Materials Management

SAP Materials Management Module (SAP MM) is a part of logistics bundle which helps in managing
end to end procurements and logistics business process along with inventory functions occurring in day-
to-day business operations, SAP MM is tightly integrated with other modules in R/3 system such as
Finance, Controlling, Sales and Distribution, Plant maintenance, Production planning. For that
Material management module plays an important role in JTCO.

For JTCO, Materials Management will be required to work side by side with the following modules:

Financial Accounting (FI)

Purchasing maintains data on the vendors that are defined in the system jointly with Financial
Accounting. Information on each vendor is stored in a vendor master record, which contains both
accounting and procurement information. The vendor master record represents the creditor 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.

Controlling (CO)
The integration to the cost accounting system (Controlling) can be seen above all in the case of purchase
orders for materials intended for direct consumption and for services, since these can be directly
assigned to a cost center or a production order.

Sales and Distribution (SD)

Within the framework of materials planning and control, a requirement that has arisen in the Sales area
can be passed on to Purchasing. In addition, when a requisition is created, it can be directly assigned to
a sales order.

Production Planning (PP)

It is integrated in the areas like Material Requirement Planning, Receipts/issues against production
orders, Availability check for stocks etc. Inventory Management is responsible for staging of the
components required for production orders. The receipt of the finished products in the Warehouse is
posted in Inventory Management

Warehouse Management (WM)

The GR, GI, and other transactions in Inventory Management can be linked in details to the WM module.
In WM module, we can maintain material stock at a level that more detail (which is storage bin) than
MM module (which is storage location). We can store the same materials at several storage bins in a
storage location.
Purchasing
Purchasing is a component of Materials Management (MM) which integrates with various departments
of JTCO to share the purchasing components.

Procurement Components:
Purchase Requisition (PR): which 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.
An item of a requisition contains the quantity and delivery date of the material to be supplied or the
quantity of the service to be performed.
Request for Quotation (RFQ): A request for quotation (RFQ) is an invitation extended to a vendor by
a purchasing organization to submit a quotation for the supply of materials or performance of services.
An item of a quotation may contain a delivery schedule made up of a number of schedule lines in which
the total quantity is broken down into smaller quantities to be delivered on the specified dates over a
certain period.

Quotation: A quotation is an offer by a vendor to a purchasing organization regarding the supply of

materials or performance of services subject to specified conditions.
A quotation is legally binding on the vendor for a certain period for which the vendor responses to a
request for quotation issued by a purchasing organization.
An item of a quotation may contain a delivery schedule made up of a number of schedule lines in which
the total quantity is broken down into smaller quantities to be delivered on the specified dates over a
certain period.

Purchase order (PO): is a formal request or instruction from a purchasing organization to a vendor or
a plant to supply or provide a certain quantity of goods or services at or by a certain point in time.
Delivery of the total quantity of material (or performance of the total volume of services) specified in a
purchase order item can be spread over a certain period in a delivery schedule, consisting of lines
indicating the individual quantities with their corresponding planned delivery dates.

Outline Agreements

An outline purchase agreement is a longer-term agreement between JTCO and a vendor regarding the
supply of materials or the performance of services within a certain period according to predefined terms
and conditions.
In the SAP System, such agreements are subdivided into:

 Contracts:
 Quantity contracts: Use this type of contract if the total quantity to be ordered during the
validity period of the contract is known in advance. The contract is regarded as fulfilled when
release orders totaling a given quantity have been issued.

 Value contracts: Use this type of contract if the total value of all release orders issued against
the contract is not to exceed a certain predefined value. The contract is regarded as fulfilled
when release orders totaling a given value have been issued.

 Centrally agreed contracts

 Where contracts are not relate to just one particular receiving plant. In this case, a centrally
agreed contract is created without specification of a plant. The plant is not specified until a
contract release order is created.

 Scheduling agreements
It’s a form of outline purchase agreement under which materials are procured on predetermined dates
within a certain time period.
Delivery of the total quantity of material specified in a scheduling agreement item is spread over a
certain period in a delivery schedule, consisting of lines indicating the individual quantities with their
corresponding planned delivery dates.

Procurement Types:

- Stock (trading) Procurement: Which will be used in JTCO for procuring all materials that will be
placed in stock and to be sold. These materials will be managed in both quantity and value basis.
This scenario will be used to purchase the trading materials from Michelin and from other
suppliers.
- Consumable Procurement: This will be used in JTCO for materials that are not managed on value or
quantity basis in inventory management. When you procure for direct consumption
- Services Procurement: A need for certain services can arise in a user department in JTCO such as
the design service or with regard to regular maintenance work such as the outsourcing of routine
electrical jobs for instance
- Give-away Procurement
- Asset Procurement: JTCO will be purchasing assets for internal use, the implementation of
procuring asset is required.

Release Strategy:
The release strategy functionality will be used by JTCO to define the approval process for purchasing
documents such as PR - PO – Services – Contracts and it can be defined as per specific conditions like
Doc. value, purchasing department...etc

Materials Requirement Planning

The main function of material requirements planning is to guarantee material availability in JTCO, that is,
it is used to procure or produce the requirement quantities on time both for internal purposes and for
sales and distribution. This process involves the monitoring of stocks and, in particular, the automatic
creation of procurement proposals for purchasing and production.

The following MRP procedures are available in consumption-based planning:

 Reorder point planning:
Checks are run to discover whether the planned available stock (total from plant stock and fixed
receipts) falls short of the reorder point determined for the material in the master record. If it does,
procurement must be triggered.
 Forecast-based planning:
Uses historical values in the material forecast to estimate future requirements. These requirements are
forecast requirements and are immediately available in planning. The system executes the forecast
calculation at regular intervals.
 Time-phased planning:
Also uses historical values in the material forecast to estimate future requirements.
However, in this procedure, the planning run is only executed according to predefined intervals in a
particular rhythm.

Supersession
Changes to the design, form and function of parts require vendors and manufacturers to replace
obsolete parts with new versions of the same parts. This is particularly important for the aftermarket
environment where technical innovations produce a constant flow of new parts of a better quality or in
a different form that supersede older parts.

Inventory Management

Inventory Management is an application component within the Materials Management (MM) module.
Material is procured from external or internal sources on the basis of the requirements determined by
Material Requirements Planning. The delivery is entered in Inventory Management as a goods receipt.
The material is stored (and managed under Inventory Management) until it is delivered to customers
(Sales & Distribution), or is used for internal purposes (for example, for production).
During all transactions, Inventory Management accesses both master data (such as material master
data) and transaction data (such as purchasing documents) shared by all Logistics components.
The main purpose of Inventory management is:
- To Manage material stocks on a quantity and value basis
- Planning, entry, and documentation of all goods movements
- carrying out the Physical Inventory

Inventory Management Covers the following sections:

 Goods receipt
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.
The SAP System has the ability to distinguish between the following types of goods receipt like:

GR with reference to a Purchase Order.

GR with reference to an Order.
GR with ref. to a reservation.
Other Goods Receipts.

 Goods issue
A goods issue (GI) is a goods movement with which a material withdrawal or material issue, a material
consumption, or a shipment of goods to a customer is posted. A goods issue leads to a reduction in
warehouse stock.
The SAP system supports the following types of goods issues and can distinguish between diff. types
like:
- Withdrawal of material for Production Orders.
- Scrapping materials.
- Withdrawal for Sampling.
 - Return deliveries to vendors.

 Stock Transfer
A stock transfer is the removal of material from one storage location and its transfer to another storage
location. Stock transfers can occur either within the same plant or between two plants.

 Transfer posting
A transfer posting is a general term for stock transfers and changes in stock type or stock category of
a material. It is irrelevant whether the posting occurs in conjunction with a physical movement or
not. Below are examples of transfer postings:
- Transfer postings from material to material
- Release from quality inspection stock
- Transfer of consignment material into company's own stock

 Reservation
With this component, you make a request to the warehouse to keep materials ready for withdrawal
at a later date and for a certain purpose. This simplifies and accelerates the goods receipt process.

 Shelf Life Expiration Date Check

You can check the shelf life of a material when you enter a goods receipt. You thereby ensure that
you store only materials that are still usable.

 Return Delivery
If you want to return delivered goods to the vendor for some reason (for example, due to poor
quality or because they are damaged), you can use this function to return the goods, even if you
have already posted the goods receipt.
If the vendor sends you a substitute delivery after you have returned goods, you can reference the
return delivery when you post the goods receipt.

 Scrap Material

 Physical Inventory
In the SAP system, a physical inventory can be carried out both for JTCO’s own stock and for special
stocks.

SAP supports the following physical inventory procedures:

- 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:
In the continuous physical 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.
 The Cycle Counting Method of Physical Inventory allows fast-moving items to be counted more
frequently than slow-moving items.
- Inventory sampling:
In MM – Inventory sampling, randomly selected stocks of the company are physically counted 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.

Batch Management

The structure of the material master record allows you to manage stocks of a material by value at
plant level or company-code level and by quantity down to storage-location level. For tires, it is
required to make further subdivisions for a material and manage batches.
You can define number assignment for batches at various levels:
- Uniquely at client level for a material
- Uniquely at material level
- Uniquely at plant level

Variant Configuration

Variant configuration is useful when you have large of characteristics combination for your raw or
finished product materials.

Invoice Verification
Logistics Invoice Verification is the part of Materials Management (MM) which is situated at the end of
the procurement process.
In Logistics Invoice Verification the incoming invoices are verified in terms of their content, prices and
arithmetic. When the invoice is posted, the invoice data is saved in the system. The system updates the
data saved in the invoice documents in Materials Management and Financial
Accounting.

 Incoming Invoice
Document from an invoicing party containing the payments to be made based on business
transactions performed in Purchasing and Inventory Management.

 Subsequent Debits/Credits

A subsequent debit/credit exists when an additional invoice or credit memo is received for a transaction
that has already been invoiced.

 Credit Memo
The term credit memo always refers to a credit memo from the vendor. Therefore, posting a credit
memo always leads to a debit posting on the vendor account.