Explaining Source of Supply Determination

After completing this lesson, you will be able to:

After completing this lesson, you will be able to:

  • Outline the importance of the source of supply determination in the overall process

Source of Supply Determination

Position of the Topic in the Complete Training Scenario

The figure illustrates the position of Purchasing in the complete training scenario.


The Material Requirements Planning after the last night run issued a consolidated demand for the 10 thousand pieces of the new Jacket model which is part of the upcoming collection.

The buyer checks the possibilities of purchasing this Jacket and figures out whether any of quota arrangements, contracts should apply to this merchandise.

He comes to the conclusion, that the regular vendor already maintained in the product master should be used for conversion of the demand into a purchase order.

Overall Process Flow

The process chain detailed above shows how purchase orders are generated using the purchase requisitions that are generated automatically in material requirements planning. Both documents can also be created manually, if necessary.

Note: Before purchase requisitions can be automatically converted into purchase orders, the indicator for the automatic conversion of purchase requisitions into purchase orders must be set in the material master (logistical data for a plant), the vendor master (purchasing data for a purchasing organization) and the plant master.

Source of Supply Determination

Supply source determination is used to assign supply sources to requirements. Both internal (distribution centers) and external supply sources (external vendors) are possible. Possible supply sources are defined by the system with the following priority and then displayed on the screen as suggestions:

  • The system then checks if a quota arrangement exists and if its period of validity actually covers the delivery date stated in the purchase requisition. If you want to procure a material from different sources of supply, you can provide the individual sources of supply with a quota, which allocates a proportion of the requirement to each source of supply. A quota arrangement is agreed for a specific period of time. A quota arrangement does not divide up a requirement. The entire quantity demanded in a purchase requisition is assigned to one source of supply according to the quota arrangement.
  • B: If there is no quota arrangement, the system attempts to determine a suitable supply source using the source list, which lists the admissible (and inadmissible) supply sources for a material at a certain plant and during a specified period. Each source of supply is defined by a source list record.
  • C: The system then evaluates the existing outline agreements. An outline agreement is a long-term agreement between a purchasing organization and a vendor for the delivery or materials or the performance of services at specified conditions during a certain period. The following outline agreements are possible: value and quantity contracts, and delivery schedules.
    • You choose a value contract if the total value of all contract release orders is not to exceed a certain amount. The contract is fulfilled when a value agreed on has been reached as a result of contract release orders.

    • You create a quantity contract if the total quantity to be ordered in the duration of the outline agreement has been specified. The contract is fulfilled when a quantity agreed on has been reached as a result of contract release orders.
  • You can also close group-wide contracts with your vendors. These apply to all the plants and company codes in a client.
  • D: The Supply source field in the material master is analyzed if no supply source has been determined up to this point. The following options can then be chosen:
    • The system uses outline agreements, info records and the regular vendor indicator to search for an external source of supply (external vendor), or
    • The system uses stock transfer scheduling agreements or delivery plants (distribution center) to determine a supply source, or
    • Both methods can be used one after another.

In addition, you can deactivate supply source determination in your system and use a user exit to implement your own supply source determination method.

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