Direct materials are the raw materials or goods processed or used directly in a final product. Because they are an integral part of the finished product, their cost is directly attributed to the cost of goods sold.
The basic procurement process for direct materials includes the following steps:
- Requirements Determination: This involves identifying the material requirements of a business department. The employees of the department manually create a purchase requisition to inform the purchasing department about the materials they need. If a materials requirements planning (MRP)* procedure is set for a particular material in the system, the SAP system automatically generates a purchase requisition based on the defined requirements. (*MRP requires the SAP S/4HANA Cloud SCM Base License).
- Source of Supply Determination: This refers to the process of identifying and selecting potential suppliers or supply sources for a particular procurement requirement. Source of supply determination can be automated by maintaining master data, such as purchasing info records and/or purchasing contracts, for the given product, supplier, and plant combination.
- Purchase Order Processing: Purchase order processing is an essential part of the procurement process. It involves creating purchase orders, which are documents that specify the items or services to be purchased from a vendor or supplier. Purchase orders can be created manually or automatically.
- Purchase Order Monitoring: This involves the tracking and managing the status of purchase orders within a system.
- Goods Receipt: This is a process in which incoming deliveries are recorded in the system by referencing the corresponding purchase order. When you enter the goods receipt in the system, it automatically updates the purchase order history, providing a record of the goods received against the purchase order. This helps in maintaining accurate and up-to-date information about the procurement process.
- Invoice Processing: In this process, the invoice is received from the supplier and entered in the system. It can be created either manually by the Accounts Payable Clerk or through direct integration from the SAP Business Network. Once the invoice is created, the AP Clerk verifies the invoice and ensures the three-way matching with the purchase order and goods receipt documents. This step might require approvals from the purchasing manager, interaction with the supplier for clarifications, or the creation of credit memos.
- Payment to the Supplier: After the final approval of the invoice by the purchasing manager, payment is sent to the supplier. If a down payment is involved, additional tasks must be executed by the accounts payable clerk before the materials are received. The down payment request is created, and the supplier is paid through the system execution steps.
Within Payment in Accounts Payable, a user has several options on how to run processes. They can use basic payment operations, but also can use Payment Workflow and Batch creation to control and monitor payments with more detail. It also includes features to secure connectivity and connect to the bank through SAP Multi-Bank Connectivity to execute payments to the supplier. It also allows the integration and automation of bank statements to manage all payment information from the bank automatically and with ease. It is also possible to run a thorough analysis on cash positions, liquidity forecasts, and cash flows, and to send correspondence (account statements, balance confirmations, etc.) and payment advice to suppliers.
E2E Direct Material Procurement Process Flow: The end-to-end (E2E) direct material procurement process flow is executed using different SAP solutions included with SAP Finance Premium.
Play the video to understand the E2E flow of executing the direct material procurement using the integrated SAP solutions from SAP Finance Premium.
