fin2009_arif_tightening.pdf

2008 Wellesley Information Services. All rights reserved.

Tightening Your Purchase-to-Pay Cycle: Lessons to Tightly Integrate Financials and Materials Management Functionality

Naeem ArifService Birmingham

2008 Wellesley Information Services. All rights reserved.

3In This Session

This session reviews system integration points along the Purchase Order to Payment cycle (P2P)

In SAP Terms, we look at aspects of MM and FI/CO This session is designed for SAP finance consultants and SAP

integration consultants working on projects or in a support environment

We will identify the key master data objects necessary for successful integration

We will identify the key configuration elements necessary for successful integration

ENSUREGOOD

INTEGRATION

4What Well Cover

SAPs Integrated Business Process Building Blocks: The Key Master Data Objects Supporting Your Purchase Order-to-Pay Cycle: The Key

Configuration activities Wrap-Up

5Introduction What Is Integration?

Integration is the seamless interaction of technology, processes, and thinking Process integrationf Business process alignment

Technical integrationf Interfaces, third-party products

Avoid bad/non-integrated solutions Process breakdown Passing of bad information within your system landscape

Design is Key Testing is Key

6The Purchase Order-to-Payment Cycle

GENERAL LEDGER

STOCK

BANKPURCHASE

ORDER

PURCHASEREQUISITION

INCOMINGINVOICE

ACCOUNTSPAYABLE

GOODSRECEIPT

VENDOR

OUTGOINGPAYMENT

MATERIAL

COSTCENTRE

INTERNALORDER

PROFITCENTRE

PROJECTSYSTEMS

GL ACCOUNT

7Purchase Order-to-Payment Cycle Simplified

PURCHASEORDER

INCOMINGINVOICE

OUTGOINGPAYMENT

COSTCENTRE INTERNAL

ORDERPROJECTSYSTEMS

STOCK

GR/IR

BANK

PROFITCENTRE

Materials Management Finance

GOODSRECEIPT

**Please Note we do not talk about Banks in this session

8What Well Cover



9Basic Building Blocks

The key organizational elements include: Company Code Controlling Area Chart of Accounts Purchasing Organization Plant Material Master Vendor Master Account Assignment Objects

10

FI-CO Organizational Elements Company Code

Company Code is the main organizational object in FIand as FI is central to SAP, it is really the central object in the system.

It should represent legal entities; i.e.separate organizations. You will find that most organizational objects are assigned at the Company (Co) Code level.

This is an extremely important decision and it should be made to satisfy reporting requirements.

11

FI-CO Organizational Elements Controlling Area

Controlling Area is the CO object that controls the rules in relation to AccountAssignment. You assign Co Codes to CoAreas and they dont have to be at thesame level.

Within your Co Area you can define reporting hierarchies that reflect yourorganizational requirements. You shoulddefine the Co Area at a level to suit yourinternal reporting requirements.

Controlling Area is linked to Co Code in a 1:1 and or Many:1 relationship

12

FI-CO Organizational Elements Controlling Area (cont.)

We configure which CO components areactive for this Controlling Area.

This controls information flow intosub-components.

In a new SAP GL scenario, you should notactivate PCA as new GL incorporates the Profit Center component.

Maintain Controlling Area (within CO configuration)

IMG > Controlling > General Controlling > Organization > Maintain Controlling Area (OKKP)

13

FI-CO Organizational Elements Chart of Accounts

Another important object in FI-CO is the Chart of Accounts

The Chart of Accounts is the complete list of GL accounts thatare used to analyze postings.

A Co Code can only be assigned toa single Chart of Accounts. You canassign many Co Codes to the sameChart of Accounts.

14

FI-CO Organizational Elements Chart of Accounts (cont.)

All postings in the system are analyzed based on GL accounts The Chart of Accounts is structured like a trial balance Balance Sheet Vendor Liabilities Income Expenditure Purchase Expenses

15

MM Organizational Elements Purchasing Organization

Purchasing Organization is the main organizational object in MM.

At this level, we define purchasingrules for the plants that are assigned to it.

1) Maintain Purchasing Organization

IMG > Enterprise Structure > Definition > Materials Management > Maintain Purchasing Organization (0X08)

2) Assign Purchasing Organization

IMG > Enterprise Structure > Assignment > Materials Management > Assign Purchasing Organization to Company Code (OX01)

Plant is an organizational objectwithin the Purchasing Org.

Plants can be defined at different levels; it does not need to be where you manufacture or store items.

Plant is used to valuate stock so you define Plants in orderto meet this requirement.

Define Plant

IMG > Enterprise Structure > Definition > Logistics General > Define Copy Delete Check Plant (OX10)

Assign Plant

IMG > Enterprise Structure > Assignment > Logistics General > Assign Plant to Company Code (OX18)

16

MM Organizational Elements Plant

You can define different relationships based on your organizational requirements

17

MM Organizational Elements Material Master

The Material Master holds a lot more information than is held in other systems.

This master record controls all aspects:

Inventory Procurement Sales Accounting

18

MM Organizational Elements Material Master (cont.)

The Material Master is the centralrecord for items we buy and sell.

This includes purchase and accounting (payments) information.

19


Price Control indicatorS = Std PriceV = Moving Avg Price

The Current Valuation is dependent on the plant.

Materials are valued at a standard price or a moving averageprice. Valuation Class defines which GL accounts are postedto as a result of movements of this material. Valuation Classis assigned to a material type.

Valuation Class that linksthe material to GL.

You can enter a differentVC for Sales.

20


Profit Center assignmentfor this material

The Costing tab is the way in which we value our stock.

Stock on the balance sheet is assigned to a business unitby assignment of a profit center on the material master.

21

MM Organizational Elements Vendor Master

The Vendor Master is the centralrecord for suppliers from whomwe buy.

This includes purchase and accounting (payments) information.

Vendor Account GroupsIMG > Financial Accounting (new) > Accounts Receivable and Accounts Payable > Vendor Accounts > Master Data > Preparations for Creating Vendor Master Data > Define Screen Layouts or Company Code (Vendors) (OB24)

Create Number Ranges for Vendor Accounts

IMG > Financial Accounting (new) > Accounts Receivable and Accounts Payable > Vendor Accounts > Master Data > Preparations for Creating Vendor Master Data > Create Number Ranges for Vendor Accounts (XKN1)

22

MM Organizational Elements Vendor Master (cont.)

The Reconciliation Account is the vendor control account in General Ledger.

The number of ReconciliationAccounts should match yourreporting requirements.

23


The Reconciliation Accountappears on the AccountingTab of the Vendor Master record.

You may decide to adopt a number of reconciliation accountsto provide balance sheetcreditor analysis for differenttypes of Vendors

VendorInvoice

Payment toVendor

GoodsReceipt

Dr StockCr GR IR

Dr GR IRCr Recon Acct

Dr Recon AcctCr Cash

24


The Vendor Master has defaultsthat are called upon when we make payments out to vendors.

These defaults impact the AP documents (e.g., Invoice, Payment)

25


The Vendor Master also holdspurchasing data, which is usedto default into purchasingdocuments such as POs

26


Partner Functions allow you to set up complex vendor scenarios. For instance, the Accounts Dept.and the Vendor Ordering Dept.may be in different locations.

The three common partner functions are: VN - Vendor IP - Where Vendor Invoice is sent to OA - Where your POs are sent

27

FI-CO Account Assignment Objects

FI-CO Account Assignment is the way we allocate costs to departments

28

FI-CO Account Assignment Objects Profit Center

Profit Centers are concerned primarily with income, but can collect costs Income is posted directly to the Profit Center Costs are posted directly to the Cost Center You link a Cost Center to a Profit Center

Cost Center 1 Cost Center 2 Cost Center 3 Cost Center 4

Profit Center 1 Profit Center 2 Profit Center 3 Profit Center 4

1:1 Relationshipor a

Mixed Relationship

29

FI-CO Account Assignment Objects Cost Center

Cost Centers are a type of Account Assignment They provide management information in relation to costs

This can be used tolink into workflow

Control tab controlsActual/Plan andIncome/Expense

30

FI-CO Account Assignment Objects Internal Order

Internal Orders are a type of Account Assignment There are many uses for Internal Orders

31

FI-CO Account Assignment Objects Project/WBS

For larger scale projects, we would use the Project Systems functionality to provide Account Assignment The Account Assignment object is the Work Breakdown

Structure (WBS) Collect costs and income, like an Internal Order Advantage being that they can accommodate much larger

projects, more complicated arrangements Projects have a lot of additional functionality in them around

approvals Can also settle the project to an asset (assets under

construction). Examples include construction of a new building, or building a new plant or rig of equipment which has a number of parts.

32

Basic Building Blocks

The key organizational elements include: Company Code Controlling Area Chart of Accounts Purchasing Organization Plant Material Master Vendor Master Account Assignment Objects

33

What Well Cover



34

P2P Cycle The Purchase Order Header

PURCHASEORDER VendorPO Number

PO Header

35

P2P Cycle The Purchase Order Items

PURCHASEORDER

Material

PO Line Items

QuantityDefined on

MaterialPrice

Standard or Moving Avg

36

P2P Cycle The Purchase Order Item Detail

PURCHASEORDER

Associated documents forthis Line Item

Item Detail

Quantity Price

37

P2P Cycle The Goods Receipt

PURCHASEORDER

GOODSRECEIPT

Where are the Goodsbeing receipted to?

38

P2P Cycle The Goods Receipt (cont.)

PURCHASEORDER

GOODSRECEIPT

VendorInvoice

Payment toVendor

GoodsReceipt

Dr StockCr GR IR

Dr GR IRCr Recon Acct

Dr Recon AcctCr Cash

39

P2P Cycle Account Determination

Account determination is the process by which the General Ledger is updated to reflect transactions in the Purchase-to-Pay cycle

Account determination includes: Current Valuation Movement Type Transactions OBYC

40

MM Account Determination Current Valuation

The Valuation Class is the wayin which we link the material to theGeneral Ledger.

The rules are defined in configuration.

Define Valuation ClassIMG > Materials Management > Valuation and Account Assignment > Account Determination > Account Determination without Wizard > Define Valuation Class (OMSK)

41

MM Account Determination Movement Type

MM is concerned with the movement of stock in and outof the business (receipts, issues, transfers, reversals, etc).

The Movement Type differentiates between the different reasons forstock movement.

Custom Movement Types can becreated for organization-specificrequirements. It is recommendedto copy from existing MovementTypes.

Copy, Change Movement TypesIMG > Materials Management > Inventory Management and Physical Inventory > Movement Types > Copy, Change Movement Types (OMJJ)

42

MM Account Determination Movement Type (cont.)

Define Account Grouping for Movement TypesIMG > Materials Management > Valuation and Account Assignment > Account Determination > Account Determination without Wizard > Define Account Groupings for Movement Types (OMWN)

Movement Types are linked to MM transactions or events.

In this configuration activity, youdefine which transactions/eventsare linked to the Movement Type

Value Update indicator determineswhether this updates GL.

43

MM Account Determination Movement Type (cont.)

Custom Movement Types canbe posted to using the generictransaction Enter TransferPosting.

Custom goods Transfer PostingSAP Easy Access Menu > Logistics > Materials Management > inventory Management > Goods Movement > Transfer Posting (MB1B)

44

MM Account Determination Transactions

Transaction Keys, also known asMM Event Keys, relate to inventorymovement and, as we saw before,are related to Movement Types

These can be seen in Table T030.

In the take home material, we include some descriptions of the available Transactions and suggestions of Account Assignment, based on the INT Chart of Accounts.

MM Account Determination is configured in transaction OBYC.

Here we link the transactions to GL Accounts, controlling which GL Accounts are posted to when anMM transaction occurs.

Define Automatic Account AssignmentIMG > Materials Management > Valuation and Account Assignment > Account Determination > Account Determination without Wizard > Configure Automatic postings (OMWB)

Then select Account Assignment Option (OBYC)

45

MM Account Determination OBYC

RulesFor each transaction, we select therules we want to control AccountDetermination.

GL Account AssignmentBased on the rules, we define theGL that we want to be posted to.

46

MM Account Determination OBYC (cont.)

GBB Inventory OffsettingThis transaction key is the otherside of the posting.

This transaction gives the optionto define rules by General Modifier.This is essentially a sub-level of thisTransaction Key.

Note this information is held in TableT030

47

P2P Cycle Invoice Receipt

PURCHASEORDER

GOODSRECEIPT

Flow of Goods Receiptand Invoice Receipt

for this PO

Each item in the POcan be Invoiced

separately

INVOICERECEIPT

Information comesin from the Vendor

and the PO

48

P2P Cycle Invoice Due for Payment

PURCHASEORDER

GOODSRECEIPT

INVOICERECEIPT

OUTGOINGPAYMENT

For this AP Invoicethe amount payable

People always ask do we have to paythe Tax payable we just claim it back?

49

P2P Cycle Automatic Payment Program (f110)

PURCHASEORDER

GOODSRECEIPT

INVOICERECEIPT

OUTGOINGPAYMENT

The F110 Automatic Payment Program is used to generatePayments for Invoices that are due out of SAP. This can be

run for all payment types and for all Vendors. You specifywhat you want to run and when.

1

2

50

P2P Cycle Open Items Are Cleared

PURCHASEORDER

GOODSRECEIPT

INVOICERECEIPT

OUTGOINGPAYMENT

Payment Program should be combined payments unless you specifically set up Vendors for Individual Payments

51

P2P Cycle Outgoing Payment

PURCHASEORDER

GOODSRECEIPT

INVOICERECEIPT

OUTGOINGPAYMENT

Total Amount PaidLess discounts

52

P2P Cycle Outgoing Payment (cont.)

PURCHASEORDER

GOODSRECEIPT

INVOICERECEIPT

OUTGOINGPAYMENT

The original invoicenow set to Cleared

This discount taken atthe point of payment

53

What Well Cover



54

Resources

Naeem Arif, Tauseef Sheikh, SAP ERP Financials: Configuration and Design, (SAP Press, 2008). www.sap-press.com/product.cfm?account=&product=H1997

Naeem Arif and Sheikh Tauseef, Configure Automatic Account Determination for Logistics-Finance Integration, Financial Experts Online (July/August 2008). * www.financialsexpertonline.com/article.cfm?session=&uid=52

329ff8-66d0-406d-b92d-0d728de0d951

There are very few resources on integration, so you need to pulltogether information from MM and FI separately.

* Requires login

55

7 Key Points to Take Home

MM is part of the SAP landscape and there should be no reason why the MM FI business process should have an integration failure. It is essential for business process alignment to be done to ensure the system integration works fine.

Make an informed decision on your MM Organizational Structure once you are aware of the implications. Once these decisions aremade they are difficult to reverse.

Vendor and Material Master records require input from various teams; they should not be solely owned by 1 team.

Account determination is a joint responsibility for both MM and FI (remember the take home material!)

OBYC is there to help you post to the right place in the ledger;understand and make full use of Valuation Class, Movement Type and Transaction (see slide 40)

56

7 Key Points to Take Home (cont.)

Understand the purpose of Movement Types to really understand the integration between MM and FI; this is core to the MM Account Determination.

Dont Panic! When you have an integration Issue, work through the basic steps we have seen in this session. Following the process through the stages we have seen today will enable you to isolate the cause of your issue.

57

Your Turn!

How to contact me:Naeem Arif

[email protected]@Birmingham.gov.uk

58

DisclaimerSAP, R/3, mySAP, mySAP.com, xApps, xApp, SAP NetWeaver, Duet, PartnerEdge, and other SAP products and services mentioned herein as well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. All other product and service names mentioned are the trademarks of their respective companies. Wellesley Information Services is neither owned nor controlled by SAP.

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