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Material Management Process Flow – Step by Step Process 

The following is the general process of Material Management: 

1. Material Determination: Material determination is done either by the concerned

departments or through the planning and control of materials. This can cover both

MRP and goods demand with the approach based on inventory control. The

regular monitoring of stock levels of materials is defined in the master records. You

can enter your requests for purchase, or they can be generated automatically by the

materials planning and control. 

2. Source Determination: The Purchasing component allows you to identify potential

sources of supply based on existing orders and longer-term purchase agreements. This

speeds up the process of creating requests for quotation (requests) that can be sent to

vendors electronically. 

3. Vendor selection and comparison of estimates: The system is capable of simulating

scenarios of pricing, so you can compare a number of citations. Rejection letters can

 be sent automatically. 

4. Order processing system adopts the acquisition of information in demand and

supply to help you create a purchase order. As with purchase requisitions, you can

generate your own or Planning and Controlling system generates it automatically. 

5. Order Tracking: The system checks the reminder periods you have specified and –  

if necessary – automatically prints reminders or expediters at predefined intervals. It

also offers an update on the status of all purchase requisitions, quotations, and

 purchase orders. 

6. Receipt of goods and inventory management of goods receipt staff is able to

confirm receipt of goods simply by entering the number of Purchase Orders by

specifying permissible tolerances. 

7. Invoice Verification: The system supports control and matching of invoices.

Accounts payable is informed of the quantity and price changes because the system

has access to PO and goods receipt data. This speeds up the verification process and

compensation for the payment of invoices.

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What Is Outline and Scheduling Agreement?

POSTED BY MODERATOR ON SATURDAY, OCTOBER 24, 2009 / LABELS: OUTLINE AGREEMENT / COMMENTS: (0) 

PO is normal where you issue the PO to a vendor and expect the delivery. The PO is

termed completed when the vendor has delivered the PO quantity or when you

have pre closed the PO when the vendor has delivered partial quantity and he has

agreed not to send anymore with ref to the PO. 

Read more » 

Outline Agreement

POSTED BY MODERATOR ON SUNDAY, AUGUST 23, 2009 / LABELS: BASICS, OUTLINE AGREEMENT / COMMENTS: (0) 

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 thesupply 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. 

Structure of an Outline Agreement 

As in the case of other purchasing documents, an outline agreement consists of the

following elements: 

Document header: 

Contain the information specific to the entire agreement. For example: 

- The vendor information and header conditions are in the document header.  

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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

delivery instructions. The text type determines the print sequence on the document

 printout. 

CONTRACT 

A contract is a longer-term agreement with a vendor (one of the two forms of "outline agreement" in

theSAP 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:

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•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.

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.

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 

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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)

Materials Planning and Control POSTED BY MODERATOR ON SUNDAY, AUGUST 23, 2009 / LABELS: BASICS, PLANNING / COMMENTS: (0) 

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 

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. 

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 involves the development of a production plan directly from bills of 

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material. This form of materials planning is a component of theSAP

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 theavailable 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: 

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Available stock = (stock in hand in the warehouse + current orders) - reserved stock  

Assigning Requisitions to Sources/Further Processing SAP

MM Optimized Purchasing

POSTED BY MODERATOR ON WEDNESDAY, SEPTEMBER 9, 2009 / LABELS: PURCHASE REQUISITIONS, PURCHASING / COMMENTS: (0) 

Use 

This section explains the functions provided by the SAP System for converting

requisitions into RFQs,  purchase orders, contract release orders, or lines of delivery

schedules created under scheduling agreements, and the processing options

thereby available to you. 

Read more » 

Releasing Requisitions

POSTED BY MODERATOR ON MONDAY, AUGUST 24, 2009 / LABELS: BASICS, PURCHASE REQUISITIONS / COMMENTS: (0) 

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

 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

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and ensure the correctness of the specified account assignment and source of 

supply. Purchase requisitions are released on an item by item basis. 

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 "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. 

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 

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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 

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 sizeand 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. 

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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 

How are Purchase Requisitions created? 

POSTED BY MODERATOR ON SUNDAY, AUGUST 23, 2009 / LABELS: BASICS, PURCHASE REQUISITIONS / COMMENTS: (0) 

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 consumption

or usage figures and existingstock 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

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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 ordercan be created. When the requisition is released, the data from

the requisition is copied into apurchase order with the details from the purchase

information record. 

Creating POs, Schedule Lines, and RFQs from PReqs -

Optimized Purchasing 

POSTED BY MODERATOR ON SATURDAY, SEPTEMBER 12, 2009 / LABELS: PURCHASING 

This section contains practical tips for the manual generation of purchasing

documents referencingpurchase requisitions. You are shown how to create the

following from a list of open requisitions: 

· Purchase orders and delivery schedule lines (for items with an assigned source) 

· RFQs (for items without an assigned source) 

Creating Purchase Orders and Delivery Schedule Lines 

You process requisitions in two steps: 1. Choose requisitions. 

You choose the requisitions for which POs, delivery schedule lines (under scheduling

agreements), or RFQs are to be generated. This step is described in "Choosing

Requisitions". 

2. Create purchasing documents. 

You then create purchase orders or delivery schedule lines (see "Creating Purchase

Orders" or "Creating Scheduling Agreement Schedule Lines"). 

Choosing Requisitions 

This section shows how to list open requisitions (requisitions whose material has not

 been ordered, or only ordered in part) and choose which requisitions you wish to

 process. 

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1. Choose Requisition --> Follow-on functions --> Create purchase order --> Via

assignment list . 

The screen enabling you to enter selection criteria for the requisitions to be processed

appears. 

2. Enter the selection criteria for the requisitions you wish to process. For example,

enter the purchasing group key to list all requisitions that have been assigned to your 

 purchasing group. 

3. Choose Execute to obtain a list sorted by vendor. You see how many of your 

 purchasing group’s requisitions have been assigned to each vendor. 

4. Now create either purchase orders or scheduling agreement schedule lines. 

Creating Purchase Orders 

1. Position the cursor on the desired vendor or contract and choose Edit --> Process

assignment . 

A dialog box for PO creation appears. 

2. Check, enter or change the PO data (for example, the purchasing organization). 

Press ENTER to obtain the overview of requisitions flagged for PO generation. 

3. Select the items that are to be adopted in the PO. 

4. Adopt the selected items in the PO. 

 – If you wish to change the selected items before adopting them, choose Edit -->

Selections --> Adopt + details. You then make the desired changes on the item

detail screen in each case. 

 – If you wish to copy the selected items without first changing them, choose Edit --

>Selections -->Adopt . 

The item overview for the new PO (with the items you adopted) appears. 

5. Save the purchase order. 

For more information on the creation of purchase orders, refer to the section Creating

a Purchase Order. 

Creating Scheduling Agreement Schedule Lines 

1. Position the cursor on the scheduling agreement for which delivery schedule lines

are to be created, and choose Edit --> Process assignment . 

The scheduling agreement item overview appears. 

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2. Display the current delivery schedule. If necessary, enter delivery time-spots for 

individual lines. 

The individual schedule lines for the assigned requisitions are generated automatically

and inserted into the delivery schedule in the appropriate chronological order. 

3. Save the schedule. 

For further information on the creation of delivery schedules under scheduling

agreements, refer to Creating Delivery Schedule Lines for a Scheduling Agreement

Item. 

Creating RFQs 

1. To create RFQs, you must generate a basic list via Requisition --> Follow-on

 functions --> Assign + process. 

2. From the basic list, you can flag a requisition for RFQ processing. Select a

requisition and choose Edit --> Flag for RFQ --> With vendor or Without vendor . 

3. Choose Goto --> Assignment overview to access the assignment

overview screen. Position the cursor on the text Flagged for RFQ processing and

choose Edit --> Process assignment . 

A dialog box for the creation of RFQs appears. 

4. Enter the deadline for submission of quotations and check other relevant data, such

as thepurchasing organization. 

When you press ENTER, you will obtain an overview of the purchase requisitions that

have been flagged for RFQ processing. 

5. Select the items that are to be adopted in the RFQ. 

6. Adopt the selected items in the RFQ. 

 – If you wish to change the selected items before adopting them, choose Edit --

>Selections -->Adopt + details. The relevant item detail screens will then appear,

allowing you to make the desired changes. 

 – To adopt the selected items without changes, choose Edit -->Selections -->Adopt. 

The item overview for the RFQ to be created is displayed with the adopted items. 

7. If you have flagged the requisition for RFQ processing without a vendor, or if you

wish to issue RFQs to another vendor, assign the RFQ to a vendor and save the

document. 

Repeat this process for each vendor to whom the RFQ is to be issued. 

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Creating Purchase Orders with Source Determination -

Optimized Purchasing

POSTED BY MODERATOR ON SATURDAY, SEPTEMBER 12, 2009 / LABELS: PURCHASING 

Use 

It may be that no purchase requisition was created in the system for a certain

requirement and theprocurement process is to begin directly with a purchase order.

This could be the case, for example, if the requirement was notified to Purchasing by

‘phone and the buyer wishes to create a PO immediately, even though he does not yet

know which vendor is to receive it. 

You have the option of using the source determination facility for such cases too.  

As in requisition processing, the system suggests possible sources of supply for the

material on the basis of existing quota arrangements, source list records, outline

agreements, and/or info records. 

Prerequisites 

Before using this procedure, you should know how to create requisitions and purchase

ordersmanually. 

Activities 

To create a PO with source determination, proceed as follows: 

1. Choose Purchase order --> Create --> Vendor unknown 

The initial screen appears. 

2. Enter the key of your purchasing group on this screen. 

Select the Source determination field if the source is to be determined automatically

and assigned to a PO item after entry of the latter. 

Press ENTER to display the item overview screen. 

3. Enter the item data for the requested materials. You can also adopt items from an existing requisition by choosing Purchase order --

>Copy requisition. 

4. If you did not select the field for automatic source determination on the

initial screen, select the items to which a source is to be assigned. Then choose Edit --

>Assign supply source. 

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The system lists the possible sources for the material. If only one vendor exists for an

item, the vendor is assigned to the item automatically. You can determine which

vendor has been assigned to an item by displaying the item details. 

5. If more than one possible source exists for an item, a dialog box with a list of 

 possible sources appears. You can either choose the desired source, or close the box if 

none of the sources is suitable. 

6. Price simulation: 

You can determine a certain source’s net or effective price by running a price

simulation for one of the suggested sources. 

Position the cursor on the desired source in the dialog box and choose Price

simulation. A second box appears, in which you enter the simulation data. Press

ENTER to display the conditions for the source. 

7. Select the items for which you want to generate purchase orders. Then choose

Edit --> Generatepurchase order. 

If no suitable source currently exists for an item, you can save the latter as a

requisition item so that already entered data is not lost. 

Select the items to be saved in this way, then choose Purchase order -->Save as

requisition. 

You can also save items that cannot be converted into PO items (because they are

subject to a release procedure, for instance) as purchase requisition items. 

If you have defined different document types for requisitions than those you defined

for purchase orders, a dialog box appears. Use this box to change the document type. 

8. If the selected items are to be procured from more than one vendor, an overview of 

the vendors is displayed for selection purposes. Position the cursor on a vendor and

click on Choose to generate the purchase order. 

The system consolidates the items for the selected vendor and generates a purchase

order. The system then issues an appropriate message. 

Purchasing Info Records

POSTED BY MODERATOR ON MONDAY, AUGUST 24, 2009 / LABELS: BASICS, PURCHASING INFO RECORDS / COMMENTS: (0) 

What is a purchasing info record? 

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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 

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 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 

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. 

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. 

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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 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 

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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. 

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.

(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. 

Quotation

POSTED BY MODERATOR ON SUNDAY, AUGUST 23, 2009 / LABELS: BASICS, QUOTATION / COMMENTS: (0) 

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. 

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. 

What is a quotation? 

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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 

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). 

SAP MM Glossary

POSTED BY MODERATOR ON SATURDAY, JULY 18, 2009 / LABELS: SAP / COMMENTS: (0) 

ABC Classification 

Web Item to classify objects (Customers, Products or Employees) based on a

 particular measure (Revenue or Profit) using certain classification rules. Three

categories: Important, Less Important, and Relatively Important. 

Client 

A grouping or combination of legal, organizational, business and/or administrative

units with a common purpose. 

Example: a corporate group. 

Company code 

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This level represents an independent accounting unit within a client. Each company

code has its ownbalance sheet and its own profit and loss statement. 

Example: a subsidiary company, member of a corporate group. 

Framework Order 

A purchasing document used to procure materials or external services. Instead of 

stipulating a delivery date, this type of purchase order has an extended validity period.

A framework order covers multiple procurement transactions over a longer period. 

Goods Receipt 

A term from inventory management denoting a physical inward movement of goods

or materials. 

Invoice Verification 

The matching of documents created during the purchase order process, the goods

receipt process, and the accounts payable process that is part of the internal controls

system within an organization 

Material Group 

A grouping of materials and services according to their characteristics. 

Material Master Record 

A data record containing all the basic information required to manage a material. 

Material requirement Planning (MRP) 

A term for procedures in requirements planning that take into account and plan every

future requirement during the creation of order proposals such as independent

requirements, and dependent requirements 

Outline Agreement 

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A longer-term arrangement between a purchasing organization and a vendor for the

supply of materials or provision of services over a certain period based on predefined

terms and conditions 

Plant 

In Logistics a plant is an organizational unit for dividing an enterprise according to

 production, procurement, maintenance, and materials planning. 

Purchasing Organization 

An organizational unit in Logistics, subdividing an enterprise according to the

requirements of Purchasing. A purchasing organization procures materials and

services, negotiates conditions of purchase with vendors, and is responsible for such

transactions. 

Purchasing group 

The purchasing organization is further subdivided into purchasing groups (buyer 

groups), which are responsible for day-to-day buying activities.

A purchasing group can also act for several purchasing organizations 

Release Strategy 

A plan defining the release codes with which a purchase requisition item, a complete

 purchase requisition, or a complete external purchasing document must be released

(that is, approved) and the sequence in which release is to be effected using these

codes. For example, you can establish a release strategy for all purchase requisitions

with a value in excess of a certain figure 

Replenishment 

A Method of replenishing stock. 

Replenishment Element 

The elements in the system that trigger material replenishment for production. 

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Stock Reservation 

The sum of all quantities of a material reserved for withdrawal from stock. 

Scheduling Agreement 

An outline agreement against which materials are procured at a series of predefined

 points in time over a certain period. 

Stock Transfer 

The removal of materials from storage at one location, and their placement in storage

at another. 

Storage Location 

One or more storage locations are assigned to a location of this type. 

Source List 

The Source List identifies preferred sources of supply for certain materials. If the

Source List has been properly maintained, it will identify both the source of a material

and the period of time in which you can order the material from the source. 

Subcontracting 

Subcontracting is the process in which a material or product consisting of certain

components is procured from a vendor, whereby these components are provided by

the ordering enterprise, either directly or through a third party (another vendor).  

Vendor Master 

The collective term for all vendor master records. The vendor master contains the data

of all vendors with which a company conducts business. 

Vendor Master Record 

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A data record containing all the information necessary for any contact with a certain

vendor, in particular for conducting business transactions. 

Procurement of ServicesPOSTED BY MODERATOR ON MONDAY, AUGUST 24, 2009 / LABELS: BASICS, SERVICES / COMMENTS: (0) 

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 

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: 

o as planned services 

o as unplanned services 

Planned Services 

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By "planned services", we mean services whose precise nature and intended scope is

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. 

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. 

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. 

Master Data 

This section discusses the master data utilized by MM External Services Management: 

• Service master data 

• Vendor master data 

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Service Master 

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. 

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. 

Purchasing Documents 

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. 

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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 invoiceverification 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 

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. 

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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. 

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 

Sources of Supply 

POSTED BY MODERATOR ON MONDAY, AUGUST 24, 2009 / LABELS: BASICS, SOURCE LIST / COMMENTS: (0) 

In MM Purchasing, a source of supply may be a vendor or an outline agreement. You

can managesources 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). 

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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 sourcesat a certain point in time). 

• Definition of a source of supply as "blocked". 

Partner FunctionsPOSTED BY MODERATOR ON WEDNESDAY, JULY 22, 2009 / LABELS: VENDOR MASTER / COMMENTS: (0) 

SAP refers to entities involved in a transaction with your company as   partners or 

‘ business partners’. Each customer may represent several functions, each of which is

specific to accomplishing part of the transaction. These ‘personalities’ or functions are

thereby referred to as  partnerfunctions. The different  partner  functions are stored

within the customer master record. There are four (4)  business partners that are

mandatory for a customer, namely: 

Sold-to party: The sold-to party (or   partner  function)is the central  partner  functionthrough which all the other functions are referenced. The sold-to party is the party that

 places the order and to whom sales and  product prices are recorded against (e.g., for 

reporting  purposes). 

Ship-to Party: The ship-to party is the party (and address) to whom the order is

shipped. Can the ship-to differ from the sold-to? Yes, the ship-to party could be at a

totally different location e.g., at a shipping/receiving location. 

Bill-to Party: The bill-to is the party to whom the bill is sent. Again, the bill-to can

differ from the sold-to and ship-to. For example, it might be the accounts payable department at the customer’s company. 

Payer: The fourth mandatory  partner  is the payer. The payer is the party that pays the

 bill. This could again be an entity distinct from any of the three parties, with a unique

address. 

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Subcontracting

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Subcontracting is the process in which a material or product consisting of certain

components is procured from a vendor, whereby these components are provided bythe ordering enterprise, either directly or through a third party (another vendor). 

The material the subcontractor is to manufacture can be requested in a  purchase

requisition and ordered via a  purchase order  or scheduling agreement item of the

category L (subcontracting). Item category L enables the enterprise to create sub-

items covering the components to be provided to the subcontractor. 

The individual component items can be: 

  Entered manually, or 

  Generated via the BOM explosion, if a BOM exists for the ordered material.  

For a  purchase requisition for subcontracting with a source to be generated from

within materials planning, the following prerequisites must be satisfied: 

  A special procurement key for subcontracting must be set in the material

master record (MRP View 2). 

  At least one source of supply (subcontracting info record or outline purchase

agreement with subcontracting item) must exist. 

  The MRP-Relevant indicator must have been set for a source of supply in the

source list. If several sources of supply exist, a quota arrangement with the

special procurement type L for subcontracting can be created. 

  A BOM containing the components to be provided must exist.