SCM

Module 5
 Supply Chain Management
Module 5:
Introduction to SAP,
SAP Material Management,
Procurement process,
Organization structure,
Enterprise structure,
Master data management,
purchase Info record,
source list,
procurement cycle,
purchase requisition,
request for quotation,
purchase order, inventory management,
invoice verification, service management, transaction code
 Introduction to SAP
SAP, which stands for Systems, Applications, and Products in Data Processing, is a global
leader in enterprise resource planning (ERP) software.

Founded in 1972 by five former IBM engineers in Mannheim, Germany, SAP has grown to
become a cornerstone in the business software industry, providing solutions that facilitate
efficient and integrated management of business operations.

Core Functionality

SAP offers a comprehensive suite of applications and services designed to manage various
business processes, including finance, human resources, supply chain, production,
procurement, and customer relationship management.

The core of SAP's product portfolio is the SAP ERP system, which integrates these
processes into a single, unified system, allowing for seamless information flow and
improved decision-making across the enterprise.

SAP remains a pivotal player in the enterprise software market, providing comprehensive
and integrated solutions that help businesses manage their operations efficiently and
effectively. With its continuous innovation and commitment to addressing the diverse needs
of its customers, SAP is poised to remain at the forefront of business technology for years to
come.
 Introduction to SAP
Key Modules
SAP ERP is organized into several key modules, each targeting specific business functions:

SAP Financial Accounting (FI): Manages financial transactions and accounting processes,
ensuring compliance with international standards.

SAP Controlling (CO): Focuses on internal reporting and managing costs, enabling
effective planning and monitoring.

SAP Sales and Distribution (SD): Handles order processing, shipping, billing, and sales
activities.

SAP Material Management (MM): Manages procurement, inventory, and material

resources.

SAP Production Planning (PP): Facilitates production scheduling, planning, and control.

SAP Human Capital Management (HCM): Manages employee data, payroll, and talent
management.

SAP Customer Relationship Management (CRM): Enhances customer service and sales
force automation.
SAP S/4HANA Introduction to SAP
In 2015, SAP introduced SAP S/4HANA, a next-generation business suite designed to run
on the SAP HANA in-memory database. S/4HANA offers significant improvements in
performance, real-time data processing, and simplified data models. It is built to take
advantage of modern computing power, providing faster and more efficient transaction
processing and analytics.

Industry Solutions
SAP provides industry-specific solutions tailored to the unique needs of various sectors,
such as automotive, banking, healthcare, manufacturing, and retail. These solutions are
built on the core SAP ERP system but include specialized functionalities and best practices
for each industry.

Global Reach and Ecosystem

SAP serves customers of all sizes across the globe, from small businesses to large
enterprises. Its extensive partner ecosystem includes system integrators, value-added
resellers, and independent software vendors, all contributing to a robust support network
for SAP solutions.

Innovation and Future Trends

SAP continues to innovate by investing in emerging technologies such as artificial
intelligence (AI), machine learning, the Internet of Things (IoT), and blockchain. These
technologies are integrated into SAP solutions to drive digital transformation and help
businesses stay competitive in an ever-evolving market landscape.
 Introduction to SAP Material Management (MM)
SAP Material Management (MM) is a core module in SAP ERP that deals with the
procurement and inventory management functions.
It ensures that materials are available in the right quantity and at the right time for
production and sales processes.
By integrating seamlessly with other SAP modules such as Finance (FI), Sales and
Distribution (SD), and Production Planning (PP), SAP MM plays a crucial role in
streamlining and optimizing procurement and inventory activities within an organization.

Functions of SAP Material Management

Procurement: Manages the end-to-end procurement process from requisition to payment,
including purchase order creation, supplier evaluation, and order tracking.

Inventory Management: Oversees the storage and movement of materials within the
organization, including goods receipt, goods issue, and stock transfers.

Material Requirements Planning (MRP): Helps in planning the required materials based
on production schedules and inventory levels to ensure timely availability.

Invoice Verification: Ensures accurate processing of supplier invoices and integrates with
the accounts payable component.

Valuation and Account Determination: Manages the financial aspects of inventory,

including the valuation of materials and determination of accounts for material movements.
 Introduction to SAP Material Management (MM)
Process of SAP Material Management
Requirement Determination: Identifying the need for materials based on production
schedules or direct requirements.

Source Determination: Identifying potential suppliers and evaluating their ability to provide
the required materials.

Vendor Selection: Selecting the most suitable vendor through a quotation process or supplier
evaluation.

Order Processing: Creating and sending purchase orders to the selected vendors.

Order Monitoring: Tracking the status of purchase orders and ensuring timely delivery of
materials.

Goods Receipt: Receiving and inspecting the delivered materials to ensure they meet the
specified requirements.

Invoice Verification: Checking and processing supplier invoices for payment.

Inventory Management: Managing the storage and movement of materials within the
organization to ensure optimal stock levels.
 Introduction to SAP Material Management (MM)
Advantages of SAP Material Management
Improved Efficiency: Automates and streamlines procurement and inventory processes,
reducing manual efforts and errors.

Better Inventory Control: Provides real-time visibility into inventory levels, helping to
optimize stock and reduce excess inventory.

Cost Savings: Enhances procurement processes, leading to better supplier negotiations and
cost-effective purchasing.

Integration: Seamlessly integrates with other SAP modules, ensuring consistent and accurate
data across the organization.

Compliance and Traceability: Ensures compliance with regulatory requirements and

provides traceability for all materials and transactions.

Disadvantages of SAP Material Management

Complexity: The implementation and operation of SAP MM can be complex, requiring

specialized knowledge and training.

High Initial Cost: The cost of implementing SAP MM, including software, hardware, and
consulting fees, can be substantial.
 Introduction to SAP Material Management (MM)
Disadvantages of SAP Material Management

Customization Needs: Organizations often require customization to meet specific needs,

which can add to the complexity and cost.

Maintenance: Regular updates and maintenance are required to keep the system running
efficiently, which can be resource-intensive.

User Training: Extensive training is necessary to ensure that users can effectively operate
the system, which can be time-consuming and costly.
 Procurement Process in SAP MM
Requirement Determination: The process starts with identifying the Requirement
need for materials or services. This can be initiated through automatic Determination
MRP or by manual creation of purchase requisitions.

Source Determination: Once the need is identified, potential vendors Source

are determined. The SAP system helps in evaluating and selecting the Determination
most suitable vendors based on various criteria.

Vendor Selection and Quotation: Requests for quotations are sent to Vendor selection
potential vendors. The received quotations are compared, and the best and Quotation
vendor is selected based on the evaluation of price, delivery time, and
quality. Purchase order
Purchase Purchase Order Monitoring: The status of the purchase processing
order is tracked to ensure that the vendor delivers the goods or services
on time. Purchase order
Monitoring
Goods Receipt: Upon delivery, the goods are received and inspected. A
goods receipt document is created in SAP, which updates the inventory Goods receipt
levels.

Invoice Verification: The vendor's invoice is verified against the Invoice Verification
purchase order and goods receipt. Any discrepancies are resolved, and
the invoice is processed for payment. Payment processing
 Procurement Process in SAP MM
Payment Processing: The invoice is approved for payment, and the Requirement
payment is made to the vendor as per the agreed terms. The payment is Determination
recorded in the SAP system.

Order Processing: Purchase orders are created and sent to the selected Source
vendors. The purchase order contains details such as the quantity, Determination
delivery date, and terms of payment.
Vendor selection
and Quotation

Purchase order
processing

Purchase order
Monitoring

Goods receipt

Invoice Verification

Payment processing
 Define Company Code
Organization Structure of SAP
The organizational structure in SAP is crucial for defining how Define Chart of Accounts
different business processes are managed and executed.
Define Business Area
It includes several organizational units like Company Code,
Plant, Storage Location, Sales Organization, and others, each
serving a specific purpose in the overall business framework. Define Credit Control Area

Define Company Code: The Company Code represents an Define Control Area
independent accounting unit within the organization. It is the
central organizational element for financial accounting. Define plant

Define Chart of Accounts: The Chart of Accounts is a list of Define storage location
all general ledger accounts used by one or several company
codes. It provides a framework for recording transactions in
Define Purchasing Organization
SAP.

Define Business Area: Business Areas represent separate areas Define Purchasing Group
of operation or locations within an organization. They are used
for internal and external reporting. Define Sales Organization

Define Credit Control Area: The Credit Control Area is an Define Distribution Channel
organizational unit responsible for credit management. It can
include one or more company codes Define Distribution Channel
 Define Company Code
Organization Structure of SAP
Define Controlling Area: The Controlling Area is used for Define Chart of Accounts
cost accounting and internal reporting. It can be assigned to
one or more company codes.
Define Business Area
Define Plant: A Plant is an operational unit within a
company code where activities such as production, Define Credit Control Area
procurement, and maintenance take place.
Define Control Area
Define Storage Location: Storage Locations are sub-
divisions of a plant where materials are stored. Define plant

Define Purchasing Organization: The Purchasing Define storage location

Organization is responsible for procurement activities. It can
be assigned to one or more plants or company codes.
Define Purchasing Organization
Define Purchasing Group: A Purchasing Group is
responsible for specific procurement activities within the Define Purchasing Group
purchasing organization.
Define Sales Organization
Define Sales Organization: The Sales Organization is
responsible for the sale of products and services. It can be Define Distribution Channel
assigned to one or more company codes.
Define Distribution Channel
 Define Company Code
Organization Structure of SAP
Define Distribution Channel: Distribution Channels are used Define Chart of Accounts
to distribute goods and services to customers.
Define Business Area
Define Division: Divisions are used to segment products and
services for sales reporting and analysis.
Define Credit Control Area

Define Control Area

Define plant

Define storage location

Define Purchasing Organization

Define Purchasing Group

Define Sales Organization

Define Distribution Channel

Define Division
 Define Client Define Company Code
Enterprise Structure of SAP
Define Chart of Accounts
The enterprise structure in SAP is crucial for defining and
organizing the various units and their relationships within an Define Business Area
enterprise.

It includes key organizational elements such as the client, Define Credit Control Area
company code, plant, and sales organization, among others.
Define Control Area
This structured approach helps in managing business
processes effectively and ensures that reporting and control Define plant
are maintained across the organization.
Define Client: The Client is the highest organizational unit in Define storage location
an SAP system, representing an independent environment in
the system.
Define Purchasing Organization
Define Company Code: A Company Code is a legal entity
for which financial statements such as balance sheets and
profit and loss statements are created. Define Purchasing Group
Define Chart of Accounts: The Chart of Accounts lists all
general ledger accounts used by one or several company Define Sales Organization
codes.
Define Business Area: Business Areas represent separate Define Distribution Channel
areas of operations or responsibilities within an organization
and are used for internal and external reporting. Define Division
 Define Client Define Company Code
Enterprise Structure of SAP
Define Controlling Area: The Controlling Area is used for Define Chart of Accounts
cost accounting and internal reporting, and it can include one
or more company codes.
Define Business Area
Define Credit Control Area: A Credit Control Area is an
organizational unit responsible for credit management and can Define Credit Control Area
be assigned to one or more company codes.
Define Control Area
Define Plant: A Plant is an operational unit within a company
code where activities such as production, procurement, and Define plant
maintenance occur.
Define storage location
Define Storage Location: Storage Locations are sub-
divisions of a plant where materials are stored.
Define Purchasing Organization
Define Purchasing Organization: The Purchasing
Organization is responsible for procurement activities and can Define Purchasing Group
be assigned to one or more plants or company codes.
Define Sales Organization
Define Purchasing Group: A Purchasing Group is
responsible for specific procurement activities within the Define Distribution Channel
purchasing organization.
Define Division
 Define Client Define Company Code
Enterprise Structure of SAP
Define Sales Organization: The Sales Organization is Define Chart of Accounts
responsible for the sale of products and services and can be
assigned to one or more company codes.
Define Business Area
Define Distribution Channel: Distribution Channels are used
to distribute goods and services to customers. Define Credit Control Area

Define Division: Divisions are used to segment products and Define Control Area
services for sales reporting and analysis.
Define plant

Define storage location

Define Purchasing Organization

Define Purchasing Group

Define Sales Organization

Define Distribution Channel

Define Division
 Master Data Management in SAP
Master Data Management in SAP involves a comprehensive
process of defining, collecting, validating, entering,
integrating, and maintaining master data.
Define Data Governance Policies
It ensures that data is accurate, consistent, and secure across
the organization.
Data Modelling
By following these steps, organizations can effectively
manage their master data, support business operations, and Data Collection
gain valuable insights for strategic decision-making.
Data Validation & Cleansing
Define Data Governance Policies: Establishing policies,
standards, and guidelines ensures that master data is managed Data Entry and Maintenance
consistently and effectively across the organization. Roles and
responsibilities are defined to maintain accountability.
Data Integration
Data Modeling: Identifying the key master data entities and
designing the data model helps in structuring the master data Data Quality Management
and defining relationships and attributes.
Data Security & Access Control
Data Collection: Collecting master data from various sources
ensures that all necessary data is gathered for business Data Archiving and Purging
operations. It is crucial to verify that the data is accurate,
complete, and consistent. Data Reporting and Analytics
 Master Data Management in SAP
Data Validation and Cleansing: Validating data against
predefined rules and standards ensures its correctness. Data
cleansing removes duplicates, errors, and inconsistencies,
Define Data Governance Policies
resulting in high-quality data.

Data Entry and Maintenance: Entering validated data into Data Modelling
the SAP system and maintaining it by updating records as
needed ensures that the master data remains accurate and up- Data Collection
to-date.
Data Validation & Cleansing
Data Integration: Integrating master data with other SAP
modules and external systems facilitates seamless data flow Data Entry and Maintenance
and consistency across different systems and modules.
Data Integration
Data Quality Management: Continuously monitoring and
assessing data quality helps in identifying and resolving data
quality issues. Implementing data quality improvement Data Quality Management
initiatives ensures the integrity of master data.
Data Security & Access Control
Data Security and Access Control: Implementing security
measures protects master data from unauthorized access and Data Archiving and Purging
breaches. Defining access controls ensures that only
authorized users can access and modify master data. Data Reporting and Analytics
Master Data Management in SAP
Data Archiving and Purging: Archiving historical data that
is no longer actively used helps in maintaining system
performance and compliance. Purging obsolete data ensures
Define Data Governance Policies
that the system remains efficient and relevant.

Data Reporting and Analytics: Generating reports and Data Modelling

analytics from master data provides valuable insights that
support decision-making and business strategies. Data Collection

Data Validation & Cleansing

Data Entry and Maintenance

Data Integration

Data Quality Management

Data Security & Access Control

Data Archiving and Purging

Data Reporting and Analytics

 Purchase Information Record in SAP
A Purchase Information Record in SAP is a vital master data component that maintains
information about the relationship between a specific material and its supplier.
This record serves as a bridge between materials and vendors, storing essential data that
facilitates procurement processes and enhances supply chain management.

Functions
Price Information: Stores current and future prices for materials purchased from a specific
vendor, including conditions such as discounts and surcharges.

Terms of Delivery: Contains details about delivery terms agreed upon with the vendor, such
as lead times, minimum order quantities, and delivery schedules.

Vendor Information: Maintains details about the vendor, including contact information and
vendor-specific data.

Material Information: Stores information about the material, including descriptions and
specifications that are specific to the vendor.

Historical Data: Keeps track of historical purchasing data, including past prices and
delivery performance, which aids in evaluating vendor performance.

Source of Supply: Facilitates source determination during the procurement process by

linking materials to specific vendors, which streamlines the purchasing workflow.
 Purchase Information Record in SAP
Process of Creating a Purchase Info Record
Transaction Code: Use transaction code ME11 to create a new Purchase Info Record in
SAP.

Input Vendor and Material Enter the vendor number and material number to create a
unique combination for the Purchase Info Record.
:
Data Entry: Populate relevant fields with data such as prices, delivery terms, lead times,
and vendor-specific material data.

Save Record: Once all necessary information is entered, save the Purchase Info Record to
update the master data in SAP.

Advantages of Purchase Information Record

Streamlined Procurement: Simplifies the procurement process by maintaining
comprehensive vendor-material information in a centralized location.

Pricing Accuracy: Ensures accurate pricing by storing current and negotiated prices,
helping to avoid discrepancies and errors in purchase orders.

Vendor Evaluation: Facilitates vendor performance evaluation by maintaining historical

data on prices and delivery times.
 Purchase Information Record in SAP
Advantages of Purchase Information Record
Efficiency: Reduces manual data entry and repetitive tasks, improving efficiency and
consistency in procurement operations.

Better Negotiation: Provides a basis for better negotiation with suppliers by maintaining
historical pricing and performance data.

Dis-advantages of Purchase Information Record

Maintenance Effort: Requires regular updates and maintenance to ensure data accuracy
and relevance, which can be resource-intensive.

Complexity: Managing a large number of Purchase Info Records for numerous materials
and vendors can become complex.

Data Redundancy: Risk of data redundancy if records are not maintained properly, leading
to inconsistencies.
 Source List in SAP
The Source List in SAP is a key master data element used to manage and control the supply
sources for materials. It specifies the approved vendors for a material over a given period,
ensuring that procurement processes adhere to predefined sourcing strategies and
agreements.
The Source List helps organizations maintain consistency in their procurement activities and
optimize their supply chain management.

Functions
Approved Vendors: Lists all approved vendors for a specific material, ensuring that only
authorized suppliers are used for procurement.

Validity Periods: Specifies the validity periods for each vendor, indicating when a
particular vendor can supply the material.

Sourcing Control: Enforces sourcing strategies by specifying fixed or blocked vendors for
a material within a given timeframe.

Automated Source Determination: Facilitates automated source determination in the

procurement process, streamlining purchase order creation and reducing manual
intervention.

Quota Arrangement: Integrates with quota arrangements to distribute procurement

quantities among multiple vendors based on predefined quotas.
Process of Creating a Source List Source List in SAP
Transaction Code: Use transaction code ME01 to create or maintain a Source List in SAP.

Input Material and Plant: Enter the material number and the plant for which the Source
List is to be created.

Add Vendors: Specify the vendors that are approved to supply the material, along with their
respective validity periods.

Set Source Indicators: Define source indicators such as fixed source or blocked source to
control sourcing decisions.

Save Source List: Save the Source List to update the master data and enforce sourcing
controls in procurement processes.

Advantages
Compliance and Control: Ensures compliance with sourcing strategies and contracts by
restricting procurement to approved vendors.

Efficiency: Streamlines the procurement process by automating source determination,

reducing the need for manual intervention.

Transparency: Provides clear visibility into approved supply sources and their validity
periods, aiding in better planning and decision-making.
Process of Creating a Source List Source List in SAP
Transaction Code: Use transaction code ME01 to create or maintain a Source List in SAP.

Input Material and Plant: Enter the material number and the plant for which the Source
List is to be created.

Add Vendors: Specify the vendors that are approved to supply the material, along with their
respective validity periods.

Set Source Indicators: Define source indicators such as fixed source or blocked source to
control sourcing decisions.

Save Source List: Save the Source List to update the master data and enforce sourcing
controls in procurement processes.

Advantages
Compliance and Control: Ensures compliance with sourcing strategies and contracts by
restricting procurement to approved vendors.

Efficiency: Streamlines the procurement process by automating source determination,

reducing the need for manual intervention.

Transparency: Provides clear visibility into approved supply sources and their validity
periods, aiding in better planning and decision-making.
Advantages Source List in SAP
Risk Management: Reduces supply chain risk by ensuring that materials are sourced from
reliable and vetted vendors.

Cost Optimization: Helps in negotiating better terms with vendors by consolidating

purchases and ensuring adherence to procurement agreements.

Disadvantages

Maintenance Effort: Requires regular updates and maintenance to ensure that the Source
List reflects current sourcing strategies and vendor agreements.

Complexity: Managing Source Lists for numerous materials and vendors can become
complex, especially in large organizations.

Dependency: Over-reliance on the Source List can limit flexibility in responding to changes
in the supply market or vendor performance issues.
 Procurement Cycle in SAP
The procurement cycle in SAP is a structured and systematic
process that encompasses all activities required to acquire
goods and services for an organization.

This cycle ensures that procurement is conducted efficiently, Requirement Identification

transparently, and in compliance with organizational policies.
Source determination
SAP's integrated system enables seamless coordination
between various functions such as purchasing, inventory Vendor Selection & Quotation
management, and finance.
Purchase Order Creation
Steps Involved in the Procurement Cycle
Requirement Identification: The process starts with
identifying the need for materials or services and creating Purchase Order Approval
purchase requisitions (PR) in SAP.
Order Monitoring
Source Determination: Identifying potential suppliers using
the Source List, Purchase Info Records, and quota Goods Receipt
arrangements to ensure procurement from approved vendors.
Invoice Verification
Vendor Selection and Quotation: Sending RFQs to potential
vendors and evaluating their quotations to select the most Payment Processing
suitable vendor.
 Procurement Cycle in SAP
Steps Involved in the Procurement Cycle

Purchase Order Creation: Creating a purchase order in

SAP with all relevant details based on the selected quotation
or vendor agreements. Requirement Identification

Purchase Order Approval: Reviewing and approving the Source determination

purchase order using SAP's workflow for compliance and
efficiency. Vendor Selection & Quotation

Order Monitoring: Tracking the purchase order status and

Purchase Order Creation
ensuring timely delivery by communicating with vendors.

Goods Receipt: Receiving and verifying the goods, updating Purchase Order Approval
inventory levels, and recording the receipt in SAP.
Order Monitoring
Invoice Verification: Verifying the vendor's invoice against
the purchase order and goods receipt, resolving Goods Receipt
discrepancies, and posting the invoice for payment.
Invoice Verification
Payment Processing: Approving the invoice and processing
the payment, updating the vendor's account in SAP's Payment Processing
financial accounting module.
 Purchase Requisition in SAP
A Purchase Requisition (PR) in SAP is an internal document that serves as a formal request to
procure goods or services.

It is the first step in the procurement process and is used to communicate the need for
materials or services within the organization.

The PR is created when there is a requirement for materials or services, and it must be
approved before proceeding to the purchasing department.
Functions

1.Request for Procurement: A Purchase Requisition initiates the procurement process by

formally requesting the procurement of goods or services.

2.Internal Communication: It serves as a communication tool within the organization,

informing the purchasing department of the need for materials or services.

3.Budget Control: Helps in controlling the budget by documenting the need for procurement
and ensuring that expenditures are approved and accounted for.

4.Approval Workflow: The PR goes through an approval process, ensuring that the request is
authorized by the appropriate personnel before proceeding to the purchasing stage.
 Purchase Requisition in SAP
Process of Creating a Purchase Requisition

Identify Requirement: Determine the need for goods or services within the organization.

Create Purchase Requisition: Use transaction code ME51N in SAP to create a Purchase
Requisition.

Enter Details: Input relevant details such as material or service description, quantity, delivery
date, and the requesting department.

Approval Workflow: Submit the PR for approval. The workflow process ensures that the
request is reviewed and approved by the appropriate authorities.

Release for Purchasing: Once approved, the PR is released to the purchasing department for
further processing into a Purchase Order (PO).
 Request for Quotation (RFQ) in SAP
A Request for Quotation (RFQ) in SAP is a procurement document used to invite suppliers to
submit quotes for the supply of goods or services.

It is a key step in the purchasing process, allowing the organization to gather pricing and terms
from multiple vendors before selecting the best offer. The RFQ process ensures competitive
pricing and optimal terms for procurement.

Functions

Vendor Communication: Serves as a formal communication tool to invite potential suppliers

to submit their quotations for required materials or services.

Price Discovery: Helps in discovering the market price for goods or services by comparing
quotes from different vendors.

Supplier Evaluation: Facilitates the evaluation and comparison of different suppliers based
on their quotations, terms, and conditions.

Basis for Purchase Order: Provides a basis for creating a Purchase Order (PO) once the best
quotation is selected.
 Request for Quotation (RFQ) in SAP
Process of Creating a Request for Quotation

Identify Requirement: Determine the need for materials or services and gather specifications
and requirements.

Create RFQ: Use transaction code ME41 in SAP to create an RFQ document.

Enter Details: Input relevant details such as material or service description, quantity, delivery
date, and required terms.

Select Vendors: Identify and select potential vendors to whom the RFQ will be sent.

Send RFQ: Dispatch the RFQ to the selected vendors through SAP.

Receive Quotations: Collect and record the responses from vendors in SAP.

Evaluate Quotations: Compare the received quotations based on price, delivery terms, and
other criteria.

Select Vendor: Choose the most suitable vendor based on the evaluation and proceed to create
a Purchase Order.
 Request for Quotation (RFQ) in SAP
Advantages
Competitive Pricing: Ensures competitive pricing by soliciting quotes from multiple vendors.

Market Insights: Provides insights into current market prices and supplier terms.

Improved Negotiation: Enhances the organization's ability to negotiate better terms and
prices.

Supplier Comparison: Facilitates an objective comparison of different suppliers based on

standardized criteria.

Disadvantages

Time-Consuming: The process of sending out RFQs and receiving quotations can be time-
consuming.

Management Effort: Requires careful management and tracking of multiple quotations and
vendor responses.

Complexity: Handling numerous RFQs for different materials or services can become
complex, especially in large organizations.
 Purchase Order in SAP
A Purchase Order (PO) in SAP is a formal document issued by a buyer to a supplier, indicating
types, quantities, and agreed prices for products or services.

It is a binding contract between the purchasing organization and the vendor, specifying the
terms and conditions under which the procurement is to be conducted.

The PO is a critical component of the procurement cycle, ensuring that both parties have a
clear understanding of the transaction.
Functions
Order Confirmation: Confirms the buyer’s intent to purchase specific goods or services from
the vendor under agreed terms.

Legal Document: Acts as a legally binding contract that ensures the supplier is obligated to
deliver the specified items at the agreed price and terms.

Budget Control: Helps in budget management by recording and tracking the financial
commitments of the organization.

Inventory Management: Integrates with inventory management to update stock levels upon
receipt of goods.

Accounting Integration: Facilitates seamless integration with financial accounting for

invoice verification and payment processing.
 Purchase Order in SAP
Process of Creating a Purchase Order
Requirement Identification: Identify the need for goods or services and ensure that a
Purchase Requisition (PR) has been approved if applicable.

Create PO: Use transaction code ME21N in SAP to create a new Purchase Order.

Enter Details: Input relevant details such as material or service description, quantity, delivery
date, price, vendor details, and terms of delivery.

Approval Workflow: Submit the PO for approval as per organizational policies.

Dispatch PO: Once approved, dispatch the PO to the vendor through SAP.

Order Monitoring: Track the status of the PO to ensure timely delivery of goods or services.

Goods Receipt: Receive and verify the goods or services against the PO, and create a Goods
Receipt (GR) document in SAP.

Invoice Verification: Verify the vendor’s invoice against the PO and GR document, resolving
any discrepancies.

Payment Processing: Process the payment to the vendor as per the terms agreed in the PO.
 Inventory Management in SAP
Inventory Management in SAP is a crucial module that facilitates the management and control
of stock levels, ensuring the availability of materials required for production and sales while
optimizing inventory costs.

It provides real-time information about inventory levels, movements, and valuations, enabling
efficient and effective inventory control.
Functions
Goods Receipt: Records the receipt of materials into the warehouse, updating inventory levels
accordingly.
Goods Issue: Manages the issuing of materials from inventory for production, sales, or other
purposes.
Stock Transfer: Facilitates the movement of materials between different storage locations,
plants, or company codes.
Inventory Valuation: Calculates the value of inventory based on various valuation methods
such as FIFO, LIFO, and weighted average.
Physical Inventory: Supports the physical counting and reconciliation of stock, ensuring
accurate inventory records.
Batch Management: Manages materials in batches, allowing for detailed tracking and control
of inventory.
Serial Number Management: Tracks individual items using serial numbers, enabling precise
inventory control.
Reporting and Analytics: Provides comprehensive reports and analytics on inventory levels,
movements, and valuations.
 Invoice Verification in SAP
Invoice Verification in SAP is a critical process within the Materials Management (MM)
module that ensures the accuracy and authenticity of vendor invoices before they are
processed for payment. This process matches the vendor's invoice with the purchase order
(PO) and goods receipt (GR) to ensure that the billed quantities and prices are correct, and it
helps maintain accurate financial records and controls.

Functions
Three-Way Match: Verifies the consistency between the purchase order, goods receipt, and
vendor invoice to ensure that the quantities and prices match.

Invoice Entry: Records the vendor's invoice in the SAP system, capturing essential details
such as invoice number, date, amount, and payment terms.

Discrepancy Handling: Identifies and resolves discrepancies between the invoice, purchase
order, and goods receipt, such as quantity differences or price variances.

Automatic Postings: Facilitates automatic postings to the relevant accounts in financial

accounting, updating the organization's financial records.

Payment Processing: Triggers the payment process for approved invoices, ensuring timely
and accurate vendor payments.
 Invoice Verification in SAP
Advantages
Accuracy and Consistency: Ensures that invoices are accurate and consistent with purchase
orders and goods receipts, reducing errors and discrepancies.

Financial Control: Maintains accurate financial records by verifying and posting invoices
correctly, enhancing financial control and reporting.

Efficiency: Streamlines the invoice verification process through automation, reducing manual
effort and processing time.

Compliance: Ensures compliance with organizational policies and regulatory requirements by

enforcing proper verification and approval processes.

Improved Vendor Relations: Facilitates timely and accurate payments, improving

relationships with vendors and ensuring reliable supply.

Disadvantages
Complexity: The invoice verification process can be complex, especially for organizations
with a large number of transactions and vendors.
Training Requirements: Requires specialized knowledge and training to manage the process
effectively.
Initial Cost: Implementing and customizing the invoice verification process in SAP can be
costly and time-consuming.
 Service Management in SAP
Service Management in SAP is a module designed to manage the service operations and
processes within an organization.

It integrates with other SAP modules such as Sales and Distribution (SD), Materials
Management (MM), and Customer Relationship Management (CRM) to provide a
comprehensive solution for managing service delivery, service contracts, and customer
interactions.

The primary goal of Service Management is to enhance customer satisfaction by ensuring

efficient and effective service delivery.

Functions
Service Order Management: Handles the creation, scheduling, and execution of service
orders for maintenance, repair, and other service activities.

Service Contracts: Manages service contracts and agreements with customers, including the
terms, conditions, and billing for services provided.

Service Planning: Facilitates the planning and scheduling of service tasks and resources,
ensuring optimal utilization of service personnel and equipment.

Service Billing: Manages the billing process for services rendered, including the calculation
of service charges and generation of invoices.
 Service Management in SAP
Functions
Customer Interaction: Tracks and manages customer interactions and service requests,
ensuring timely and accurate responses to customer inquiries and issues.

Service Reporting: Provides detailed reports and analytics on service activities, performance
metrics, and customer satisfaction.
 Transaction Code in SAP
Transaction Codes (T-Codes) in SAP are shortcuts that allow users to access various
functionalities and execute specific tasks within the SAP system.

Each T-Code is a unique identifier assigned to a particular transaction or function, enabling

users to navigate the complex SAP environment efficiently.

T-Codes simplify and speed up the workflow by providing direct access to specific screens,
reports, or functions without navigating through multiple menus.

Functions

Navigation: Facilitates quick and direct navigation to specific functions, screens, or reports
within the SAP system.

Efficiency: Increases efficiency by reducing the time and effort required to perform routine
tasks.

User Convenience: Enhances user convenience by providing a straightforward way to access

frequently used functions.

Task Execution: Allows for the execution of various tasks such as data entry, report
generation, configuration, and transaction processing.
 Transaction Code in SAP
Examples of Common SAP Transaction Codes
MM01: Create Material Master
ME21N: Create Purchase Order
FB50: Enter G/L Account Document
VA01: Create Sales Order
SE38: ABAP Editor
SU01: User Maintenance
SPRO: SAP Project Reference Object (Customizing)
FBL1N: Vendor Line Items
MIGO: Goods Movement
MIRO: Enter Incoming Invoice

Process of Using Transaction Codes

Access the SAP GUI: Open the SAP Graphical User Interface (GUI) where T-Codes are
entered.

Enter Transaction Code: In the command field, type the desired T-Code and press Enter.

Execute Task: The system will navigate directly to the screen or function associated with the
T-Code, allowing the user to perform the necessary task.

Save or Process Data: Complete the task by entering the required data and saving or
processing it as needed.
 Transaction Code in SAP
Advantages
Time-Saving: Significantly reduces the time needed to navigate through the SAP system,
making it easier to access functions quickly.

Streamlined Workflow: Simplifies the workflow by providing direct access to commonly

used transactions, enhancing productivity.

Ease of Use: Makes the SAP system more user-friendly, especially for users who are familiar
with the T-Codes relevant to their tasks.

Consistency: Ensures consistent access to functions and reports across the organization by
standardizing the use of T-Codes.

Disadvantages

Learning Curve: Requires users to remember various T-Codes, which can be challenging for
new or infrequent users.

Risk of Errors: Incorrectly entered T-Codes can lead to navigating to unintended functions,
potentially causing errors.

Dependency: Users may become overly dependent on T-Codes, making it difficult to navigate
the system through menus when needed.