SAP MM (Materials Management) is one of the fundamental modules of SAP ERP

system that is implemented in most of the installations of SAP. This module is related to
the logistics part of SAP solution. Our team at ERProof developed a free online course
that will help interested people to learn SAP MM by following our free tutorials.

This training course is currently under development. You can browse selected modules
of this course using the links below. New links will be added over time.

Module 1: Getting Started with SAP MM

The Materials Management (MM) module is the business process area that handles
daily activities of a business such as Procurement, Inventory Management, Materials
Requirement Planning, Master data (Material and Vendor), Material Valuation, Vendor
Evaluation, Invoice Verification and so on. Most business that operate in the
manufacturing sector find this SAP module very useful as it helps in optimizing business
processes. This article will provide SAP MM overview that will be help to quickly
understand functionality of this SAP module.

Why Companies Need SAP MM and What This Module

Does?
Most companies that run a large and robust supply chain processes would find MM very
useful in their day-to-day business operations. One major importance of MM is in its
ability for accurate stock taking which is very useful to the manufacturing industry where
material availability for use in production activities is of utmost importance as this has
the potential to either make or mar the production cycle. Hence, MM plays a vital role in
Materials Requirement Planning for manufacturing companies with particular
importance to those who deal in fast moving consumer goods. Another importance of
MM to companies is in its procurement mix which involves the procurement of materials
of stock and non-stock and also the procurement of services. It also helps in the
management of waste and reduction in duplicity of inventory stock items.

With the use of this module, most companies are able to keep accurate records of their
stock inventory, have a proper audit of material valuation, and stock tracking in the
various regions of business operations. Hence, the module helps to promote a
centralized repository of total company inventory stock. Also, procurement can be
centralized and used to capture all associated cost elements such as freight cost,
custom duties, transport/delivery charges, loading and unloading charges etc. With this
module procurement is also able to liaise with stores to monitor closely demand and
supply of material stock in order to ensure optimal stock levels are observed at all times
during the production cycle.
SAP MM Organizational Structure
Next, let us describe organizational units of Material Management in our SAP MM
overview. Most companies have a framework upon which their business operations are
conducted. This framework is usually referred to as organization structure or in SAP
parlance enterprise structure. The enterprise structure is composed of a number of
organizational units which relates to one another. To establish this relationship between
the levels it is important that we assign them in such a way that they lie in the same
hierarchy.

SAP MM Organizational Structure

Download this slide as PDF: SAP MM Organizational Structure PDF.
Client

Within the SAP system we consider a client as self-contained in terms of data, and it is
the highest hierarchical level in the SAP system. All specifications as it relates to data
entered at this level is applied to all company codes and all the other organizational
units. In a particular R/3 system, we can have single or multiple company codes
depending on the business requirements as it pertains to the company operations.
Hence, a client key is usually used as a unique identifier when access to the respective
clients are needed.

Company Code

Following the client is the company code where replication of independent accounts can
be performed. It is the smallest unit in the organization where this takes place. This
represent an independent unit of Balance Sheet, and Profit and Loss Accounting, e.g.
as seen in a company within a corporate group. As stated earlier, several company
codes can exist in a single client in order to thus keep separate sets of financial books.

Plant

A plant is regarded the logistics unit within the organizational hierarchy handles the
procurement of materials, services, production, materials valuation, materials planning,
and inventory. In some other business scenarios, a plant can represent a Manufacturing
Facility, a Distribution Centre, Sales Regions, Head offices (e.g., in banking sector) or a
maintenance office (e.g., in maintenance planning plants) within a company.

Storage Location

Differentiation of material stocks within a plant takes place at the storage location level.
Here also, we monitor goods movements in and out of inventory and carry out physical
inventory count to ascertain inventory levels at given periods.

Purchasing Organization

The purchasing organization unit is responsible for procurement of materials or services

on behalf of the company. It also negotiates conditions of purchase with vendors. A
purchasing organisation can procure for several company codes (centralized
purchasing), specific company code (company specific), and specific plants (plant
specific) depending on the configurations.
Purchasing Group

This organizational unit is responsible for the everyday procurement activities that go on
in an organization. Usually, they comprise a group of buyers, depending on the size of
the company, and are responsible for procurement of goods and services.

Overview of The Main Business Processes in SAP MM

The main business processes in MM can be broken down into procurement, inventory
management, material valuation, and materials requirement planning. Invoicing is inter-
related and though sites in MM some companies prefer their Finance departments to
handle this operation.

Procurement

Procurement begins from raising requisitions from requesting departments or process

orders from production or work orders from maintenance or sales orders from sales unit,
or as a result of materials reservation from the material planner. Next is for the
procurement team to send out quotation request to source vendors for the procurement
of these items of material or services. Vendor selection then takes place and purchase
orders are generated capturing all the associated cost elements as agreed.

Inventory Management & Service Entry and Acceptance

Subsequently, upon delivery of the goods or services a good receipt is carried out or
service entry and acceptance based on the scenario in play. For goods receipts, the
various stocks inventory is updated and the system debits and credit the respective
general ledger accounts automatically as configured in MM. Also, in inventory,
depending on the stock type and its use, stocks are made available to production,
projects, warehouse as the case may be. Service entry for value of work done is
accepted and processed onwards to invoicing.

Invoice verification

This process most times looks at what value of items of stock of service was received
and processes payments based on this information. In SAP MM this is referred to as the
3-way match. Hence, payments are based on goods receipt quantities not Purchase
order quantities.

SAP MM Integration with Other SAP Modules

The next section of SAP MM overview is related to integration. SAP MM is strongly
integrated with other modules. As the backbone of the logistics it is integrated with
Production Planning (especially in Material Requirements Planning), Sales and
Distribution, Warehouse Management, Transportation Management, Shipping,
Environment, Health and safety, Quality Management (for stock materials that most
pass through quality assurance procedure), Plant Maintenance (in the areas of bills of
materials used for materials spares), Project Systems (WBS elements), and in newer
SAP solution areas like Supply Chain Management (SCM), Supplier Relationship
Management (SRM).

SAP MM is also strongly integrated with Financials module as every postings occurring
in inventory has direct impacts on general ledger accounts which report to balance
sheet and profit and loss statements. Material valuation also integrates with Finance. It
also integrates with the Controlling module in areas of budget controls for release for
funds to procurement. Other areas of integration points are with Human Resource
Management module in the use of organization level in defining release approval for
purchase orders based on positions IDs of the responsible staff personnel.

And in addition to this SAP MM overview, I would like to talk a little about Master Data in
Materials Management.

Master Data in SAP MM

We have several master data in MM comprising: Materials Master Data, Vendor Master
Data, Purchasing Information Records, and Source Lists.

Material Master Data

Here, based on the purpose for use of the material we can define the material type
views, if it is non-stock, its valuation class, price control and valuation type if it is split
evaluated.

Vendor Master Data

Vendors can be maintained centrally or to specific purchasing organization. Usually for

each vendor a defined vendor account grouping code is used in its maintenance and
this determines whether it is domestic, or foreign, or one-time vendor.
Purchasing Info Record

This here is used to maintain information between various vendor and agreed price and
cost elements for supply of stock materials. In MM what the system does is to refer to
the price in the info record for any purchase order being created for that particular
material against the vendor.

This tutorial is part of SAP MM training course and it explains about SAP MM

organizational structures. After following the tutorial, you will learn how to model
enterprise structure in SAP MM (Materials Management) module of SAP ERP.
Knowledge of SAP MM organizational structure is fundamental for analysts and
consultants that specialize in SAP MM and here you will learn about each the MM
organizational units.

Introduction
Organization’s structure, be it the reporting structure mentioned in the organizational
chart, departmental structure, reporting hierarchy, signing mandate hierarchy,
processes and procedurals structure, is mandatory for smooth processing of business
processes. Hence, SAP ERP needs to reflect an organizational structure of a company.

Every module of SAP has its own enterprise structure. Enterprise structure helps in
building a hierarchy and structure to streamline the business processes. Before initiating
implementation, designing and configuring the actual system, Enterprise Structure is
defined in the Business Blueprint Documentation phase. It is an important step to define
the organizational structure. It requires thorough analysis of how an organization
currently runs and how the business wants to run the company after implementation of
SAP.

If an organization is huge, dealing with multiple lines of business, its processes are
complex, and it is scattered geographically at different locations, designing and
finalizing the Enterprise Structure is a very critical, vital and time taking activity. Several
meetings can be called with the Business Process Owners and Subject Matter Experts
to finalize the enterprise structure which may also require endorsement and approval
from the higher management. Sometimes sign off on SAP enterprise structure is
obtained separately during the Business Blueprinting phase.

SAP MM Organizational Structure

In the SAP ERP, several structures can be used to represent the legal and
organizational structure of the company. Organizational elements can be structured
from the point of view of accounting, human resources and materials management. It is
possible to combine these structures. The organizational structures form a framework in
which all business transactions can be processed.

Following organizational units represents MM (Materials Management) module:

 Company Code
 Plant
 Storage Location
 Purchasing Organization
 Purchasing Groups

Materials Management module uses some other organizational units which are
maintained by other modules in SAP, such as:

 Company Code (FI – Financial Accounting module)

The organizational units discussed below are relevant for SAP Material Management
(MM) only.

Chart of SAP MM Enterprise Structure

Graphical Representation of SAP MM Organizational

Structure
Client

From a business viewpoint, the client could represent a corporate group. The client is
the highest hierarchical level in the SAP system. A client is considered synonym for a
group. Creation of client in SAP is a technical requirement. It is the highest node or the
hierarchy of the enterprise or organizational structure in SAP. Several company
codes can be maintained within a client.

Company Code

Company code is SAP is the organizational unit which is the created in Finance (FI)
module and the same is linked with Materials Management module. Strictly speaking it
does not belong to SAP MM organizational structure. Company code represents an
independent company. Company which is a legal entity and statutory requirement is to
maintain a separate balance sheet. Profit and loss statement are created and
maintained at the company code level.

In a scenario where the model is that a corporate group or group of companies are
carrying out their businesses in different sectors of economy, every company by law is a
legal entity which is liable to maintain separate book of accounts. All books of accounts
are maintained at the company code level.

Plant

Plant in the SAP system is a broad term which has a varying definition when different
logistics modules come into discussion.

 In Materials Management (MM) module, a plant is referred to as a facility where the material
stock is kept, stored and inventory is maintained.
 In Production Planning (PP) module, a plant is referred to as a production facility where the
production of goods is done.

Storage Location

Storage Location is an organizational unit in logistics which is assigned to a plant where

the stock is kept and inventory is managed. Storage Location can be characterized and
vary based on their properties like Raw Material Storage Location, Finished Goods
Storage Location, Spares Storage Location, Returns Sales Storage Location,
Temperature Controlled Storage Location, etc.
Purchasing Organization

A purchasing organization is responsible for all purchasing activities within a company

and is responsible for handling procurement activities and documentation such as RFQ,
contracts, purchase orders, etc. In simple words, a Purchasing Organization is an
organizational unit in SAP Materials Management which is responsible for purchasing
and carries out procurement activities on behalf of the company.

DECENTRALIZED PURCHASING

Suppose a company has several plants and all the plants have their own procurement
department which are responsible to carry out day to day purchasing for their own
respective plant. Hence, Purchasing Organizations will be created that will be used
separately for each plant. So, this means that a Purchasing Organization can be
assigned to a Plant.

CENTRALIZED PURCHASING

It is also possible to assign one or more plants to a single Purchasing Organization. If,
for example, a company has only one procurement department which is a centralized
and carries out procurement activities for all  the company. Furthermore, a Purchasing
Organization can also be assigned to company code level as well.

Similarly, one plant can have several Purchasing Organizations assigned to it as well,
this varies from company to company, industry to industry and scenario to scenario.

Purchasing Group

The final unit of SAP MM organizational structure that we need to discuss is Purchasing
Group. A Purchasing Group represents an individual or a group of individuals, not
necessarily in procurement department, who are responsible of carrying out purchasing
activities. This is usually used for reporting purposes, as well as approval procedure
(release strategy) for Purchase Requisitions (PR), Requests for Quotation (RFQs),
Purchase Orders (PO), Contracts, etc.

You can describe a Purchasing Group as a group of purchasers responsible within a

purchase organization to procure a specific type of material and/or service.

Example:
In a procurement department, there are two groups of purchasers. Each group has two
members. So, you can authorize each group of purchasers to procure a specific type of
material and/or service. Group 1 having Purchasing Group RM1 (Raw Materials) is
responsible for procurement of raw materials.

Similarly, group 2 having Purchasing Group CN1 (Consumables) is responsible for the
procurement of consumable items and so on.

Hence, you can assign these groups to the users so that they remain in their assigned
Purchasing Groups.

Please note that the above examples are just for explanation, scenarios may vary from
company to company, industry to industry depending on the business environment.

We continue our SAP MM training course and this tutorial will provide an introduction

and detailed overview of one of the most fundamental processes in procurement and in
SAP MM module: SAP Procure to Pay Process. This process is also known as an
External Procurement Process.

SAP Procure to Pay process is required when we need to purchase materials/services

from an external vendor for our company. This process includes all the business tasks
starting from a purchase requisition (PR) and finishing with payment to the vendor.

The events that determine the start of this process are related to:

 Material requirement planning (MRP) from Warehouse Management to ensure minimum

material stock and tools quantities in the warehouse.
 Plant Maintenance materials, tools, external resources, services plans to procure all the
resources needed to manage Plant Maintenance in a proper way.
 Other procurement needs coming from departments of a company.

To start the process, it is necessary to create a Purchase Requisition (PR), a

document that allows people working in various departments of a company to specify
the goods or resources that have to be purchased. The process ends when the
payment to the vendor is booked. Here is a graphical overview of the external
procurement process in SAP:
 SAP Procure to Pay Process Diagram. Other*: requirements planning raised outside SAP

Overview of SAP Procure to Pay Process

The Procurement Department can satisfy purchasing requirements of other
departments of a company by issuing:

 A Purchase Order: in this case an RFQ (Request for Quotation) process first is needed.
 An Open Contract: in this case, in addition to the RFQ process, the purchasing task is
finalized by means of the Purchase Order referred to the Open Contract.

The RFQ process is always carried out by the Procurement Department before issuing
a contract. Usually the ultimate aim of this phase is to select a supplier among several
of them, in relation to the goods or services to be purchased.

A Goods Receipt allows the warehouse of department who ordered purchases to certify
the received quantity of goods while a Service Entry allows them to certify the
acceptance of services. Both tasks are performed only in relation to a Purchase
Order/Contract Release Order.

The following sub-process, which name is Invoice Handling, contains the tasks to match
the invoice to the Contract Release Order or the Purchase Order. It contains also the
tasks needed to check the invoice data against the Contract Release Order or Purchase
Order data, such as quantity and values by each position.

The last task is related to the recording of a vendor’s payment.

Transactions in SAP Procure to Pay Process

SAP procure to pay process utilizes the following transactions and documents in SAP
ERP.

Purchase Requisition

Purchase requisition is an internal document which is issued/created whenever the

goods (stock/non-stock) and/or services are required. Several types of document will be
available to be used. SAP system checks automatically various parameters like budget
availability and requires an approval workflow for the requisition mainly based on its
value and internal delegation of authorities, as well as other technical parameters (like
item category or purchasing group). The requisition created in the system can also be
revised if needed.

How to call this transaction

 SAP Transaction Code: ME51N

 Menu: Logistic -> Material Management -> Purchasing -> Purchase Requisition -> Create

SAP
Menu Path to Create a Purchase Requisition
Request for Quotation (RFQ)

RFQ is required when you don’t know your vendor and need quotations from several
vendors for a material/service. It is the complete set of process that is triggered once a
purchase requisition has been received. Requisition line items can be grouped together
in the same RFQ process. Once the quotations are received from your vendors, you
maintain the records in SAP system thus changing the RFQ document to a Quotation.

How to call this transaction

 SAP Transaction Code: ME41

 Menu: Logistic -> Material Management -> Purchasing -> RFQ/Quotation -> Request for
Quotation -> Create

SAP Menu Path to

Create a Request for Quotation
Open Contract

Open contract is a general agreement with the vendor for a given period of validity with
agreed price list. With reference to the same contract multiple Contract Release Orders
can be generated until it is expired or outstanding value is available.

How to call this transaction

 SAP Transaction Code: ME31K

 Menu: Logistic -> Material Management -> Purchasing -> Outline Agreement -> Contract ->
Create

SAP Menu Path to Create an Open

Contract
Purchase Order

Purchase order is an agreed upon official document from the customer to vendor for
customer’s intent to buy or receive one/multiple materials with agreed prices, lead
times/delivery dates, quantities and specifications. The budget commitment is
automatically created. Tolerances for goods and unplanned services can be foreseen.

How to call this transaction

 SAP Transaction Code: ME21N

 Menu: Logistic -> Material Management -> Purchasing -> Purchase Order -> Create ->
ME21N – Vendor/Supplying Plant Known
 SAP Menu Path to Create a
Purchase Order

Contract Release Order

Contract Release Order is an agreed upon an official document from the customer to
the vendor regarding the customer’s intent to buy or receive one/multiple materials with
agreed prices, lead times/delivery dates, quantities and specifications and it is created
with reference to an Open Contract. The budget commitment is automatically created.
Tolerances for goods and unplanned services can be foreseen.

How to call this transaction

 SAP Transaction Code: ME21N
 Menu: Logistic -> Material Management -> Purchasing -> Purchase Order -> Create ME21N
– Vendor/Supplying Plant Known

SAP Menu Path to Create a

Contract Release Order

Goods Receipt

Goods Receipt is the step in the procurement cycle where the actual goods ordered via
a Purchase Order/Contract Release Order are received by the company and it is
checked for the required quality / quantity. If the goods quality meets the required
criteria, a Goods Receipt transaction is posted in the SAP system with reference to the
Purchase Order / Contract Release Order. This transaction has dual effect of changing
the stock quantity (for entered materials) and at the same time entry in the financials
module is also passed for the debiting the stock against the payables to the vendor.

How to call this transaction

 SAP Transaction Code: MIGO

 Menu: Logistic -> Material Management -> Inventory Management -> Goods Movement ->
MIGO

SAP
Menu Path to Post a Goods Receipt

Service Entry

Service entry certifies that the requested services from the Purchase Order/Contract
Release Order have been actually delivered/rendered. A confirmation with the required
parameters is entered on the service entry sheet which is then routed via a workflow to
the required levels for confirmation and the final approval.

How to call this transaction

 SAP Transaction Code: ML81N
 Menu: Logistic -> Material Management -> Service Entry Sheet -> ML81N Maintain

SAP Menu Path to Perform Service

Entry

Invoice Handling

The process is triggered whenever a vendor invoice received for the purchases is to be
entered in the SAP system. The invoice entered initially is considered to be in the
“Parked” status, which means that no financial entry or posting has been done and the
invoice details exist in the system for record keeping and further approvals. At this stage
a “3 way check” in the standard SAP system is triggered in which the invoice received is
checked automatically versus the reference purchase order and the good receipt
document for the accuracy of price/quantity. Any discrepancy observed here can be
adjusted for variances and disputed amounts. The invoice can be put on a status of
block for payment. Once the invoice is approved via the defined workflow in the SAP
system, the invoice can be actually posted. It is usually done by the responsible person
in the Accounts Payables department of a company. The process usually overlaps joint
functionality in the MM and FI modules.

How to call this transaction

 SAP Transaction Code: MIRO/MIR7
 Menu: Logistic -> Material Management -> Logistics Invoice Verification -> MIRO/MIR7 Enter
Invoice

SAP Menu Path to Enter an

Invoice from the Vendor

Payment

If the invoice is approved via workflow, the last step in the cycle of purchasing is the
payment to the vendor. This is done by entering a transaction in the SAP system called
the “Automatic Payment Run”, which is usually triggered periodically based on the
payment terms / due dates as mentioned in the purchase order. The result of the
payment run can be a check printed via SAP for the intended vendors or the results of
the payment run can be exported to external systems for online banking portal via which
the vendor payments are transferred electronically.

SAP Stock Transport Order and Stock Transfer Process

Author Written by Afshad Irani and last updated on Posted onJuly 13, 2017.

Advertisement

Large companies having many plants in different

geographical locations commonly require stock movement from one plant to another.
For this purpose, SAP ERP has a special process with SAP stock transport order
(STO) that enables to move stock from one plant to another or between different
storage locations of plants.

For example, in one of my trading client, we used to import materials from abroad in big
containers and then those containers were unloaded into one big branch (plant) as it
was cost efficient to import materials in bulk to one location. Next, other smaller
branches (plans) raised SAP stock transport order (STO) to purchase stock from big
branch for the quantity required. The big branch dispatched the quantity against the
STO on the mentioned delivery dates.

In the below screenshot, you can see a diagram illustrating the stock transfer process.
STO is raised by a receiving plant and sent to a supplying plant. The supplying plant
then delivers the material, which in the SAP system will be shown as stock in transit.
When the receiving plant receives the material, goods receipt takes place at the
receiving plant. There is no invoicing, as the stock is transferred between plant that are
part of the same company.

Sto
ck Transfer with SAP Stock Transfer Order (Example)

How to Create SAP Stock Transport Order?

To create a stock transport order in SAP, please follow the steps described below. First,
either start the transaction ME21N or navigate to the following path in SAP
menu: Logistics – Materials Management – Purchasing – Purchase Order – Create –
ME21N – Vendor/Supplying Plant Known.
 Menu
Path for ME21N Transaction
Stock transfer process uses the standard transaction ME21N for creating purchase
orders (PO), where we trigger STO process by selecting document type = Stock
Transport Order as shown on the screenshots below.
 ME21

N – Create a Purchase Order Select Stock Transport Order as the

Document Type
Here you need to provide your supplying plant. As mentioned above, the supplying plant
in our example is the big branch which imported the stock and has stock available. You
also have to provide your purchase organization, purchase group and company code as
show on the screenshot below. Our tutorials about SAP MM organizational
structure should be helpful in learning more about purchasing organization and other
MM organizational units.

Ent
er Supplying Plant, Purchasing Organization, and Company Code in STO
In the item overview screen below, you need to provide the material that you would
like to procure from the supplying plant along with the plant number which is ordering
this material, quantity, storage location and delivery dates as shown below:

Ite
ms of Stock Transport Order
If you have any additional charges which needs to be added to the cost of the material,
you should provide the details in the conditions tab. For instance, it is possible to add
freight charges as shown below:

Pri
cing Conditions of Stock Transport Order
Now, your stock transport order is ready and to cross check for any errors in your STO,
click on   button which will tell you if everything is correct in your document. If not,
then a red button will come up notifying you about error(s) in the document that needs
to be fixed before you can save the document. Once all issues are fixed, you click
the   button, which will save the document. The SAP system will provide you with SAP
generated document number as shown below notifying that the document has been
created.

SAP Stock Transport Order has been

Created

Goods Issue Against SAP Stock Transport Order

Once the STO is created, the next step is to do a goods issue against the STO raised
above. Go to the transaction MIGO or navigate to the following path in SAP
menu: Logistics – Materials Management – Inventory Management – Goods Movement
– MIGO.
 MIGO Transaction in SAP Menu
In MIGO, it is necessary to do goods issue against a purchase order, with a movement
type 351 which is used for moving materials from supplying plants to stock in transit of
receiving plants.

Go
ods Issue in MIGO Transaction
Here you need to enter the number of STO, set OK checkbox for the item and then click
on Post button which will post your goods issue and provide you a message that a
material document was created (see screenshots below).
 Set
OK Checkbox for the Item A Material Document for
Goods Issue against SAP Stock Transport Order was Created

Goods Receipt Against SAP Stock Transport Order

Now, the last step is to do goods receipt in the receiving plant when the goods
physically arrive there. Goods receipt is also done in MIGO transaction. It is necessary
to perform goods receipt against a purchase order using the movement type 101 as
shown below. Then, set the OK checkbox next to the material item and finally post the
document by pressing Post button. The system will provide you a message that the
material document was posted.
 Go

ods Receipt against STO A Material Document for

Goods Receipt against SAP Stock Transport Order was Created
—