Vendor Evaluation in MM - Purchasing

How Is Vendor Evaluation Used?

• Vendor Evaluation supports you in procuring both materials and external services, by making use of data from MM, from the Logistics Information System (LIS info structure S013), and from quality management.

• An enterprise will want to evaluate it's vendors based on different criteria. This evaluation may be useful in negotiations with the vendor.

• Vendor Evaluation will enable you to choose the most appropriate vendor for a specific requirement, and supports you in the continuous monitoring of existing supply relationships.

• A precondition for the use of vendor evaluation is that you previously specify in customizing the criteria by which your vendors are to be evaluated, and how which aspects of their performance are to be rated.

General Information

• Vendor evaluation is always evaluated for:
  • purchasing organization
  • vendor

• Each time an evaluation is processed, the vendor gets an overall score, which is determined from the scores of the Main Criteria with the application of a weighting key.

Pricing Procedure and Configuration Steps in SAP MM

Pricing is very important in SAP MM certification as more than 12 percentage of questions will come in your C_TSCM52_66 certification exam. 

What is Pricing procedure?

The main concept of pricing procedure is combination of different type charges, like Gross price, freight, discount, surcharges etc etc.

We use pricing procedure to determine these all conditions into one procedure, where we can find the sub-total for net amount.

To understand pricing procedure we have to comfortable with these below things :

1. Condition Table

2. Access Sequence

3. Condition Type

4. Condition Record.

5. Schema Group

6. Calculation Schema

7. Schema Determination

Let's discuss about all these points in details.

1. Condition Table

It's a table where we can save the all fields with the combination for individual condition record. Suppose if I use Plant as condition table, then the condition record will be created for plant only.

We can use many fields in one condition tables.

2. Access Sequence

The main think of Access sequence is, it searches condition record for condition type from condition table.

One access sequence contains many condition tables.

Suppose we maintain 4 condition tables in one access sequence. Then when a condition type is searching for condition record via this access sequence, the access sequence will allow to search only this 4 condition tables.

SAP MM Certification Guide

A Firm Decision: Career after SAP MM Certification

Taking a decision to go for SAP MM certification followed by consulting area is critical task, for that you need to look for following points

1. You are working with same domain(procurement, supply chain management etc.) and looking for career in SAP MM consulting
2. You are fresher and completed your post graduate in MBA, you have made your mind to go for SAP MM consulting for whatever reason (mostly you are influenced by job market)
3. You have some knowledge on SAP, or you are working on other modules of SAP and you want to move into SAP MM consulting.

Do you really need to be certified SAP MM

How to Create Material Master in SAP MM

When we want to use a new material in SAP MM process which is important master data maintenance, we have to define it’s characteristics, in order to control it’s behavior in all of the transactions. Every material is created in the either of these two ways:

1. By calling transaction MM01 (mostly used in a productive environment)
2. Mass creation (mainly used only once on transition of materials from the previous system into SAP ERP)

We will focus now on transaction MM01, and leave the mass creation for later since it is an advanced tool. We will discuss it after you have enough knowledge about material master views and organizational levels.

Step 1) Initial Screen of SAP MM Material Master Data (MM01)

Transaction that is used for the creation of material master record, as stated above isMM01. The execution of the transaction brings us to the initial screen, which consists of few fields that contain the basic information on our material.

Introduction to Quotation and RFQ in SAP MM

Quotations

Quotations are requests for vendors to provide us information about their best prices, terms and conditions, schedule of deliveries and other information in order to select the best source for our procurement needs.

Below you can see the process flow for quotations in purchasing in SAP MM module.

Quotation process is started with creation of a request for quotation, and afterwards maintenance of the quotations to input all the information received from possible vendors. Then we want to compare the offers and select the best suitable one(s) rejecting the others.In SAP, there are several transaction used in the process.

Effect of Goods Receipt Posting in SAP MM Procurement Process

What is Good Receipt?

A goods receipt transactions is used to receive material via a purchase order or an in-house production order. The goods receipt process can be simple or complex depending on the nature of the material being received.

Each organization has its own procedures for the receipt of material, and these have to be considered when using the goods receipt functionality in SAP, if the material is received into stock, either unrestricted or quality, the value of the material is posted to the plant accounts. That means that the company has spent money to have that material in the plant. 

Effects of Goods Receipt Posting

Once the goods receipt has been posted, a series of events are triggered

Material document:

The material document is the audit that describes the movements of the material of entered in the goods receipt. The material document is created during the posting of the goods receipt and can be displayed using transaction MB03

Accounting Document:

The accounting document is created in parallel with the material document during the posting of the goods receipt. The accounting document describes the financial movements associated with material receipt. The accounting document can be accessed from the material document transaction MB03.

Goods Receipt Note:

The goods receipt note is a printed document that can be used by the warehouse to store the material in the correct location. Three goods receipt note printed versions can be selected in transaction MIGO.

Individual GRN: An individual goods receipt note is printed for each of the material document items

Individual GRN: With inspection text. Once goods receipt note is printed per material document item, but will include any quantity inspections text that s contained in the material master record.

Collective slip: This goods receipt note containing all of the items

The goods receipt note has three printed versions defined within SAP. These are WE01, WE02 and WE03. These can be modified to include the information relevant for issuing procedure of each company.

Stock Changes:

When a goods receipt is posted, the relevant stock levels will change. the stock level will be increased for a goods receipt and decreased for a goods receipt reversal. A goods receipt reversal may occur if the material was found to be defective or failed quality inspections. If this occurs. the inventory control department may decide to reverse the goods receipt so the material will be deducted from the plant stock level.

Vendor Consignment in SAP MM

Consignment in Real Business

As a business deal you have an agreement  with a vendor to source a particular number of consignment material to your organization. The consignment material value is still retained by the vendor until you take out it from the consignment inventory or post it to own valuated stock. You take possession of the material when you issue to a cost centre or handover it into your own stock. You settle your consignment liabilities with the vendor monthly. As a SAP MM consultant you want to set up this scenario in SAP system.

Special Procurement Vendor Consignment

Vendor Consignment in Material Management

As described above in first paragraph, consignment means that material made accessible to you by a vendor is stored in your company but truly valued to the vendor. A liability to the vendor only rises when you pull out material from the consignment stocks. The following section roughly outlines the entire vendor consignment process Details on the individual steps are covered in the further sections.

To manage material in the consignment stock. you need the following master data:

Automatic Account Determination in SAP MM

What is Automatic Account Determination? 

Different transactions in inventory management and invoice verification are relevant to accounting. These transactions must be recorded in an accounting document containing the postings to the FT G/L accounts. The G/L accounts to which the postings are made in such a document should be determined automatically by the program as far as possible.

Example: 
When a. raw material is issued for a production order, postings are made to stock accounts (under credits) and to consumption accounts (under debits).

in SAP MM process,  automatic account determination is a. procedure applied to accounting-relevant transactions. The system uses it to identify the G/L accounts to which postings are to be made without any user intervention. Therefore, these accounts must be entered in a. special table in Customizing for the transactions in inventory management and invoice verification.

Contracts in SAP MM Process

What is Contract:

In the MM Purchasing element, a contract is a type of outline purchase agreement against which release orders (releases) can be issued for agreed materials or services as and when required during a certain overall time-frame. (In the literature and in practice, similar concepts may also be referred to by a number of other terms, such as "systems contract", "blanket order agreement", "blanket contract", and "period contract".)

A contract is an agreement between the vendor and the customer for the vendor to supply material to the customer at an agreed price over a specified period of time.

Structure on Contract in SAP MM:

The contract consists of items defining the individual materials, material groups, or services with prices and in many cases quantities.

An item is assigned to an item category, which defines the type of procurement (e.g. item category K for consignment, or L for subcontracting).

An item of the procurement type "external service" contains a set of service specifications. Such specifications may be hierarchically structured. The summary view of such a hierarchical structure is termed an "outline", and the individual levels of the hierarchy are referred to as "outline levels". Quantities are specified in service lines. Services can be released (ordered, or called off against the contract) at item level or at the level of the service line.

Costs can be apportioned among various Controlling objects via the account assignment.

Release orders issued against the contract (see below) are logged in the release documentation.

Contracts can take the following forms:

Quantity contracts (MK):
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 (WK):
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.

You can also set up corporate buying contracts with your vendors. These are valid for all plants and company codes within a client (see Centrally Agreed Contract - DC).

Over the contract validity period, certain quantities of the materials or services covered are released (called off) against the contract as and when required through the issue of purchase orders referencing the latter. Such purchase orders are thus termed "contract release orders" or simply "release orders". (Outside SAP, particularly in the UK; they may also be referred to as "call-off orders".)

How to Change Purchase Order in SAP MM

Step 1)

For changing an existing purchase order you can use transaction code ME22N  (or ME22 – the old version).

Immediately after executing transaction code, system will take you to the most recent purchase order you have created, changed or viewed. If you need to change some other purchase order, you can use the option which appears in the menu

How to Post Goods Receipt in SAP MM

Step 1) You can post the goods receipt for a purchase order using transaction code MIGO.

Let’s say we want to do a goods receipt for our purchase order 4500018386.

1. Choose A01 – Goods Receipt.
2. Choose R01 – Purchase Order.
3. Enter your purchase order number.
4. Press ENTER.

Step 2)

How to Release Invoice in SAP MM Process

An invoice request is blocked for payment until its manually released. You can release the invoice by using t-code MRBR.

Step 1)

1. Execute t-code MRBR.
2. On the initial screen enter the company code and invoice number.
3. Check the release method (release manually if you want to process it in the second screen). This can be done choosing Automatically (please note the difference with automatic release in MIRO transaction being blocked and automatic release in t-code MRBR as those are two different things).
4. Our document has a manual payment block, so we will select that option. Execute.

Invoice Verification in SAP MM Process

Invoice verification is done via MIRO transaction.

Step 1)

1. Enter transaction code MIRO.
2. Choose invoice as a transaction type.
3. Enter the invoice date.
4. Enter the purchase order number.
5. Hit ENTER.

Step 2)

On Payment tab choose R – invoice verification.

How to Create Service PO in SAP MM Process

Service purchase orders are entered for services that are procured internally or externally. These purchase orders are different from standard ones as they don’t require a goods receipt since they have no stock. Other than that, there are a few small differences in PO creation. First is the document type for these orders. It should be FO – Framework Order.

To procure a service directly for a cost center, we will follow the below procedure.

Step 1)

Go to transaction ME21N.

1. Choose document type FO – Framework Order.
2. Choose vendor.
3. Choose validity start for PO.
4. Choose Account Assignment Category – K and Item Category – D.
5. Enter the description for the service.
6. Enter the quantity and unit of measure.
7. Enter the price for the service (e.g. 900 EUR per 1 AU – activity unit).

Release Purchase Order(PO) Strategy and Cancelling PO Release in SAP MM

Releasing a purchasing document means approving it. For this, our MM consultant can create release procedures to be used. There is a vast number of options that can be used for controlling the release of the documents.

Important information to know is that a purchasing document cannot be changed after it is released. That means that only the final version should be released. Unreleased documents (RFQ – request for quotation, PO – purchase order, scheduling agreement, contract) cannot be processed further (convert RFQ to quotation, PO to goods receipt, invoice verification).

Process flow of PO Release in SAP MM:

Create Purchase Order With Reference to Existing Document

Purchase order with reference

Purchase orders can be created with reference to a purchase requisition, RFQ, quotation, another purchase order, contract, sales order etc. To reference a PO to a previous document you can use the appropriate function.

You can create a PO referencing a previous document in 2 ways

1. Using ME58
2. Using ME21N

Referencing through ME58

In our case if we want to create a PO for a purchase requisition, we can use the transaction code ME58.

I will demonstrate the process starting from ME58 as it calls the ME21N and you can see that actually we create a PO in ME21N anyway.

Step 1)

1. Enter t-code ME58.
2. Choose Vendor and purchasing organization and
3. Select document types.
4. Execute.

How to Create Purchase Order in SAP MM Process

Purchase orders are used for a number of processes in procurement. They can be used for internal procurement (from one plant to another), external procurement of goods (direct consumption or stock) and services. It can also be used for subcontracting, third-party and consignment processes.

Purchase order processing is shown in the following diagram.

Purchase orders can be created with reference to a purchase requisition, RFQ, quotation, another purchase order, contract, sales order.

How to create a Purchase Order

Purchase orders are created by using standard transaction ME21N (or ME21 – the old instance of the transaction).

Step 1)

1. Enter transaction code ME21N.
2. Enter vendor.
3. Enter material number that needs to be procured.
4. Enter the quantity and unit of measure (optional – system uses UoM from purchase info record).
5. Press ENTER to confirm the data entered.

How to Select or Reject Quotation in SAP MM

Step 1)

1. Select the quotation that’s favourable (you want to process it further as it’s having the best conditions).
2. Choose the Edit Quotation button on the toolbar.

Step 2) Now you are in the ME47 transaction. Here you can choose the item and go to the item details screen.

1. Select the item.
2. Click on the item details icon.

How to Create Source List in SAP MM

You can create a sourcelist in ME05 transaction. A source list is a list of possible sources for a material. If a source list requirement exists for the material, you must create a source list to proceed with the ordering.

1. Execute t-code ME05.
2. Enter material, or material list/range.
3. Enter plant.
4. Untick the test run check box to perform the transaction instead of using the test mode.
5. Execute the transaction.

How to Perform Price Comparison Among Different Quotation in SAP MM

After your quotations are entered, you can compare them to select the best available offer at this moment. We can compare the quotations in transaction code ME49.

We can select which quotations will be compared by using the collective number we addressed before to be an important field that is maintained on RFQ (or directly on the quotation).

If we forget to enter the collective number, we will have to supply all the quotation numbers in the selection field “Quotation”.

Step 1) In transaction ME49, Enter

1. Purchasing organization (e.g. 0001).
2. Collective RFQ (we have used 190123).
3. Execute the transaction.