What is Procurement Logistics?

Procurement Logistics (MM) in
Procurement Logistics = Materials Management (MM)

SAP
”The heart of SAP R/3”

Functions for purchasing, inventory management, warehouse
operations, invoice verificat ion
Jon Atle Gulla
Used by Purchasing department and Warehouse

Presenting the functionality of SAP’s Materials
Management Module
Curran, T. A. and A. Ladd: ”SAP R/3 Business Blueprint –
Understanding Enterprise Supply Chain Management.” Chapter 7,
”Procurement Logistics”, Prentice-Hall, 2000.

Integrat ion with other SAP modules:

Material needs from PM, SM, SD, etc. (requisitions,
reservations)

Accounting documents sent to FI

Purchasing costs registered in CO

Quality inspection of materials part of QM

Materials procured in projects from PS

MM Organizational Structures SAP Procurement Structures

Motor Sports
client International
NB! floating
company purchasing
3000 4000
code organization
MSI Norway MSI Germany

purchasing 3000 MSIN 4000 MSIG

organization CCM
Purchasing Purchasing

3000 3100 4000

plant
Trondheim Bergen Berlin

storage
0001 0002
location

Organizational Structures: def. 1 Organizational Structures: def. 2

Client:
Company Code:

Highest hierarchical level in SAP
Represents a legal/tax entity

All business areas to be integrat ed into SAP should be
Level of external reporting or legal sets of books
under one client

Maintains its own profit and loss statement s and

Some control tables (e.g. currency rat es, measurement balance sheet s
units

Some master data: (e.g. basic vendor and customer dat a)
Example: Hydro Agri Europe solution has 46 legal
company codes

Usage:
Can be used to differentiate bet ween a Development,
Quality Assurance, and Production system within R/3

1
 Organizational Structures: def. 3 Organizational Structures: def. 4

Plant:

Purchasing organization:

Manufacturing facility, warehouse, or location that

Responsible for procurement for one or more plants stocks, manages, and valuat es inventory

Responsible for negotiating pricing and delivery terms
Usually a physical site

Assigned to a company code where inventory is legally
Assigned to a company code
tracked or costs are legally incurred (except for floating
One or more purchasing organizations assigned to plant
purch. org.)
Mat erials defined at plant level

Vendors defined at purchasing organization level
Usage:

MM procures materials to plant

Two typical configurations:
PM maintains facilities at plant

One purchasing organization for each company
PP produces products at plant

One purchasing organization for each plant
SD sells products from plant

Organizational Structures: def. 5 Procurement of Stock Material

When materials are needed, requisitions are sent to the purchasing

Storage location:

department

Locat ion within a plant where inventory is stored
The materials are ordered and later received into the warehouse

Usage:
Stock value is updated

A physcial storage place at plant
The invoice is matched against what was received and later paid by
the financial department
Grouping of materials in types or classes


Value chain:

Purchasing group: Purchase

requisition
Purchasing
Goods
receipt
Warehouse
Quality Invoice
inspectionverification
Reporting

Corresponds to individual purchasers or group of

Vendor
purchasers certification

A purchasing organization contains one or several

purchasing groups
A h si m b s sibl f t i

Procurement of Stock Material: cont. Procurement of Stock Material: cont.

XOR

Requirement Planned orders Preq. with Preq. is

occurred created vendor is marked for req.
created for quotation
Requisition Planned Processing of
Any department processing to order Production RFQ to
stock material conversion vendor

Preq. with Planned order Requests for

Order
contract order converted to quotation sent Purchasing
arrived
id created Preq. to vendors

XOR
AND
Vendor
Purchase
quotation
requisition Purchasing
processing
assignment
XOR

Quotatin is Rejection is
selected sent

2
 Procurement of Stock Material: cont. Procurement of Stock Material: cont.
Preq. Contract Scheduling Material
with vendor should be agreement is arrived
is created created AND to be created AND
OR
XOR XOR
Goods
receipt Warehouse
Contract Scheduling
processing
processing for agreement proc.
stock material for stock mat.
XOR

Scheduling
Contract is Purchasing
agreement
sent AND
is sent Material post. XOR
Goods are
to stock in Material is Transfer order
XOR to be returned quality inspection placed in created
stock automatically
Purchase Quality
order process processing Placement in
for stock mat. storage
processing
XOR
Purchase order Material is
is transmitted Material is Material is placed in
not accepted accepted
stock

Procurement of Stock Material: cont. Procurement of Consumable Materials

Invoice with Invoice w/o
ref. has ref. has
Some materials are not to be stored in stock
arrived arrived

production materials
AND

project materials
XOR

replacement it ems in plant maintenance
Invoice
processing Accounting
SAP implementation:

Consumable materials not linked to any stock account
XOR

Invoice posted

Procement costs not included in inventory accounting, but
Invoice is
not accepted and released posted to job order or cost center
for payment

Vendor
processing
Example:
Pencils, buying a Handspring Visor on the project’s budget

Procurement of Consignment Materials Procurement of Subcontract Work

Consignment material
Subcontract orders:

owned by supplier
outsourcing of manufacturing process

stored at customer’s facility
company purchases finished product , but provides some
or all of the mat erials t o the subcontractor

Purpose:

faster maintenance delivery
Inventory value of produced material:

cust omer do not need to pay before item in production
net purchase order value + value of component materials
posted out of inventory

avoid product ion delays

SAP implementation
SAP implementation:

used like any other material type
create subcontract purchase order which specify
component materials to send to subcontract or

vendor-owned inventory tracked like any other stock type

not valued on the company’s books before issued to requester
when material is received, the quantities and values of
component materials are posted out of inventory

3
Stock Transfer Processing Conclusions

Stock transfer:
Procurement logistics = Materials Management:

Handling intersite inventory transfers of materials
Procurement of stock materials/

”Transport orders” are used for transfers of stock consumables/consignment mat erials, subcontracting,
between sites (plants) stock transfers, inventory management, invoice

Procurement price: management

valuat ion of material + cost s of delivery
Higly integrat ed with other SAP modules

Planning system may automatically generate
Procurement logistics functionality:
transport orders
SAP organizational struct ures:

SAP implementation: client, company code, purchasing organization, plant,

Convert planned transfer to planned order, receive storage location
mat erial at issuing plant, issue mat erial, process goods
SAP business processes described as EPC models
receipt at receiving plant