog user, you can use this business process to search for select items in the UI of the SRM-MDM Catalog. This is supported through several operators, which can be used for your search such as contains search, drill-down search, AND/OR search. The end users can do comparisons of several records and they can move their records to the Preview before transferring them to the planning or the purchasing applications. Within SAP ERP users have access to purchasing catalogs in various applications (e.g. during creation of plant maintenance work orders, during planning of projects or during purchase requisition and purchase order creation. With the support of relationships the user can search for a product and as a result gets related accessories or kits, which then can be selected as well for the convenience of the user.

Supplier Managed Content

You can use this business scenario to move the responsibility of managing catalog data from your own organization to the supplier. This means the supplier manages and changes catalog data content and uploads the data to the SAP SRM-MDM Catalog.

Sanctioned party list screening is a process that checks to ensure trading partners are not designated as restricted by any particular agencies. It is fully integrated into the outbound and inbound business processes and allows for check against multiple lists.

Import Control enables the tracking, management and assignment of import licenses required by law. It checks the availability of necessary import licenses and tracks classification of licensable materials. Licenses can be assigned to products and/or specific business partners. Depending on the defined type of license, the system performs a value and/or quantity depreciation.

Development Collaboration

Integrates all business partners in the development process, including designers, suppliers, manufacturers, and customers. It takes advantage of XML-based Web standards to communicate information such as product structures, project plans, documents, or CAD files across virtual development teams. All functions mentioned below are part of the Collaboration Folders (cFolders) application.

• Hierarchical Structuring: Allows you to collect and structure product and project information in a logical collaboration-based framework. You can organize and locate information quickly and easily and create folders in any hierarchical sequence you wish.
• Authorization Concept: The object-oriented authorization concept is optimized for work in dynamic project teams.
• Document Versions: A wide variety of objects/documents can be assigned to any folder, including office documents or CAD drawings. The version control mechanism ensures that all collaboration partners can track the change history of a document.
• Document Handling: Allows you to edit directly all file types supported by a front-end PC. Checked-out documents are stored in the list of favorites. Documents are locked during check-in/check-out.
• Back-End Integration: Enables you to exchange documents, materials, and bills of material (BOMs) between cFolders and the back-end system (SAP R/3). External users without an SAP R/3 system can maintain or create material BOMs (only a browser is required).
• Notifications: Can be used to alert team members to any changes that are made to documents or subfolders within a collaboration. Additionally, other team members can be actively notified of any tasks they have to work on by e-mail, or by notifications within cFolders.
• Meetings/WebEx Integration: In case sharing information synchronously is relevant, PLM offers the integration of WebEx to help customers work on collaboration projects in real time over the Web. Users can access the meeting functions from the cFolders interface and organize or track these meetings within their cFolders meeting inbox.
• Redlining/Markup: The integrated ECL viewing capabilities allow the markup or redlining of 2D and 3D drawings.
• Data Sheet Handling: Specifications often require that quantifiable characteristics related to products are provided. Data sheets simplify this process by allowing you to import your classification system to structure the characteristic values you want to provide in a bidding process. Comparison of data sheets between vendors is simplified by presenting an overview of all data in Microsoft Excel.
• Work Areas/Competitive Scenarios: Separate supplier work areas can be created with individual authorization settings for managing information exchange.
• Status Management: Allows project managers to set up an easy-to-handle process control on the fly. A status profile consists of freely-definable statuses and the transitions between them. A status profile can be assigned to documents, data sheets, materials, BOMs, folders, areas, and collaborations.
• Distributed Content Server Support: Enables users to choose the closest content server to decrease network traffic and improve speed of access.
• Large File Handling: FTP-connectivity is supported for users with a low bandwidth Internet connection.

Further information on the different collaborative business processes can be found under:

• SAP Supply Chain Management - Supply Network Collaboration
• SAP Supplier Relationship Management - Supplier Collaboration

Companies, who need a commodity management solution are all companies that have to handle commodities in procurement, are selling commodities or that are trading commodities as such. The main difference between handling (exchange traded) commodities and other products, is the pricing: The pricing in commodity management is usually based on exchange noted prices. Physical buying or selling contracts can be either fixed (price is decided and fixed) or unfixed (price is not decided and based on a formula that again is based on exchange indices). Market risk exists in both cases: In the fixed contract case, because of the variance against the market, in the unfixed contract case, because of the price itself. If the contract is unfixed, an agreement towards a calculation rule is in place. The calculation rule is usually based on either the market price of the commodity, an average over a specified period of the market prices of the commodity or an index.

• Usually classes of commodities are distinguished:
• Agricultural products
  
                  - Grain
  
                  - Soft commodities: coffee, cotton and sugar
  
                  - Citrus and orange juice
  
                  - Livestock
  
                  - others
• Metals
• Oil & Gas
• Electricity
• Coal, emissions and weather

The front office comprises those activities that interface to the outside word, in our case the activities carried out by the dealer, the normal trading activities. This includes “situation analysis, decision support and future simulation” within the cockpit a trader needs to get a view of the internal and external world, to simulate possible future scenarios and come to a decision. In comprises information as:

• External market information like commodity prices, company news, etc.
• Internal demand and supply information like how much of a certain commodity is needed and   do we have for production supply?
• Position Reporting like overview over the open buying and selling positions (physical and paper) in quantity and value.
• Value at Risk reporting (How big is the risk of loss?) including calculations based on mathematical models as briefly touched in chapter

In the middle- and backoffice the logistic execution, margin processing and financial settlement takes place.