Saturday, 30 April 2016

How To Compare Price For Different Quotations

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.
The comparison list looks like this:
From the list we can see that Vendor1 have proposed a better price.
What we need to do is check the effective price (with discounts, freight cost and other conditions).We will go back to the selection screen and we will tick three check boxes.
Step 2)
  1. Check all the boxes in the Price Calculations section.
  2. Execute the transaction.
Our results have changed significantly.
Now Vendor2 has the better price, and price of Vendor1 has gone up 256 EUR because of freight cost.
Now we can conclude that our Vendor2 has the best price, and we can proceed with the process.
If you select Mean value quotation and Minimum value quotation on the previous screen, you will get the result as they are shown below on the screen.
  1. Average price on all the quotations.
  2. Minimum price for all the quotations.
After comparing the prices/conditions, you can decide which offers to accept and which ones to reject.

Thursday, 28 April 2016

Procurement Process

Every organization acquires material or services to complete its business needs. The process of buying materials and obtaining services from vendors or dealers is procurement. Procurement process should be done in such a way that it is ordered in correct quantity, with a proper value at the proper time. It is subdivided into following parts:
  • Basic Procurement
  • Special Procurement

Basic Procurement

It is a process of acquiring goods or services in the right amount, at the right price at the right time. So the method of getting services, supplies, and equipment from a vendor (seller), at the right price at the right time in right amount is termed as Procurement. The quality of procurement is attempting to “get the right balance”, consider the following example:
  • Organizations try and keep inventory levels at a minimum due to the prices associated with high levels of inventory; however at identical time it is very expensive to prevent production due to shortages in raw materials.
  • Getting the minimum price for a product or service is often necessary, however the balance between product availability, quality, and vendor (seller) relations is also necessary.

Procurement Lifecycle

Most modern organizations procurement follow some sequential steps which are described below:

Requirement and Information Gathering

Procurement process starts with gathering information about product and its quantity. Then for required products and services, it is necessary to look for suppliers who can satisfy the requirements.

Supplier Contact

After gathering requirements one will look for the suppliers who can fulfill the requirements. Based on that quotation request or information request can be made to suppliers or direct contact can be made with them.

Background Review

Once the supplier is known product/service quality is checked, and any necessities for services such as installation, warranty and its maintenance are investigated. Some samples of the products can be obtained for quality examination.


Some negotiations with suppliers is made regarding price, availability and delivery schedule of the products/services. After this a contract is signed that is a binding legal document between supplier and ordering party. A contract will include all necessary information like price and quantity of material, delivery date, etc.

Order fulfillment

Ordered material will be shipped, delivered to the ordering party and supplier is paid accordingly. Training and Installation of product or services may also be included.

Consumption, Maintenance and Disposal

As the products/service is consumed the performance of the products or services is evaluated and any follow up service support if required is analyzed.

Contract Renewal

Once the product or services are consumed or contract expires and needs to be renewed, or the product or service is to be re-ordered, company experience with vendors and service provider is reviewed. If the products or services are to be re-ordered, the company decides whether to order from previous supplier or think about new suppliers.

Basic Procurement Activities

Basic Procurement activities flow is given in the following image:
SAP Basic Procurement
A brief introduction of Procurement activities is given below:
Procurement ActivitiesDescription
Determination of requirementIt is the logical subdivision where it is determined that what material or services are required to company, and which supplier can fulfill the requirement.
Creating Purchase RequisitionIt is the phase in which purchasing department is informed about the requirement of items or services required for business purpose. A requisition is a internal document.
Creating Purchase OrderIt is the phase when order is created from requisition and it is approved and assigned to a supplier.
Goods receipt/ Invoice ReceivedIt is the phase in which the material is received by the company and the condition and quality are verified. In this phase Invoice is received from the vendor (seller).
Invoice verification/ Vendor PaymentIt is the phase in which the vendor (seller) is paid from the company and reconciliation of the invoice and PO is accomplished.

Type of Basic Procurement

There are 2 types of Basic procurement which are shown below:
  • Procurement for Stock vs Consumption
  • External vs Internal Procurement

Procurement for Stock vs Consumption

The following points show the difference of Procurement for Stock vs. Consumption:
  • Procurement for Stock - A stock material is a material that is kept in stock. These materials are kept in stock once received from the vendor. The stock of this material keeps on increasing or decreasing based on amount of the quantity received or issued. To order a material for stock, the material must have a master record within the system.
  • Procurement for Direct Consumption - When procurement is for direct consumption i.e. it will be consumed as soon as it is received, the user should specify the consumption purpose. To order a material for consumption, the material may have a master record within the system.

External vs Internal Procurement

The following points show the difference of External vs Internal Procurement:
  • External procurement - It is the process of procuring goods or services from external vendors. There are 3 basic forms of external procurement generally supported by the Purchasing component of IT system.
    One time orders are generally used for material and services that are ordered irregularly.
    Longer-term contracts with the subsequent issue of release orders - For materials that are being ordered regularly and in large quantities, we can negotiate deal with the vendor (seller) for pricing or conditions & record then in a contract. In a contract you also specify the validity date.
    Longer-term scheduling agreements and delivery schedules - If a material is ordered on an everyday basis and is to be delivered according to an exact time schedule, then you set up a scheduling agreement.
  • Internal Procurement - Large corporate organizations may own multiple separate businesses or companies. Internal Procurement is process of getting material and services from among identical company. So, each of these companies maintains a complete bookkeeping system with separate Balance, Profit & Loss Statements so that when trade occurs between them it will be recorded.

Special Procurement

Special stocks are stocks that are managed differently as these stocks did not belong to company and these are being kept at some particular location. Special procurement and special stocks types are divided into the subsequent areas.

Consignment Stocks

Material that is available at our store premises, however it still belongs to the vendor (seller)/Owner of the material. If you utilize the material from consignment stocks, then you have to pay to the vendor.

Third-party processing

In third-party processing, a company passes on a sales order to associate external vendor (seller) who sends the goods directly to the customer. The sales order is not processed by your company, however by the vendor (seller). Third-party items can be entered in purchase requisitions, purchase orders and sales orders.

Pipeline handling

In pipeline handling, the company needs not to order or store the material involved. It is obtainable as and when required via a pipeline (for example, oil or water), or another style of cable (such as electricity). The material that is consumed is settled with the vendor (seller) on a regular basis.

Returnable Transport Stock

The company orders goods from a vendor (seller). The goods are delivered with returnable transport packaging (pallets, containers) that belongs to the vendor (seller) and is stored on the customer premises until they return it to the company.


The vendor (the subcontractor) receives components from the ordering party with the help of which it produces a product. The product is ordered by your company through a purchase order. The components required by the vendor (seller) to manufacture the ordered product are listed in the purchase order and provided to the subcontractor.

Stock transfer using stock transport order

Goods are procured and supplied within a company. One plant order the goods internally from another plant (receiving plant/issuing plant). The goods are procured with a special type of purchase order - the stock transport order. You'll be able to request and monitor the transfer of goods with a stock transport order.

Wednesday, 27 April 2016

Request for Quotation

Vendor selection is an important process in procurement cycle. Once requirements are gathered we will look for possible suppliers who can fulfill the requirements at the best possible price. So a request is made to vendors to submit their quotations indicating the price of material along with their terms and conditions. This request is known as request for quotation. The key points about request for quotation are as follows:
  • Request for quotation is a form of invitation that is sent to vendors to submit quotation indicating pricing and their terms and conditions.
  • RFQ contains details about goods or services, quantity, date of delivery and date of bid on which it is to be submitted.
  • Quotation is a reply by a vendor in response to request for quotation.
RFQ can be created by following two ways:
  • Manually
  • Automatically from Purchase Requisition

Manual Creation of RFQ

RFQ can be created manually by following the below steps:
Path to create RFQ:
Logistics => Materials Management => Purchasing => RFQ/Quotation => Request for Quotation => Create
TCode: ME41
On SAP Menu screen select Create execute icon by following the above step.
SAP request for quotation

Fill in all required details like type of RFQ (if standard then AN), language, date of RFQ, purchasing organization and group.
SAP RFQ initial

Provide the name of material, quantity of material, material group and quotation deadline date.
SAP rfq material

Provide the quantity and delivery date for the material.
SAP rfq deadline

Provide the vendor address (street number, city, country, pin code) to which you are addressing the RFQ. Click on save. A new Request for Quotation will be created.
SAP rfq vendor

Automatic Creation of RFQ from Purchase Requisition

RFQ can also be created with reference to purchase requisition by following the below steps:
On the home screen of RFQ select Reference to PReq tab.
SAP rfq auto

Enter the requisition number for which you want to create RFQ. Click on save. A new Request for Quotation will be created with reference to Purchase Requisition.
SAP rfq auto detail

Purchase Requisition

Procurement in every organization starts with gathering requirements. Once requirements are gathered we need to inform the purchasing organization. Purchase Requisition is a document that will contain list of requirements. The key points about purchase requisition are as follows:
  • Purchase requisition is a request that is made to purchasing organization to procure certain list of material.
  • Purchase requisition is an internal document; specifically it remains within the organization.
  • Purchase requisition needs approval from purchasing organization.
  • If purchase requisition is approved then changes are possible only to limited extent.
  • Purchase requisition can be created for the following procurement types:
    Standard: Getting finished material from vendor.
    Subcontracting: Providing raw material to vendor and getting finished material.
    Consignment: Procuring material that is kept in company’s premises and paying to vendor for that.
    Stock transfer: Getting material from within the organization.
    External service: Getting services like maintenance from third party vendor.

Create Purchase Requisition

Purchase Requisition can be created by following below steps:
Path to Create Purchase requisition:
Logistics => Materials Management => Purchasing => Purchasing Requisition => Create
TCode: ME51N
On SAP Menu screen select Create execute icon by following the above path.
SAP Purchase requisition
Fill in all required details like name of material, quantity, delivery date, material group, plant. Click on save. A new Purchase Requisition will be created.
SAP Purchase requisition detail
After creating purchase requisition, we need to send our requirements to vendor. Requirements to vendor are sent through a document that is known as purchase order. Purchase order can be directly created from purchase requisition.

Creating Purchase Order from Purchase Requisition

Purchase Order from purchase requisition can be created by following below steps:
TCode: ME21N
Enter TCode to go to purchase order home screen. Select Purchase requisition as shown in below image.
SAP PO from PR
Provide purchase requisition number for which you want to create purchase order. Then select execute icon.
SAP PO from PR Number
Drag the standard reference Purchase requisition to the cart next to NB Standard PO.
SAP PO from PR drop
Verify the details of purchase order and do the necessary changes as per requirement. Click on save. Purchase order from purchase requisition will be created.

Monday, 25 April 2016

Vendor Master

This Blog takes you through the steps to create Vendor Master Data Enter Transaction code FK01 in SAP Command Field

How to Create Vendor Master Data

In the Initial Screen, Enter
  1. Select Account Group
  2. Enter the Company code in which you want to create the vendor
  3. Enter unique Vendor id according to number range in Account Group
Press Enter

How to Create Vendor Master Data

In the next screen, In Address Tab Enter the Following
  1. Enter the name of the Vendor
  2. Enter Search Term ,for searching the Vendor Id
  3. Enter Street/House Number
  4. Enter Postal code/City
  5. Enter Country/Region

How to Create Vendor Master Data

Next in the Account Control section page Enter the Corporate Group if the Vendor belongs to a corporate group enter the group key

How to Create Vendor Master Data

Next in the Account Management Section
  1. Enter the Reconciliation Account
  2. Enter the Cash Management Group

How to Create Vendor Master Data

Next in Payment Accounting Section , Enter the Payment Terms

How to Create Vendor Master Data

Choose Save from the Standard Toolbar
How to Create Vendor Master Data

Check the Status bar for Confirmation of successful creation of Vendor Master.
How to Create Vendor Master Data

Sunday, 24 April 2016

Material Master

When we want to use a new material in SAP, 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) Transaction that is used for the creation of material master record, as stated above is MM01. The execution of the transaction brings us to the initial screen, which consists of few fields that contain the basic information on our material.
  1. Enter Industry sector (mostly used: M-Mechanical engineering)
  2. Enter Material type, (it can be FERT, ROH, HALB, HAWA - the appropriate material type for current material)

Note: Material number (alphanumerical key uniquly identifying material in SAP system) can be generated automatically or assigned manually – it depends on material type. For material type HAWA for example, you can have manual number assignment, while for FERT you can have automatic number assignment. These settings are supposed to be done by MM consultant in customizing during the implementation.
Step 2) We can choose which master data to create.
  1. We can click on Select View(s) to choose which views we need to create for the material.
  2. Select Basic Data 1
  3. Select Sales Org Data 1. You can always extend the material master data later if you forgot to choose all needed views.
  4. Select the Check Mark. You can see an option button marked in blue on the screen below for selecting all views (rarely used in a productive environment).
Note: Selection of views that can be maintained for material depends on material type. In most of the systems some views are disabled for certain material types ( for example MRP views might be disabled for trading goods).
Step 3) In the next screen
  1. Enter Organizational levels for the views we selected in the previous step.For example, those could be Plant, Storage Location, Sales Organization and Distribution Channel etc.
  2. Click the Check Button
Below you can find a complete reference of organizational levels needed for creating material master views.
Material Master View
Organizational Levels
Basic data (1 & 2)
Sales organization data (1 & 2)
Plant, Sales Organization, Distribution Channel
Sales General
Foreign Trade – Export data
MRP Views
Plant, Storage Location, MRP Profile
Plant, Forecasting Profile
Work Scheduling
General Plant Data (Storage 1 & 2)
Plant, Storage Location
Warehouse Management 1
Plant, Warehouse Number
Warehouse Management 2
Plant, Warehouse Number, Storage Type
Quality Management
Accounting (1 & 2)
Costing (1 & 2)
Table of material master views connection to organizational levels
IMPORTANT: You need to maintain materials in all of your organizational levels in which they are going to be used. If you have more than one plant than you have to repeat MM01 transaction in order to extend your materials for both plants. If you have more than one combination of Sales organization/Distribution channel you also have to repeat the process in MM01 for all of the combinations.e of organizational levels needed for creating material master views.

Saturday, 23 April 2016

Source Determination


With respect to new procurement transactions, you initially wish to fall back on data that is already available in the system. Issuing a one-time purchase order or determining a new source through the more time-consuming process of requesting and processing quotations are functions that will often only take place after you have discovered that there is no suitable source for a certain material or service in the system.
As a rule, a productive system will contain a large number of vendors and outline purchase agreements representing external sources of supply (external procurement), as well as plants belonging to your firm representing internal sources of supply (internal procurement).
The source determination facility helps you to find the most suitable source for a certain requirement from the large volume of data that is available, i.e. it suggests a suitable outline agreement or vendor for ordering purposes.


The following objects represent the basic data upon which the source determination process for requisitions and purchase orders depends:
  • Outline agreement
    Existing outline agreements represent possible sources for a material. If a requisition is assigned to an outline agreement, the system can generate a contract release order or scheduling agreement delivery schedule on the basis of the terms and conditions of the outline agreement.
  • Info record
    If a purchasing info record exists for the requested material, it can also serve as a possible source of supply. The prices and conditions in the info record are suggested when you create a purchase order referencing the assigned requisition.
  • Plant
    A plant belonging to your firm can also represent a possible source of supply in connection with a purchase requisition.
    If a plant has been assigned as the source of supply, the requirement is covered by an internal procurement transaction. In this case, a stock transport order (for a stock transfer involving transport over a longer-distance) is created. For further information, see Stock Transport Order Without SD Delivery .
  • Quota arrangement
    The quota arrangement specifies the portion of the total requirement of a material that is to be assigned to a specific source over a certain period. If quota arrangements exist in the system, they exert an influence in determining precisely which source (perhaps out of several possible ones) is assigned to a purchase requisition.
  • Source list
    In the source list, you specify which source of supply is valid for a certain period. You can define a preferred source of a material (for example, a vendor) as "fixed". The system will then suggest precisely this source even if other possible sources exist. See Source List .


The system determines the source of supply of a requested material on the basis of the following factors (in the order shown):
  1. Quota arrangement
    The system first determines whether a quota arrangement within whose validity period the delivery date in the requisition falls exists for the material.
  2. If a quota arrangement exists, the system determines the vendor from whom the material is to be procured according to the quotas assigned to the vendors and then suggests the source.
    If no source can be determined this way, the system checks the source list.
  3. Source list
    The system determines whether an entry in the source list within whose validity period the delivery date of the requisition falls exists for the material. The source in question may be a fixed vendor or an outline agreement (contract or scheduling agreement).
  4. If the source list contains a unique source, the requisition is assigned to that source.
    If several sources are found, a box appears for selection purposes.
    If no source could be determined, the existing outline agreements and info records are examined.
  5. Outline agreement and info record
    The system searches for contracts, scheduling agreements, and info records for the material and suggests these.
(If info records with more than one purchasing organization exist, all info records of the purchasing organization(s) that is/are responsible for procurement for the requesting plant are also suggested.)
If several outline agreements and perhaps info records exist, all possible sources are offered for selection in a box.
When an info record is found, the following two additional checks are carried out:
  • Check of supply region
    The system checks whether a certain supply region is specified in the associated vendor master record. If so, the system checks whether the plant in the purchase requisition belongs to this region. If not, the info record is discarded as a possible source.
  • Check of regular vendor
    The system checks whether a regular vendor has been specified for the material (that is, a vendor valid for the entire corporate group, or client). If this is the case, and it has been specified in Customizing that the regular vendor takes precedence, the info record for this vendor will be preferred as the source.
Source Determination in the Background:
If you carry out the source determination process online and the system finds several possible sources, a box appears with the sourcing suggestions. From these, you can choose and assign one source.
If you carry out the source determination process in the background, the system must determine a unique source to enable a purchase order to subsequently be generated automatically.
If several sources are found in the third step, the system gives the outline agreement precedence over the info record in order to arrive at a unique source.
If two outline agreements are found, the system checks whether one of them is with a regular vendor. If so, this agreement is assigned as the unique source. If not, the system does not assign a source at all. The source must then be assigned manually.