Organization Sujan Barre Thomas Anti-Vibration Systems Pvt. Ltd.

, Thane
Project “VISION”
Document Business Blue Print Version 1
Module Materials Management No.

SAP ERP ECC 6.0

Business Blueprint

For

Materials Management

Prepared by

Sumantra Chattopadhyay

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Organization Sujan Barre Thomas Anti-Vibration Systems Pvt. Ltd., Thane
Project “VISION”
Document Business Blue Print Version 1
Module Materials Management No.

DOCUMENT CONTROL

Sr. Revisio Date of Date of

Remarks
No. n Creation Modification

1 1.0 03-December- 05-December-08 ---

08

Name Signature Date

Prepared By Mr. Sumantra Chattopadhyay

Mr. Sandeep Jaiswal

SBT – Core Team Mr. Vivek Govekar

Mr. Kadam Dashrath

MCL - Project
Mr. Pranjal Madamwar
Manager

SBT – Project
Mr. Sachin Shinde
Manager

Mr. Vijay Sujan

Steering Committee
Mr. Oliver Hatat

CONTENTS
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Project “VISION”
Document Business Blue Print Version 1
Module Materials Management No.

Document Acceptance and Release Notice

0.0 Project Charter..................................................................................................................................... 5
0.1 Project Objectives............................................................................................................................ 5
0.2 Project Goals..................................................................................................................................... 5
1.0 Introduction........................................................................................................................................... 6
1.1 Purpose of this document............................................................................................................... 6
1.2 Who should read this document?.................................................................................................. 6
1.3 Document Derivation...................................................................................................................... 6
2.0 Process Description............................................................................................................................. 6
2.1 Objectives.......................................................................................................................................... 6
2.2 Who created it?................................................................................................................................ 7
2.3 Where is it used?.............................................................................................................................. 7
2.4 Features required............................................................................................................................. 7
2.5 Responsibility.................................................................................................................................... 8
2.6 Impact on current Business Process............................................................................................. 8
3.0 Organization Structure........................................................................................................................ 9
3.1 Company............................................................................................................................................ 9
3.2 Company Code................................................................................................................................. 9
3.3 Logistics Structure-Definition....................................................................................................... 10
3.3.1 Plant:.......................................................................................................................................... 10
3.3.2 Storage Location........................................................................................................................ 10
3.4 Purchase Organization.................................................................................................................. 11
3.4.1 Purchase Group/Buyer............................................................................................................... 14
4.0 Master Record.................................................................................................................................... 14
4.1 Material Master Records............................................................................................................... 14
4.2 Vendor Master Records................................................................................................................. 18
4.3 Purchasing Information Record................................................................................................... 19
5.0 Material Planning............................................................................................................................... 20
5.1 Consumption Based Planning (Reorder Level)..........................................................................20
6.0 Purchasing Process............................................................................................................................ 23
6.1 Quotation Processing..................................................................................................................... 27
7.0 Purchase Order Processing.............................................................................................................. 29
7.1 Domestic/External Purchase Business Process.........................................................................29
7.1.1 Placement of Contract............................................................................................................... 32
7.2 Import Purchase Business Process.............................................................................................. 34
7.3 Capital Procurement Business Process......................................................................................39
7.4 Purchase Order Processing for Subcontracted Orders............................................................41
7.5 Procurement of Services............................................................................................................... 44
8.0 Inventory Management..................................................................................................................... 47
8.1 Goods Receipt Process for Domestic Procurement..................................................................47
8.2 Goods Issue for Sampling / Returnable /non returnable.........................................................50
8.3 Stores Activity................................................................................................................................. 52

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8.4 Reservation..................................................................................................................................... 55
8.5 Goods Movements.......................................................................................................................... 55
8.6 Rejection Return to Supplier........................................................................................................ 58
8.7 Line Rejected material send back to Supplier..........................................................................59
9.0 Pricing Condition................................................................................................................................ 60
9.1 Pricing Elements............................................................................................................................. 60
9.2 Terms of payment.......................................................................................................................... 61
10.0 Physical Inventory........................................................................................................................... 62
11.0 Vendor Evaluation........................................................................................................................... 65
12.0 Invoice Verification.......................................................................................................................... 67
12.1 Invoice Verification for Vendor.................................................................................................. 67
12.2 Invoice Verification for payment through LETTER OF CREDIT.............................................70
13.0 Material Valuation........................................................................................................................... 71
14.0 Scrap.................................................................................................................................................. 72
15.0 Release Strategy............................................................................................................................. 72
16.0 Excise Master:.................................................................................................................................. 73
17.0 Month End Closing........................................................................................................................... 73
18.0 Process Change Document – MM.................................................................................................. 74
19.0 Special System/Organizational Considerations..........................................................................80
19.1 Purchasing Document Types and Number Ranges................................................................80
19.2 Forms/Reports (SAP script) Document Printing......................................................................80
19.3 Availability & Use of Standard reports.....................................................................................81
19.4 System Configuration.................................................................................................................. 82
19.5 Data Migration Considerations.................................................................................................. 82

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Project “VISION”
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0.0 Project Charter

0.1 Project Objectives

1. To prepare for expansion and growth plans in the coming years.

2. To optimise total Supply Chain Operations in terms of Delivery, Quality and Cost.

3. To help the decision makers in achieving set business targets.

4. To move towards ‘Lean Manufacturing’ by applying Value Stream concept comprising

Material and Information flow throughout the supply chain.

5. To integrate all the business functions like Business Development, Production, Quality, SD,
Finance and Controlling, Vendors etc on one common system.

0.2 Project Goals

1. To implement SAP solutions in the core business functions.

2. Establish the business processes so as to reduce non-value adding activities.

3. Cutting down and thereafter eliminating the Wastage cost.

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Project “VISION”
Document Business Blue Print Version 1
Module Materials Management No.

1.0 Introduction

1.1 Purpose of this document

This document is the Business Blueprint for delivering the ‘AS-IS’ project at SBT. It outlines the
business requirements, ‘TO-BE’ processes and design considerations for the project.

1.2 Who should read this document?

This document is meant for MIS Managers, MIS Team leads and Key User champions who will
have to have a good understanding of ‘AS-IS’ system. This document explains all the
specifications that are broadly captured for successfully delivering the project. This is a
controlled document and its circulation is left to the discretion of MCL and SBT project
sponsors.

1.3 Document Derivation

This document is derived based on the following activities conducted at SBT.

1. Discussion with key users

2. Requirements discussion with business Process Owners.

2.0 Process Description

2.1 Objectives

The objective of this Blueprint Process is to define how to process Purchase processing in the
system.

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Module Materials Management No.

2.2 Who created it?

The Materials Management team is responsible for creating these processes:

 Purchase Management
 Vendor Development
 Accounts department
 Excise department

2.3 Where is it used?

Material Management is used in the following areas:

Buying Goods from the vendors

Stock Keeping at Plant and Sub contractors

Subcontracting operations

Invoice verification

Excise settlements

2.4 Features required

The system should meet all the requirements as per the following guidelines

 Vendor master information

 Purchase Requisition
 Request for Quotation
 Purchase Order Entry
 Goods Receipt
 Invoice Verification
 Vendor Payment
 Reporting Requirement

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2.5 Responsibility

The following ‘Role’ (or function) will be directly responsible for executing the Materials
management.

 To be decided.

2.6 Impact on current Business Process

Purchase processing will impact the current business processes in the following areas.

 Vendor on-time Purchase

 Purchase Order history
 Inventory Control
 Integration with Finance

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3.0 Organization Structure

3.1 Company
A company is an organizational unit in accounting, which represents a business organization
according to the requirements of commercial law in a particular country. In the SAP system,
consolidation function in financial accounting is based on companies.

Company : SBT

Sujan Barre Thomas Anti-Vibration

Company Name :
Systems Pvt. Ltd.

3.2 Company Code

Under the above Company, there will be one Company Code. A Company Code is an
organizational unit of external accounting for which a complete, self-contained set of accounts
can be created. This includes the entry of all transactions that must be posted and the
creation of all items for legal individual financial statements, such as the balance sheet and
the profit and loss statement.

The Company Codes that will be created in the system will be as under:

Sr. Company Description

No Code
.

1 1000 Sujan Barre Thomas Anti-Vibration Systems Pvt. Ltd

 Depicted from a tax law, commercial or other financial accounting standpoint

company code corresponds to a legally independent company.
 Each company code has exactly one domestic currency, in which you create the
balance sheet.

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 Currency for THE CLIENT is INR (Indian Rupees)

3.3 Logistics Structure-Definition

3.3.1 Plant:
 A plant is an organizational unit that subdivides an enterprise according to
production, procurement, maintenance or materials planning.
 It is a place where materials are produced or goods and services are provided.
 A Plant is assigned to a Company.
 A plant also has the following in SAP ERP:
 An address
 A language
 A country assignment
 A workday calendar
 A Plant is assigned to a Company.
 Purchasing organization and sales organization are assigned to plants.

Sr. Plant Description

No. Code

1 1000 Mumbai Plant – 1

2 2000 Gurgaon Depot - 1

3.3.2 Storage Location

A Location within a Plant is where Inventory is Stored

In SBT Plant following Storage Locations are decided for Logistics.

Sr. Storage Description

No. Location

1 ST01 General Stores

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2 FG01 Finished Goods Stores

3 SC01 Scrap Stores

For Depot Plant

Sr. Storage Description

No. Location

1 ST01 General Stores

3.4 Purchase Organization

 Purchasing organisation is responsible for Procurements of materials and assets.
 It is responsible for subcontracting and external service orders.
 It is responsible for Negotiating Pricing and Delivery Terms with Vendors.
 Purchasing Organization is assigned to a Plant where Inventory is legally tracked or
Costs are legally incurred.
For SBT Plant the purchasing organizations are.

Sr. Purchase Description

No Organisation
.

1 1001 Domestic Purchase Organization

2 1002 Import Purchase Organization

For Depot plant

Sr. Purchase Description

No Organisation
.

1 1001 Domestic Purchase Organization

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Org Structure Diagram:- With Purchasing Organization

1000
Company Code

2000
1000
Depot Plant
SBT Plant
(Gurgaon)

1001
1001
1002 Domestic
Domestic Purchase
Import Purchase
Purchase
Organization Organization
Organization

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Org Structure Diagram:- With Storage Location

1000

Company Code

2000
1000
Depot Plant
SBT Plant
(Gurgaon)

FG01
SC01
ST01 Finished Goods ST01
Scrap Stores
General Stores Store General Stores

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3.4.1 Purchase Group/Buyer

The purchasing organization is further subdivided into purchasing groups (buyer groups),
which are responsible for day-to-day buying activities.
A purchasing group can also act for several purchasing organizations.

Following purchasing groups will be defined for AHPL Purchase Organisation :

Sr. Purchase Description

No. Group
1 001 PPC

2 002 Stores

3 003 Procurement

4 004 Mat. Preparation

5 005 Modeling

6 006 Assembly

7 007 Quality

8 008 Development

9 009 Maintenance Tools

10 010 Maintenance
Machines
11 011 Finance

12 012 Admin

13 013 HR

14 014 Asset

4.0 Master Record

4.1 Material Master Records

As Is

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 Purchase / Development team is responsible for Maintenance of Material Master.

 All materials like Raw Materials and Finished Goods are having code number.
 In Process Materials have generic number
SAP Process:

The material master database (often referred to simply as the "material master", comprising
all the individual material master records stored in the system) contains descriptions of all
materials that an enterprise procures, produces, and keeps in stock. It is the central
repository of information on materials (such as inventory levels) for the enterprise.

The integration of all material data in a single materials database eliminates the problem of
data redundancy and permits the data to be used not only by Purchasing, but by other
applications (such as Inventory Management, Materials Planning and Control, Invoice
Verification, and so on).

 Material Masters will be maintained at the client level but function related attributes
like sales, production planning, accounting; purchase etc will be different for different
organization levels.
 Material Numbering will be External and according to SBT logic.
 Material numbering will be alphanumeric.
Material Coding specifications:-

Material Master: codification nomenclature.

a. Length of Material Code 12 characters
b. 1 Char – SAP Material Type ( R – Row material, H – Semi finished, F – Finished
Goods, S – Spares, C- Consumables)
c. 2, 3rd char – Material Type
d. 4th to 8th (5 char) – Material description
e. 9th to 12th (4 char) – Material dimension/size

Mould
a. Length 14 char
b. 1st char – M
c. 2nd to 6th – machine
d. 7th & 8th – part description
e. 9th & 10th – Customer
f. 11th to 14th – No. of cavity

Fixture (tools)
a. Length 14 char
b. 1st char – T
c. 2nd to 6th – machine
d. 7th & 8th – part description
e. 9th & 10th – Customer
f. 11th to 14th – Size
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Gauge
a. Length 14 char
b. 1st char - G
c. 2nd to 6th – Part Description
d. 7th & 8th – customer description
e. 9th to 14th – size

Material Types

Materials with the same basic attributes are grouped together and assigned to a material
type. This allows you to manage different materials in a uniform manner in accordance with
SBT’s requirements. Following will be the material types in SBT:

Sr. Material Type Description

No. Code

1 ROH RAW MATERIAL & BOUGHT OUT

2 ERSA SPARES / TOOLS

3 VERP PACKING MATERIAL

4 CAPT CAPITAL GOODS

5 DIEN SERVICES

6 HALB SEMI-FINISHED MATERIAL

7 FERT FINISHED GOODS

8 CONS CONSUMABLES

9 SCRP SCRAP

Valuation Class

You group together different materials with similar properties into valuation classes so that
you do not have to manage a separate stock account for every material.

Following will be the valuation classes for SBT :

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Sr. Type of Material Valuation

No. Class

1 RAW MATERIAL & BOUGHT OUT 3000

2 SPARES 3040

4 PACKING MATERIAL 3050

5 CAPITAL GOODS 3001

6 SERVICES 3200

7 SEMI-FINISHED MATERIAL 7900

8 FINISHED GOODS 7920

9 CONSUMABLES 3002

10 SCRAP 7940

Unit of Measure

The SAP System distinguishes between the following units of measure:

Base unit of measure:

This is the unit of measure in which the stocks of a material are managed. The system
converts all quantities entered in other units to the base unit of measure.

Alternative units of measure:

Individual departments may have their own units of measure. All units of measure other than
the base unit of measure are referred to as alternative units of measure.

Following are the examples of unit of measure used in SBT: Kg. Convert to Numbers

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Material Group

The material group is the level in the material group hierarchy, which must be assigned
directly to a material when it is created. It is defined across the corporate group and sub-
divides the complete material assortment from a business management viewpoint.

Following will be the material groups at SBT:

Sr. Material Description

No. Group

1 01
RUBBER
2 02
METALS
3 03
MOULDS
4 04
CHEMICALES
5 05
FIXTURES
8 08
GUAGES
9 09
OTHERS

4.2 Vendor Master Records

As Is:

 Purchase and Accounts is responsible for Maintenance of Vendor Master

 Vendor Master is maintaining at company code level
 Some Vendors are having two-vendor code, as per plant supply
 All Vendors are not covered under excise
SAP Process:

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 Vendor numbering will be external Alfa numeric.

 Vendor numbering length will be of 5 digits.
 Same Vendor Code will be followed in both MM and Accounts
 Vendor Master Records will be maintained at Purchasing Org Level.
Standard vendor Account Groups will be used

4.3 Purchasing Information Record

Purchasing Info record will be maintained for selective materials at purchasing organization
level to store vendor and material specific Data. It contains the basic price, conditions and
terms of payment etc.

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5.0 Material Planning

5.1 Consumption Based Planning (Reorder Level)

SAP Process:

Purchase requisitions are expected to create during the MRP run for stock materials and
consumption based materials on the basis of reorder levels and safety stocks defined for each
material.

Process

Process Flow:

Sub Process Description SAP/Manual Remarks

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Process

01 Planning Run SAP Planning run will be conducted in SAP.

02 Requirements generation SAP Requirements will be generated in the

system in the form of Purchase
Requisitions based on Re-order point,
safety stock, lead time and lot sizing
procedure entered in the material
master.

03 Conversions of SAP Purchase requisitions generated by the

Requisitions into Purchase system during planning run can be
orders converted in to Purchase orders/
release orders. The process is detailed
in the Purchasing sub-module.

Internal process in SAP system

 The system then calculates the net requirements. The system compares the available
stock at plant level (including safety stock) plus the firmed receipts that have already
been planned (purchase orders, production orders, firmed purchase requisitions and so
on) with the reorder point. If the sum of the stock plus receipts is less than the reorder
point, a material shortage exists.
 The system then calculates the procurement quantity according to the lot-sizing
procedure defined in the material master.
 For reorder point planning, the system supports the fixed lot size and Replenish up to
maximum stock level lot-sizing procedures.
 The system then schedules the procurement proposal, that is, the system calculates
the dates on which the purchase order has to be sent, and the date on which the
vendor has to deliver the goods.

Special Data Considerations:

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Logistics personnel to provide and maintain planning related data such as re-order point,
Maximum Stock level, Safety Stock level, Lot Size, Planned Delivery Time, and GR
processing time for the materials to be planned in the material master records.

The data needs to be reviewed and updated regularly.

Improvement Areas:

 As a result of materials planning, processing of large volume up-to-date data will be

made easier.
 Actual data on the parameters listed above can be provided by the system as
reference for correction and updating.
 It is possible for the buyers to see the stock data in relation to the planned receipts
and orders in the stock list making it possible to plan more effectively.

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6.0 Purchasing Process

Procurement Cycle:

The typical procurement cycle for a material consists of the following phases:

Procurement Cycle
MRP
ORDER INVOICE

? 1 Requirement Generation
8 Invoice verification

7 Quality Inspection Purchase

2 Vendor Selection
6
Goods receipt and
inventory management

Order follow-up Order

5
3 RFQ

4 Order processing

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SAP Process:

Several criteria are provided by the system for selecting Purchase Requisitions for
display and further processing including the status and source of requisitions.

EMBED Visio.Drawing.11

Procurement Cycle

Production Financial
Material Management
Planning Accounting

Purchase Vendor for

Requisition material Exist

RFQ – Request for

quotation

Quotation
Comparison

Outline
Agreement

Scheduling
Purchase Order Contract
Aggrement

Release Order Schedule line

Service Entry Logistic Invoice

Goods Receipt
Sheet verification

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Following is the procurement cycle of SBT:

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Sub Process Description SAP/ Remarks

Process Manual

01 Identifying requirements with SAP The “List display of Purchase

current status. Requisitions” option in the menu
offers several parameters for
selection restriction such as
purchasing groups, material
groups, material, tracking
number, requirement date, plant
etc. The list also shows the
status.

02 Request for Quotation SAP The final price comparison

statement is based on Landed
cost basis. Prices and conditions
quoted by vendors are entered in
the original RFQ.

03 Vendor Selection and SAP The system is capable of

Comparison of Quotations simulating pricing scenarios,
allowing you to compare a
number of different quotations.
Rejection letters can be sent
automatically.

04 Purchase Order SAP The Purchasing system adopts

information from the requisition
and the quotation to help you
create a purchase order. Vendor
scheduling agreements and
contracts are also supported.

05 Goods receipt and Inventory SAP Goods Receiving personnel can

Management confirm the receipt of goods
simply by entering the P.O.
number. By specifying
permissible tolerances, buyers
can limit over- and under
deliveries of ordered goods.

06 Invoice verification SAP The system supports the

checking and matching of
invoices. The accounts payable
clerk is notified of quantity and
price variances because the
system has access to P.O. and 26
goods receipt data. This speeds
the process of auditing and
clearing invoices for payment
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6.1 Quotation Processing

SAP Process:

 Currently at SBT quotations are invited and compared manually. Expectations include
that the quotations are recorded centrally and the comparison takes into account the
differing taxation structure into consideration for comparison the landed prices.
 Mainly 03 quotations for a P.O.
 Quotation Material Item wise.

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Process Explanation

Vendors can be selected for sending RFQs. Separate documents are sent to each of the
vendors along with all the conditions. The quotations received are entered. Comparison
is made for all quotations received. Most favorable quotation can be converted into an
Purchase order record.

Process Flow:

Sub Process SAP/ Remarks

Process Description Manual

01 Identify Vendors SAP/ ManualFor existing materials vendors are identified

in the system. For new materials existing
vendors can also be selected. For new
vendors, records have to be created before
processing.

02 Requests for SAP Enquiries (RFQs) are created with reference

quotation to requisitions with details of deadlines for
submission. Enquiries are sent to vendor. A
collective number has to be assigned for
ease in comparison and future reference.
The format for the collective number and the
range has to be determined and maintained
by the purchase department for easy
reference.

03 Enter Offer details SAP The details of vendor terms such as price,
delivery terms, payment terms, taxes
applicable are entered against each vendor
enquiry.

04 Compare quotes SAP All the captured quotes are compared and a
for prices/ terms comparison statement is prepared on
landed cost basis.

06 Negotiate for SAP/ ManualBased on the quotations received

prices/ terms negotiations can be done with the vendor to
arrive at the final price.

07 Print final SAP On the basis of final offers received and

comparison recorded the final price comparison can be
statement printed.

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08 Approval of Manual/ SAPThe final price comparison statement is

quotation for final checked by the Purchase Dept. and signed
order by as for authorities.

7.0 Purchase Order Processing

7.1 Domestic/External Purchase Business Process

AS-IS

 Search approved vendors for the required material in the approved vendors list.
 Conduct Negotiations with the vendors listed as per the Quotation received & finalized
the rates and select the vendor (The Orders are given verbally informed to vendor
through telephones).
 Check for vendor, pricing conditions, quantity, quality, transport and other condition of
vendor in the PO/Contracts agreement.
 Creation is done by Accounts Department.
 The Contract document is finally approved by the Commercial head.
 Creation of the delivery schedules (PO) as per the contract/PO.
 Send Schedule (PO) copy to the vendor.
 Confirmation recd by the vendor through Email/ telephone.
 Order Follow up through email / telephone.

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Process Flow:

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Following is the External Procurement cycle of SBT;

Sub Process SAP/ Remarks

Process Description Manual

01 Placement of SAP After finalisation of the vendor, all terms and

Purchase Orders conditions such as prices, discounts,
surcharges, freight and octroi etc. can be
entered into the info record as conditions
with the validity period. It gets copied into
the PO automatically. If the terms and
conditions are for one time they can be
entered in the PO manually. The system can
also create an info record for the vendor
material combination on the basis of first PO.
Excise and taxes will be picked up from the
tax codes defined in FI. The calculation of
taxes is based on the vendor, material and
tax code defined. Changes if any should be
made before posting the GR.

02 Provide delivery SAP Delivery Schedules can be entered in the PO

schedule at item level.

03 Approval of PO Manual, Approval of purchase orders is done

SAP manually.

04 Amendment to PO SAP Quantity, Price and Terms & Condition

amendments are possible before Goods
Receipt. No price amendment can be made
once GR has been posted in the system.

05 Deletion of PO SAP An item in the PO can be deleted before GR.

item System shows the item as marked for
deletion.

06 Cancellation of PO SAP PO can be cancelled only before the GR is

posted

07 Advance against SAP Advances against PO are released as down

PO payments in SAP. PO shows details of down
payments released against PO

08 Payments against SAP FI module handles the payments to vendors.

PO Invoice verification is done in MM. Once
invoice is verified in MM the same is
reflected in FI module as an open item. Due

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date for the payment is calculated based on

the payment terms mentioned in the PO.

09 Delivery Charges SAP Planned delivery charges can be specified in

in PO the PO. At the time of Goods Receipt the
system automatically debits the material
with delivery charges. It is possible to
mention in the PO that the delivery charges
are payable to a different vendor.

Improvement Areas:

 Vendor wise material price maintained in Info Records & referred to automatically
while creating PO/Scheduling Agreement.
 Freight & other delivery charges built through a comprehensive pricing procedure
leading to Automatic material cost calculations.
 Line item wise pricing available
 View of Amendments for a P.O.
 Reorder levels, safety stock, minimum & maximum stock levels defined in the system
& can be monitored.
 Delivery schedules can be created & monitored for PO.
 Control on base line date for payment.
 Document flow and integration with other modules.
 Easy for monitoring and follow-up actions by the buyers.
 Material price is prompted from the last ordered price on the vendor material
combination.

7.1.1 Placement of Contract

SAP Process:

 Quantity/Rate contract to be made as per the material.

Several materials are required regularly and the pricing and other terms are constant for
a longer term, normally corresponding to a financial year. At the same time the
requirements of such materials are generated through MRP.

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Contracts are also required for group of materials. Subsequently Scheduling Agreements
can be created with reference to the contract for materials under the group covered in the
contract. In Contracts & scheduling agreements item wise rate amendments can be
maintained.

Process Flow:

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Sub Process SAP/ Remarks

Process Description Manual

01 Enter Contract SAP After price negotiation process contract is

created for materials with likely long term
requirements. In addition to the details provided
in preparation of a PO the only other detail to be
provided are the validity period and the
expected quantity/ Rate of purchase.

02 Printing of contract SAP The printed and approved document can be sent
to vendors.

03 Create delivery SAP Purchase orders created with reference to

schedule contracts are called delivery schedules. Only
quantity required needs to given in the delivery
schedule. Quantities and values of the delivery
schedules will automatically get updated in the
Contract

Organizational Considerations:

 Contracts are created by purchase groups of purchase department

Improvement Area:

 Economy in processing of orders.

 Proper distribution of negotiating and procurement roles.
 Elimination of duplication in terms of work and data.

7.2 Import Purchase Business Process

AS-IS:

 Creation of the Contracts/PO, which is constant for 3 months.

 Check for vendor, pricing conditions, quantity, quality, transport and other condition
of vendor in the Contracts; the rates are on CIF, CF, and FOB basis.
 Creation and approval is done by the Manager Material.
 The Contract/PO document is finally approved by the MD.
 Send Schedule (PO) copy to the vendor thru Fax & Email.
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 Order acceptance thru email / Fax.

 Vendor sends the Bill of lading, invoice, shipping instructions, insurance, certificate of
origin, packing list, test certificate import freight charge, to the purchase concern
through Courier by Fax & courier after the shipment of the material from his port.
 Purchase concern gives required documents to clearing agents for clearance of
material from EXIM department.
 There are cases where client will procure the imported goods from transporters. On
this as per annexure given by transporters the credit will be availed.
 After clearance from customs then Material received at the plant.

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EMBED Visio.Drawing.11

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I mport Purchase Order Process

Production Financial
Material Management
Planning Accounting

Creation of the PR Request For Quotation

thro’ MRP

Quotation Comparison & vendor

Manual creation of Selection
PR thro’ user dept.

Search Approved vendor for the

Creation PR from required material for approved vendor
store dept .of list (source list)
minimum order qty
(Reorder Level)
. Vendor registration & vendor
selection in source list

Creation of Info Record Master

Creation of Purchase Order

Creation of Quantity /Rate Creation of Normal Purchase

contract order

Creation of schedule w.r.t Amendment for qty & next

Contract line items

Release /Approve P O Two level

Download PO In word format

PO Copy send to vendor thro’

Mail

Creation of the Invoice

Verification of CVD,Custom
duty, Ecess, Aggregate
Ecess

Logistic Invoice
Verification for vendor

Clearing Transportation
Creation Goods receipt for Booking the
charges ,Document
Liability in SAP
charges etc.

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SAP-Process:

Process Flow:

Following is the External (Import) Procurement cycle of SBT;

Sub Process SAP/ Remarks

Process Description Manual

01 Placement SAP Purchase order is placed to the foreign vendor in

of PO foreign currency with the currency key defined for
that country. Currency key specified in the vendor
master will automatically get defaulted to the
purchase order. Currency conversion tables need
to be maintained regularly. Suitable Incoterms
can be defined such as FOB or on C&F/ CIF
destination basis. System automatically does the
conversion on the basis of conversion rates
available in the system for the period applicable.
Insurance, customs duties, CVD and clearing
charges can be entered in Indian currency. The
GR-based IV indicator should be deselected and in
the various conditions the vendors and the
applicable rates should be entered.

02 Release of SAP Purchase orders will be approved as per the

PO regular release strategy.

03 Amendmen SAP Both quantity and price amendments are possible

t to PO before Goods Receipt. No price amendment can
be made once GR has been posted in the system.

04 Deletion of SAP An item in the PO can be deleted before GR.

an item System shows the item as marked for deletion.

05 Cancellatio SAP PO can be cancelled only before GR in the system

n of PO

06 Invoice SAP Invoice verification against the import PO can be

verification made in Foreign currency
in foreign
currency

Special Data considerations:

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 Currency exchange rates must be maintained in the system regularly to ensure that
the conversion is proper.
 Condition records in the PO must be maintained carefully with clear specification of
rate, currency, and vendor.
Process Flow:

Sub Process SAP/ Remarks

Process Description Manual

01 Payment to SAP A down payment request can be created in

foreign the system with reference to the PO and
vendor. payment can be organised. If the same is
against Letter of Credit the document is
cleared through bank.

02 Overseas SAP On receipt of cargo arrival notice freight

Freight payment is prepared and sent to clearing
payment agent with reference to PO

03 Payment of SAP A down payment request can be created in

Customs, the system with reference to the PO. DD
CVD, etc. for the amount is prepared and sent to the
clearing agent/ paid locally. The Bill of
entry is used for clearing the same.

04 Payment to SAP Invoice verification can be done in the

Clearing system in favour of the clearing agent.
agent

05 Payment of SAP Invoice verification can be done in the

local freight system in favour of the clearing agent/
transporters. Expenses can be booked as
carriage inward.

Improvement Areas:

 Shipping Notification will be entered in the system.

 PO would be generated in Vendor Currency.
 Integration with accounts and payments made against order.

 Automatic material valuation.

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 Currency conversion.

 Handling of customs and CENVAT procedures.

 Exchange rates are maintained enabling account postings.

7.3 Capital Procurement Business Process

As Is:

 Purchase Requisition creates from user department.

 Inquires will be send to different vendors with due date of submission of the
Quotations.
 Quotation received from different Vendors will be compared by the system and the
final Vendor to whom the final PO is to be given is determined on landed cost basis.
 The PO is been released at two levels (commercial General Manager/Manger
Materials).
 Send Schedule (PO) copy to the vendor through courier/ mail.
 The same PO copy is been sent to stores / finance/own.
 Order Follow up through email / telephone.

SAP Process:

 Purchase Requisition from End Users sends to the Purchase Department.

 A purchase requisition is a request or Indent to Purchasing to procure a certain
quantity of a material or a service so that it is available at a certain point in time
 An item of a requisition will contains the quantity and delivery date of the material to
be supplied or the quantity of the service to be performed.
 Purchase requisition can be generated by the requisitioned in case of one time
procurement items and others. Texts can be added in the PR
 Request for Quotations from Vendors (RFQ’s) are sent.
 Maintaining Quotations received from different Vendors.
 Quotation Comparison will be made by the system on landed cost basis where as the
systems propose the minimum, mean value including the Discounts, Delivery Costs &
Effective price.
 Purchase Order with account assignment will be made with Conditions related to the
finalized vendor / Approved Vendor.

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 Purchase Order release will be taken care by the system with appropriate release
Authority.
 Purchase Order Copy will be downloading & send to the vendor thru Email.
 Goods will be received from the vendor with reference to the PO.
 Excise Invoice will be posted to the Excise Registers.
 Invoice Verification.

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7.4 Purchase Order Processing for Subcontracted Orders

SBT requires to do sub-contracting. Expectations include the following:

 Proper accounting of materials sent and materials returned.

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 Controlling of inventory.
 As per excise rules ensure that stocks with vendors do not remain with the vendors for
more than 180 days.
 Sub-contracting challans (57 F4) and reconciliation records such as Annexure IV are
maintained as per excise rules.
 Subsequent adjustment for weight difference due to scrap generation at vendor end.
Scrap is either brought back to SBT or sold directly by vendor. Both scenarios to be
accounted for.
For component which is going to be converted in labour charges steps are,

1. Make the BOM for labour charges component.

2. After MRP schedule lines will be generated with reference to PO.

For excise duty purposes, there are two ways of handling excise duty on goods that are
provided to the sub-contractors:

 Subcontracting without payment of excise duty.

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 Subcontracting with payment of excise duty

SBT uses only the first type of subcontracting. As per rules under excise law 4(5)(b)

SAP-Process: Following is the standard subcontracting procedure in SAP

Process Flow:

Sub Process SAP/ Remarks

Process Description Manual

01 Placement of SAP Purchase order is made as per the standard

Order process with the item category specified as
subcontracting (L).

02 Entering SAP Items to be provided to the vendor can be

components in PO mentioned in the PO as components (if
same material is going and coming also).
Items are fetched from the bill of materials
by default. The availability of components
with the subcontractor can be monitored
using the menu path Components-
Component availability.

03 Providing SAP A transfer posting for the material is created

components using movement type 541. This can be
created both automatically or through
inventory management.

04 Subcontracting SAP Creation of a subcontracting challan (57F4)

challan (57F4) on the basis of the material document
corresponding to the transfer posting. The
same can also be linked to posting of
material transfer

05 Monitoring of SAP The stocks of components with vendors can

stocks of be monitored. Transfer postings and delivery
components with orders can be created automatically using
vendor this transaction.

06 Goods Receipt SAP Return of materials by the subcontractor

challan reference is also maintained at the
time of posting the Goods Receipt.

07 Reconciliation of SAP The excise department reconciles goods

57 F4 Challan receipts against the challan thereby
accounting for the material sent to the
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vendor.

08 List of Sub- SAP A list of outstanding challans is created

Contracting
Challan

09 Complete Sub- SAP Challans are completed.

Contracting
Challan

Improvement Areas:

 Excise system fully integrated with other sub modules for all possible transactions.
 Monitoring of components provided to vendors for subcontracting .
 Appropriate inventory valuations linked to all movements.
 Proper accounting of material document-wise.
 A complete scenario (MRP, contract, info record, PR, BOM PO, 57 F (4) challan,
reconciliation, invoice verification) is captured within the system.

7.5 Procurement of Services

Several services are procured from vendors such as AMC contracts, consultancy services
etc.

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Process

Service Category:

 Sweeping & Cleaning services

 Civil Services
 Electrical Services
 Calibration Services
 Painting
 Miscellaneous Services
 Consulting
 Design & Drawing Charges
 Transportation
 Repairing and maintenance

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SAP Process:

The same is handled in the system using the regular process of purchasing .The
following variations need to be ensured.

Process Flow:

Sub Process Description SAP/ Remarks

Process Manual

01 Requisition SAP The process of requisition is the same as

that for a material with the item category
“D” defined as Service. A service master
should have been maintained in place of a
material master record.

02 Source Determination SAP Based on the records maintained in SAP

system the system looks for potential
vendors for supply of service and checks
whether long terms contracts have already
been established. Prices can be simulated
and the desired source of supply can be
selected and the requisition can be
converted into purchase order/ contractor a
release order against an existing contract.

03 Entry of Services SAP Entry of services performed can be made

performed into the service entry sheets with reference
to the purchasing document. Each individual
service is recorded with quantity and value.

04 Acceptance of Services SAP After recording the services that have been
Performed performed acceptance of satisfactory
performance can be confirmed.

05 Invoice verification SAP Invoice can be entered and performed as per

the standard purchase process.

Apart from the improvements mentioned in standard purchasing.

 Service history is maintained.

 Services are entered in the system.
 Contracts can be maintained on the system.

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 Traceability of costs incurred on services is also maintained similar to that of expenses

of materials.

Improvement Areas

 Purchase Order related to Account Assigned (Services) will be defined by the system
 Service conditions can be maintained related to plant & vendor.
 Release of PO’s with Authorized persons.

8.0 Inventory Management

8.1 Goods Receipt Process for Domestic Procurement

AS-IS:

 All materials received should be strictly against authorized requirements for the
specific date within defined tolerances of quantity and dates.
 The system should be fully integrated with accounts for accurate material valuation
and accounts payable.
 The process should ensure compliance with excise requirements.

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Process Flow:

Sub Process DescriptionSAP/ Remarks

Process Manual

01 Receipt of materials Manual Stores person to check and ensure:

and physical counting 1. Availability of Purchase Order/ schedule.
and quality checking 2. Availability of relevant documents along
with receipt.

3. Matching of physical receipts and

quantities in the documents with
corrective action for the same by
mentioning the same on the
acknowledgement and information to
purchase and vendor.

4. Material is submitted for quality

inspection.

02 Recording of Goods SAP Goods receipt of accepted material to be

Receipt in the system recorded and posted against the
appropriate movement type. The PO
number can be selected and all the details
are copied from the PO. Only quantity
needs to be entered.

03 Creation of incoming SAP The system has been set for automatic
excise invoice. creation of Part1 entry at time of posting
the GR. By capturing and posting of
invoice a part2 entry is created thereby
creating credit entry in the CENVAT
register and corresponding offsetting
accounting entry. Here again the details of
quantities, Excise duty paid, CENVAT
available are prompted by the system. If
the details are matching only the excise
invoice number and date need to be
entered.

04 Return of rejected SAP In case of material being rejected, the

material same is returned against the vendor’s
documents. In case of partial acceptance,
GR is made for the entire consignment
and a return posting should be made.

05 Excise documents for SAP Creation of excise invoice if CENVAT has

returns been posted for returns.
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Special Data Considerations

As the Goods Receipts process is fully integrated with several functions following data
needs to be maintained:

 Purchasing conditions including pricing and tax conditions.

 Valuation data in the Material Master including valuation class and valuation control.
 In case of receipts for materials for direct Consumption/Asset. The item category would
have been mentioned in the Purchase Order. It is necessary to give the account
assignment and asset number/ cost center in the item details. At the time of goods
receipt the material is directly handed over to user department.
Improvements Area:

 The Goods receipt process in SAP is fully integrated with other areas in the
organization and enables automatic valuation, account assignment, creation of
inspection lots.
 The excise recording system also ensures that all excise requirements are adhered to.
 Customized solution to automate the no of entries at the time of making Goods
Receipt with reference to POs.

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8.2 Goods Issue for Sampling / Returnable /non returnable

As Is

 Rates are finalised by User Dept.

 As & when a part is to be sent to vendor for repairs (e.g. motor rewinding, etc), User
Dept. informs the Vendor & the material is sent to the Vendor for repairing.
 Order is prepared by User Dept.
 Returnable Challan/Gate Pass is prepared by Stores.
 In Stores all Returnable Challan/Gate Passes are recorded in a register.
 As & when the material is recieved back it is posted against this returnable
Challan/gate pass in this register.
 Gate maintains separate register for all returnable items.
 Stores periodically (quarterly/annually) prepare a statement for all outstanding
materials (however register is maintained at store & follow up with party is done of
telephone)

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Process Flow:

Sub Process SAP/ Remarks

Process Description Manual

01 Passing SAP User Dept / Purchase Department will

requirement to
stores Give detail with cost centre if it is for issuing
to vendor on non- returnable basis.

02 Issue of goods SAP Consumption posting takes place if the issue

is for testing or on non-returnable basis.

03 Return from SAP If the sample is received back from vendor, it

vendor is taken back in to stock.

System shows the stock of the material issued

on returnable basis as ‘Stock lying with
vendor’ till the time it is received back.

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Improvement Area:

 Facilitates the sampling.

 Updation of accounts as consumption posting.

8.3 Stores Activity

Goods received against purchase order:

As Is

 The Goods received at plants are entered at security gate

 Material is received at store
 Check PO & Schedule.
 Check Quantity with the PO & invoice/Challan
 Inform User for testing
 Check CENVAT Gate Pass
 Count the quantity & Confirm with Challan/ Invoice Quantity.
 If any difference inform to vendor.
 Material Offer to QC/USER for Inspection
 On clearance of QC, material is placed in respective storage location.

3 CENVAT is obtained for the received goods.

4 Invoiced /Challan is certified for quantity & forwarded to Account dept for further
processing.

5 Goods are posted in inward register.

SAP Process

Goods receipt against purchase order is carried out through a standard transaction. The
quantity of materials received is input in the Goods Receipt document with the storage
location. If the quality inspection is active in quality management for material, quality
inspection stock will be generated. Further based on the quality of the material, it will be

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released to unrestricted stock through usage decision. For Excisable goods, the excise
invoice can be captured and posted while posting the GR in the system or can be
captured separately using dedicated transaction in CIN.

Goods received against job work purchase order

As Is

1. The Goods received at plants are entered at security gate with following Info.

 Date of receipt
 Items & Description of Goods
 Quantity
 Name of Vendor
 Invoice/Challan Ref No.

2. Material is received at store

 Check PO & Schedule.
 Check Quantity with the PO & invoice/Challan
 Check 57F4 Challan (If Applicable)
 Check the freight bill.
 Count the quantity & Confirm with Challan/ Invoice Quantity.
 If any difference inform to vendor.
 Material sends to QC (USER) for Inspection
 On clearance of QC, material is placed in respective storage location.
 57F4 entry is updated in register for the received goods.

3. Invoiced /Challan is certified for quantity & forwarded to Account dept for further
processing.
4. Goods are posted in inward register.

SAP Process

The above processes of goods receipt (subcontract) are similar to the standard goods
receipt procedure .If the quality inspection is active for the material then the inspection
lot will be created in the system, as per the usage decision in the Quality Management
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the material will be cleared for unrestricted use Stock.57F4 Challan can be created
through SAP CIN.

Goods Issue:

Goods issue is transacted through SAP standard movement types to production (cost
centres/ process orders)/quality inspection stock (Lab). The details of the requisition slip
can be entered on the material document (external material slip field on the material
document).

Goods Issue Against Stock transfers.

AS IS

 E mail/ Verbal instruction are given for stock transfer.

 Prepare the NRGP/Debit note or goods issue.
 Issue the goods as per Challan.
 Bill/Invoice is generated for excise / Octroi (If applicable)
 Issue of the goods is posted.

SAP Process

We can use Stock transport Order for this scenario where material is transferred from
one plant to another with in a company code with sales cycle. Applicable Excise invoice
can be generated through CIN.

Goods Issue Against Job work

As Is

 User raise goods issue requisition.

 Stores raise Job work order (PO).
 Material is issued to vendor.
 57F4 Challan (If applicable) and returnable Challan are prepared.
 Vendor collects material if job is small; else dispatch is arranged by plant.

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 Outward Entry is made by security at plant gate; it is tallied when material is returned
after processing.

SAP Process

This will be handled as parts provided to vendor in the system. A record of materials
with the subcontractor can be taken from the system in the form of report. Applicable
subcontracting Challan can be created with CIN.

8.4 Reservation

General Explanations

 A reservation is a request to the warehouse to keep materials ready for a goods issue
at a later date and for a certain purpose.
 A reservation for goods issue can be requested by various departments for various
account assignment objects (such as cost center, order, asset, etc.).
 The purpose of a reservation is to ensure that a material will be available when it is
needed. It is also to simplify and accelerate the goods issue process and to prepare
the tasks at the point of goods issue.

8.5 Goods Movements

In SAP system Goods Movements are transactions resulting in a change in stock.

Following are different Goods Movements in SAP

 Goods receipt: A goods receipt (GR) is a goods movement with which the receipt of
goods from a vendor or from production is posted. A goods receipt leads to an increase
in warehouse stock.
 Goods issue: A goods issue (GI) is a goods movement with which a material withdrawal
or material issue, a material consumption, or a shipment of goods to a customer is
posted. A goods issue leads to a reduction in warehouse stock.
Transfer postings from material to material

Release from quality inspection stock

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When posting a goods movement in the SAP System, the following documents are
created.

Material document

In the Inventory Management system, when a goods movement is posted, a material

document is generated that serves as proof of the movement and as a source of
information for any applications that follow.

A material document consists of a header and at least one item. The header contains
general data about the movement (for example, its date). Each item describes one
movement

Accounting document

If the movement is relevant for Financial Accounting (that is, if it leads to an update of
the G/L accounts), an accounting document is created parallel to the material document.

In some cases, several accounting documents are created for a single material
document. This might be the case, for example, if you have two material document
items with different plants that belong to different company codes.

The G/L accounts involved in a goods movement are updated through an automatic
account assignment.

Changes to a Document

Once you have posted a goods movement, you can no longer change the document. You
can only enter additional information in the document, such as the reference to the
original document, or a comment on the event. If you want to reverse the movement or
change the quantity of material moved, you must enter a new document.

Document Numbers

A material document is identified by a document number and the material document

year. An accounting document is identified by the company code, the document
number, and the fiscal year.

The material document number and the accounting document number are different.

When you enter a goods movement, you start the following chain of events in the
system:
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 A material document is generated, which is used as proof of the movement and as

a source of information for any other applications involved.

 If the movement is relevant for Financial Accounting, one or more accounting

documents are generated.

 The stock quantities of the material are updated.

 The stock values in the material master record are updated, as are the stock and
consumption accounts.

Depending on the movement type, additional updates are carried out in participating
applications. All updates are based on the information contained in the material
document and the financial accounting document. For Example, in the case of a goods
issue for a cost centre, the consumption values of the items is also updated.

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8.6 Rejection Return to Supplier

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8.7 Line Rejected material send back to Supplier

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 Separate Debit note and excise reversal if material not send back to supplier and
scraped at storage location end.
 Material can be send to vendors without reference if vendor code exists.

9.0 Pricing Condition

9.1 Pricing Elements

As Is

Pricing Components consists of following:

i. Date
ii. Invoice Number
iii. Supplier
iv. ECC NO
v. Date Of Invoice
vi. Value of Input
vii. BED
viii. ADI ( for import parts)
ix. CESS
x. HS EDU
xi. Chapter ID (Customer chapter Id)
xii. Unit
xiii. QTY
xiv. Description
Excise Duty
 Basic excise duty 16%.
 Education Cess @ 2% on Basic Excise Duty.
 Secondary & higher Secondary Education Cess @ 1% on Basic Duty.
Service Tax

Service tax Rate:

 Service Tax 12.36 %. (include e-cess, s.h.e.-cess)

CENVAT
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 CENVAT Credit on Excise Amount.

 CENVAT Credit on Education Cess.
 CENVAT Credit on Service Tax.
SAP Process:

At time of GR the excise entries will get capture but posting will be done separately

The Excise posting will be done on below pricing procedure For Import

A – BCD ( Basic Custom Duty) on Base Price

B – CVD (Countervailing Duty) on BCD

C – CESS 2% on CVD

D – SEdu Cess 1% on CDV

E – Cess 2% on Total (A to D)

F – SEdu Cess 2% on Total (A to D)

G – ADI of 4% on Sum of { Base Price + Sum of (A to F) }

For Domestic

A – BED 14% on Base price

B – ECS 2% on BED

C – SEdu Cess 1% on BED

D – VAT on {Base Price + Sum of (A to C)}

Or

E – CST on {Base Price + Sum of (A to C)}

9.2 Terms of payment

 Pay against delivery
 30 day of month
 45 days in general
 60 Days future requirement

10.0 Physical Inventory

Business Process:
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Physical inventory is carried out at the end of every month to ensure that the inventory
value and consumption figures considered for financial statements are accurate.

Prevent unexpected stock-outs

Further it is requirement of the audit process conducted by the statutory auditor of the
company to verify the stock and consumption figures are accurately presented to the
stockholders of the company.

The SAP system supports the following methods

 Periodic inventory
 Continuous inventory
 Cycle counting

At SBT Physical inventory Stock (periodic inventory method) taking is carried out
monthly wise for stocks based on Qty.

The system should be able to generate a list of materials and display the differences
between physical and book stocks. No movements should be permitted during the
physical counting.

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Sub Process SAP/ Remarks

Process Description Manual

01 Preparation of SAP Physical inventory documents can be

Physical Inventory generated in the system at Plant Level. The
Document selection of materials can be restricted on
the basis of storage location/ material
types/ material groups/ storage bins

02 Printing of physical SAP/ The physical inventory document is printed

document Manual for materials and hard copy handed over to
the person responsible.

03 Blocking postings in SAP Posting can be blocked for the period of

the system physical inventory to ensure consistency.

04 Physical Counting Manual The person responsible conducts the

physical counting and records the stock on
the hard copy.

05 Entering the count SAP The count results may be entered into the
results system. The system unblocks postings for
movements.

06 Inventory SAP A list displaying a comparison of Actual vs

differences analysis Book stocks can be generated for analysis.

07 Going for a Recount SAP Results once entered into the system can
not be changed. Recount may be organised
with a new physical inventory document

08 Posting Differences SAP Differences can be posted in the system

after approval by the designated
management personnel. Stock quantities
automatically get adjusted to the physically
counted stocks. Value differences will
automatically be posted to gain/ loss from
physical inventory account.

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11.0 Vendor Evaluation

Business Process:

In the SAP System, Vendor Evaluation has been completely integrated into the MM
Purchasing component within Materials Management. This means that information such
as delivery dates, quantities can be taken from purchase orders.

Vendor Evaluation also uses data from the Quality Management component, such as the
results of incoming inspections.

The Vendor Evaluation component helps user to select sources of supply and facilitates,
the continual monitoring of existing supply relationships. It provides with accurate
information on prices, and terms of payment and delivery. By evaluating vendors, user
can improve enterprise's competitiveness.

Main criteria’s for a vendor evaluation process will be Quality & Delivery. System will
provide a scoring range from 1 to 100 points, which is used to measure the performance
of your vendors on the basis of main criteria’s.

You can determine and compare the performance of your vendors by reference to their
overall scores.

Master Records for the Vendor Evaluation process will be:

 Vendor Master: Vendor master Record will contain vendor currency, Terms of
payments, Contact Person.
 Material Master: The individual material master records contain data such as the order
unit, responsible purchasing group, and over / under delivery tolerances.
 Purchasing Info-Record: Purchasing info records are used as a source of information for
Purchasing. It represents a specific vendor-material relationship.

Sub - criteria are the smallest units for which scores are awarded in Vendor Evaluation.
Elements are Quality, Goods Receipt, On Time Delivery, and Quantity Reliability.

Description:

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 User has to define the weighting keys. A weighting key is an identifier under which the
weighting factors for a number of main criteria can be grouped together and saved.
 Defining the main Criteria’s under which the evaluation of a vendor takes place .User
has to specify the scores (1 - 100) which has to be awarded to each criterion (Quality,
and Delivery).
 Then Defining the Sub – Criteria’s (Automatic) which are the smallest units for which
scores are awarded in Vendor Evaluation. The system calculates the scores for
automatic sub-criteria on the basis of data from other areas of the enterprise outside
the Vendor Evaluation system (for example, Goods Receiving or Quality Management).
 The Automatic Sub-Criteria’s are :
Quality:

Goods Receipt: This sub-criterion is used to evaluate the quality of the material that
the vendor delivers. Quality inspection takes place at the time of goods receipt.

On-time delivery performance: This sub-criterion is used to determine how

precisely a vendor has adhered to the specified delivery dates.

Quantity reliability: This sub-criterion is used to determine whether a vendor has

delivered the quantity specified in the purchase order.

 User will enter the keys for the purchasing organization and vendor. An overview of
the main criteria for this purchasing organization.
 Then the weighting will be entered in the system as defined by the user.
 System will calculate the Scores Automatically.

Improvement Areas:

 To view graphically the progress status of each criteria and overall criteria.
 To incorporate Vendor's action plan for improving performance, in case of
unacceptable rating.
 Material wise Vendor Evaluation needs to be compared.
 Vendor evaluation is captured within the system

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12.0 Invoice Verification

12.1 Invoice Verification for Vendor.

General Explanation of Process

The Invoice Verification component is part of the materials system. It provides the link
between the Material Management component and the Financial Accounting, Costing
and Asset Accounting components.

Invoice Verification component in Material Management serves the following purposes:

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 It completes the material procurement process- which starts with purchase requisition,
continues with purchasing, goods receipt and ends with invoice receipt.
 It allows invoices that do not originate in Material Management also to be processed
(Invoices for Services, Expenses etc.)
 It allows credit memos to be processed either as cancellations or discounts.
 Invoice verification does not handle payment or the analysis of invoices. The
information required for these processes is passed on to other departments.

Invoice verification tasks include:

 Entering invoices and credit memos received from suppliers.

 Checking accuracy of invoices with respect to contents, prices and arithmetic.
 Executing the account postings resulting from an invoice.
 Updating data in SAP system like PO histories, material prices, open items etc.
 Checking invoices that are blocked because the difference between the invoice and PO
was greater than the tolerances specified.
SAP Process:
 Complete integration with FI module.
 Status should be available for users.
 Price changes to be addressed and affected in inventory valuation.

Process Flow:

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Sub Process Description SAP/ Remarks

Process Manual

01 Receipt of vendor invoice Manual After Goods receipt at stores the

Material Document Number and
Excise Invoice Number are noted on
the invoice for further processing.

02 Vendor invoice details SAP The invoice is entered into the

are entered in the system. The invoice verification
system process can be referred to PO/
Delivery Notes/ Scheduling
Agreement/ Vendor. On selecting
PO/ SA as reference documents, in
case of GR-based IV the system
proposes list of open GRs. In case
of PO based IV the system proposes
items from the PO. The relevant
items for the invoice are selected.
Vendor can be used as reference in
case of delivery costs such as
octroi, freight etc. where the items
relate to several purchase
documents.

03 Posting Invoice SAP After entry the postings are

simulated for comparison with the
purchase order terms and for
correctness of the accounts posted
to.

04 Releasing blocked SAP Some invoices would get blocked in

documents case of differences over the
tolerances. After deliberation the
blocked invoices are released by
proper authorisation.

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Improvement Area:

 Integration with Financial Accounting module.

 Visibility across MM and FI modules on status of invoices.
 Material price changes are adjusted in inventory valuation at time of invoice
verification.
 Facility of blocking invoices for various blocking reasons.
 The system also provides for posting unplanned delivery costs such as delivery
costs not known in advance. The unplanned costs incurred need to be specified in the
header and the relevant documents can be defined. The items that are relevant can be
selected. The cost is posted by suitable apportionment to the items.
 Similarly subsequent debits/ credits can also be posted.
 In both the above cases the costs are posted to the inventory unless specified
otherwise. In case of insufficient coverage the balance cost over the coverage is
posted to price difference account.

12.2 Invoice Verification for payment through LETTER OF

CREDIT

Business Process:

Integration with FI module for processing invoices and status of the invoices should be
available and price changes need to be addressed in material valuation.

Sub Process SAP/Manual Remarks

Process Description

01 Receipt of accepted SAP/Manual Purchase receives the order acceptance

PO from vendor for the purchase order.

Same can be entered in the system

02 Letter of Credit Manual Letter of Credit format is mutually

format agreed upon between Vendor and
Purchase

03 Request for opening Manual Purchase sends a manual request to

accounts with the purchase order
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of Letter of Credit number

04 Opening of Letter of Manual Accounts does the Letter of Credit

Credit opening formalities and forward a copy
of Letter of Credit to Purchase

05 Copy of Letter of Manual Purchase forwards a copy of Letter of

Credit to vendor Creddit to vendor

06 Goods receipt and SAP As explained in std. invoice verification

invoice verification

07 Release of Payment SAP/Manual As per the advice of accounts bank

release the payment

Description of Improvement

 Integration with Financial Accounting module

 Visibility across MM and FI modules on the status of the invoices
 GR based invoice verification can be done ensuring the document flow and data
consistency

13.0 Material Valuation

Valuation of material is carried out automatically in the system and is dependent on
valuation control defined for the material:

 Raw Material or all externally procured materials are based on the moving average
price (MAP). The control indicator for the same in the system is V.
 Finished Goods will be based on the Standard Price. The control indicator for the same
is S.

Manual activities involved are meant for serving the following purposes:

 Adjusting material prices.

 Performing revaluations.
 Executing balance sheet valuation.

Revaluation of a material other than for physical inventory differences can be due to:

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 A price change

If the material price no longer corresponds to the current price, you can adjust it by
making a price change.

 A material debit or credit

If the stock value of a material is to be increased or decreased, you can make a direct
credit or debit posting for this material.

14.0 Scrap
AS IS

 All disposal items are collected in separate bins or areas marked.

 Quotations from parties are invited
 Comparison statement of all offers is prepared.
 Based on the best prices, it is conveyed to buyer for lifting the
material.
 Full amount in Cash/Cheque is collected from the buyer & deposited with
cashier / accounts.
SAP Process

All disposable items, which are treated as scrap, are transferred to a Scrap Storage
location. The scrap is sold to the best buyer. Process followed by SD department.

15.0 Release Strategy

In case of purchase requisition & order 2 stage release procedure is required.

 Asst manager
 MD
To set up approval procedures for purchase requisitions or other purchasing documents, if a
purchase order document fulfils certain conditions, it has to be approved (by the manager, for
instance) before it can be processed further. This process of approving a proposed item of
expenditure is replicated in the AS-IS System by the "release procedure".

Three levels of approval will be available for purchase requisition and based on the approved
PR, purchase order is generated purchase department and approved by VP, GM, MD.

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16.0 Excise Master:

 Materials are received against excise chapter ID

Monthly excise returns

Excise monthly return following paper submit in file

 CENVAT statement Capital & Input.

 CENVAT Monthly Return.
 Service tax credit Register.

17.0 Month End Closing

A company may have materials that are maintained in many locations within the same
system. Each month the previous posting period is closed and a new posting period is
opened. The period close program requires that no changes be made to material records
– including goods movements.

During the Month End closing the Values are transferred & the period is closed for the
pervious month.

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18.0 Process Change Document – MM

Scenario AS-IS Change Process

Manual Numbers of the Currently the numbers are IN SAP; the material master
material master assigned manually. This numbering is manually
results into the loss of entered as for as-is
Control.

Calculation and reporting Currently the Excise As a result of automation of

such as Excise registers registers are maintained maintenance of legal
Manually. records to a greater extent,
the tax code would be
entered in the purchase
order and accordingly the
goods receipt liability would
be created at GR stage with
corresponding entries going
to stock account. During
invoice verification stage
the setoff tax amounts
would be simulated and
accordingly system would
pass entries to vendor
account.

Domestic Purchases Currently the open orders 1) Auto generation of

are created & the Schedules purchase requisition by
are created based on the running the MRP (which will
requirements take into account safety
stock, lead time and critical
parameters maintained in
the material master).

2) The quotation received

from the vendor would be
entered in the system. (May
this cycle can be kept as
manual)

3) The purchase orders

would be GR based invoice
verification.

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4) No amendments would
be done in the purchase
orders except for the
material code, qty, plant,
vendor & purchasing
organization in the system.

Release Strategy Currently not available in There would be two level of

the system. release strategy. The
release strategy would be
on the basis of Price & the
desired value. The first
release would be done by
the Managers material & the
final release would be done
by the VP or MD

Imports Order Creation of the PO/contracts 1) Auto generation of

Processing order. purchase requisition by
running the MRP (which will
take into account safety
stock, lead time and critical
parameters maintained in
the material master).

2) The quotation received

from the vendor would be
entered in the system.

3) The purchase orders

would be GR based invoice
verification.

Sub - contracting Order Material sent to the 1) Auto generation of

subcontractor for processing purchase requisition by
Processing with 57F4 challan created running the MRP (which will
manually. take into account safety
stock, lead time and critical
parameters maintained in
the material master).

2) The quotation received

from the vendor would be
entered in the system.

3) The purchase orders

would be GR based invoice

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verification.

4) No amendments would
be done in the purchase
orders except for the
material code, qty, plant,
vendor & purchasing
organization in the system.

Capital goods order Currently there is no track 1) Auto generation of

Processing. of the budget vs actual on purchase requisition by
the capital expenditure. running the MRP (which will
take into account safety
stock, lead time and critical
parameters maintained in
the material master).

2) The quotation received

from the vendor would be
entered in the system.

3) The purchase orders

would be GR based invoice
verification.

4) No amendments would
be done in the purchase
orders except for the
material code, qty, plant,
vendor & purchasing
organization in the system.

External services 1) Sweeping & Cleaning 1) PR raised by the User for

services. different services.

2) Civil Services. 2) Purchase Orders would

be raised with reference to
3) Electrical Services. the purchase orders in the
system
4) Painting.
3) Acceptance of Services
5) Miscellaneous Services.
with Supplied Services.
6) Consulting.
4) Invoice verification is
7) Others done based on the service
acceptance in the system.

5) Release of PO’s with

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Authorized persons.

6) Purchase Order related to

Account Assigned (Services)
will be defined by the
system.

7) Quotations can be
analysed by the System.

8) Service conditions can be

maintained related to plant
& vendor.

Goods receipts Goods receipts for raw 1) All the goods receipts in
material, tools & spares, the system will be done with
consumables, capital goods, respect to purchase orders
imports, subcontracting. only.

2) Creation of the GR with

reference to PO with Excise
Part one entry at the Gate
premises.

3) GR Linked to excise (Part

I & II) & QC. Here system
will capture & posting will
be done separately by
Excise Dept.

Physical Inventory Physical inventory done Periodic Physical Inventory

manually outside the
system. 1) Creating Physical
Inventory Document
pertaining the plant &
storage location.

2) Freezing the book

inventory.

3) Verification of Physical
inventory Card & Existing
System Stock with Physical
Stock.

4) Approval for difference in

stock from Store In charge.

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5) Posting the differences

from the physical Inventory.

6) Printing out the physical

inventory document for the
physical inventory count
and pass it on to the people
responsible for doing the
counting.

Goods Movements & Stores issues the material to 1) Goods issue against the
Reservations the production based on the production order.
manual issue slip/Indent.
2) Goods issue against the
reservation.

3) Issues against Cost

Centre – manual
reservations – will done by
the stores (for capturing the
operational cost).

4) Issues against the

Maintenance order for
capturing the repairs cost.

5) There will be no hard

copy of Issue slip in the
future. Reservations will be
created for production order
automatically in the system.

6) Manual reservations for

Consumables will be created
by the user departments
and the Issue will be posted
to the cost Centre by stores.
The fundamental of
Issue to cost centre would
be mainly for capturing the
operational cost

Invoice Verification Invoice verification is done 1) Invoice verification of the

with reference to the procurement vendor would
purchase orders for raw be done on the basis of the

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materials. purchase order only.

Invoice verification of the 2) Invoice verification of the

transport vendor is done on freight vendor would done
the basis of the bill on the basis of the Letter of
received. Credit no which would be
incorporated as required
entry at the time of the
goods receipts creation in
the system.

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19.0 Special System/Organizational Considerations

19.1 Purchasing Document Types and Number Ranges

Purchase Requisition will have document type.

 Standard – NB
Purchase Order will have Document types

NB Purchase Order

UB Stock Transfer

FO Framework PO

Purchasing document Number Ranges

The purchasing document number ranges will be system generated. The Number range
is based on document type and will be set at the client level.

19.2 Forms/Reports (SAP script) Document Printing

Remarks
S.no Description
1 REQUEST FOR QUOTATION To be customised

2 PURCHASE REQUISITION Standard

3 PURCHASE ORDER To be customised

4 SUBCONTRACTING CHALLAN To be customised

5 MATERIAL ISSUE NOTE Standard

6 LINE REJECTION IN-HOUSE Standard

7 SCHEDULING AGREEMENT To be customized

8 REJECTION CHALLAN To be customized

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19.3 Availability & Use of Standard reports

 Material Doc. List
 List of Stock Values: Balances
 Plant Anal. Selection: Stock
 Plant Anal.Selection, Rec/Iss
 SLoc Anal. Selection, Stock
 Material Anal.Selection,Stock
 Mat.Anal.Selection, Rec/Iss
 Mat.Group Analysis Sel. Stock
 Anal. of Current Stock Values
 Plant Analysis Selection
 Stor. Loc. Analysis Selection
 Material Analysis Selection
 MatGrp Analysis Selection
 PurchGrp Analysis Selection
 Vendor Analysis Selection
 MatGrp Analysis Selection
 Material Analysis Selection
 Purchase Orders by Vendor
 Purchase Orders by Material
 Purchase Orders by PO Number
 Invoice Overview
 Stock Overview

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19.4 System Configuration

Number Ranges Types

Sl.No. Description INT /EXT Remarks

1 Vendors External
2 Material Number External
3 Purchase Requisition Internal
4 RFQ Internal
5 Purchase orders Internal
6 Contracts Internal
7 Scheduling agreements Internal

19.5 Data Migration Considerations

S/N Data Objects M Method of Data Transfer

1 Vendor Master M BDC/LSMW

2 Material Master M BDC/LSMW

3 Info Records M BDC/LSMW

4 Source List M BDC/LSMW

5 CIN Data M BDC/LSMW

5 Open Purchase orders T BDC/LSMW

4 Initial Stock T BDC/LSMW

Where M = Master Data

T= Transaction Data

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