Procurement Process: Basics

TSCM50- Procurement I Part IUNIT 1 The Procurement Process BasicsLesson 1: Procurement Process and Organizational Levels

Typical (Standard) Procurement Process consists of six phases:

1.      Determination of Requirement
2.      Determination of Source of Supply
3.      Vendor Selection
4.      Purchase Order Handling
5.      Purchase Order Monitoring
6.      Goods Receipt
7.      Invoice Verification
8.      Payment Processing
·         Other than normal / standard procurement process, there are special procurement processes;
1.      Stock Transfer with Stock transfer orders
2.      Subcontracting
3.      Vendor Consignment

  • Stock Transfer with Stock transfer order:
Material procured and delivered within one company
Receiving plant places internal order to issuing plant which not only involves inventory but also purchasing aspects

  • Subcontracting:

Unlike normal procurement process, your company provides the vendor(i.e. subcontractor)with some or all components for the production of material

Components provided to subcontractor mapped with transfer posting and information is stored under the special stock type Stock of Material provided to vendor

Under consumption or over consumption of the material provided to vendor is possible.This is further settled with subsequent adjustment.

  • Vendor Consignment:

Vendor remains owner of the material until you remove something from consignment store

Price must be agreed and stored in Consignment Info Record before you procure the material

Settlement of withdrawals ( Credit Memo)  is due according to agreed periods; for example Monthly

You control procurement process with the help of Item Category

You can set all special procurement processes described as “standard procurement” for a material so that purchase requisitions are produced automatically with the necessary indicator using MRP

  •  Organizational Levels in Procurement  Process:

  • Client:
                    A unit with in SAP system that is self contained both in legal and organizational terms and in terms of data, with separate master records and an independent set of tables.
A client is highest hierarchical level in SAP system.
A client is defined by a three digit numeric key.
  • Company Code:
                   A company code is the smallest organizational unit of external accounting for which a complete, self-contained bookkeeping system can be replicated. You can set up several company codes with in a client 
A company code is defined in the system by means of a four character alphanumeric key that is unique in the client.
  • Plant:
               The plant is an organizational unit within logistics that subdivides an enterprise from the view point of production, procurement, and materials planning. A plant a four character alphanumeric key that is unique to it in the client.
  • Storage Location:
            The storage location is an organizational unit that facilitates the differentiation  of stocks of materials within a plant. Inventory management on a quantity basis is carried out in the plant at storage location level. 
A storage location is defined by means of a four character alphanumeric key that is unique to it in the client.
  • Purchasing Group & Purchasing Organization:
            A purchasing group is a key for a buyer or a group of buyers who is/are responsible for certain purchasing activities. The purchasing group is internally responsible for the placement of materials and externally it usually supplies contact person for vendors.
The purchasing group is not aligned to other units in the company structure.
  • Purchasing Organization:
              The purchasing organization is an organizational unit within logistics that subdivides the enterprise according to the purchasing requirement. 
You can assign several purchasing organizations to one company code. However, a specific purchasing organization can only belong to one company code. You can decide not to assign the purchasing organization  to a company code.
There is m:n relationship between purchasing organization and plant i.e. several purchasing organization can be assigned to a plant and several plants to one purchasing organization.

Lesson 2: Purchase Order Entry: Basics

A purchase order is a formal request to a vendor to supply you with goods or services with the conditions stated in the PO. You can minimize data entry time by creating PO with reference to:
  1. Existing PO
  2. Purchase Requisition
  3. Quotation
  4. Contract
  • PO transaction (ME21N)
 PO transaction ME21N is a single screen transaction, which is divided into four screen areas:
  1. Header
  2. Item Overview
  3. Item Details
  4. Document Overview
User specific transactions can be taken into account with Personal Settings (user can save default settings).

Questions on Unit 1

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