Outlining Procurement of Direct Materials

Throughout this training content, if not otherwise specified, when SAP S/4HANA Cloud mentioned, the public edition of the SAP S/4HANA Cloud meant (i.e. SAP S/4HANA Cloud stands for SAP S/4HANA Cloud, public edition).

The scope item, Procurement of Direct Materials, belongs to the business areas Operational Procurement and Invoice Management, which are part of the Sourcing and Procurement line of business.

Direct procurement is the act of acquiring raw materials and goods for production. These purchases are generally made in large quantities. They are acquired from a pool of suppliers at the best possible cost, quality, and reliability. These purchases are made frequently and are necessary for key business practices, such as a baker buying flour to produce bread. If direct procurement stops functioning, or encounters problems, companies can no longer manufacture their product and create revenue. Historically, direct procurement stems from manufacturing.

This purchasing process uses purchase requisitions that are generated either using the Material Requirements Planning (MRP) process, or manually by a requester.

A purchasing administrator validates the accuracy of the purchase requisition and converts the purchase requisition into a purchase order. Alternatively, the purchase orders can be generated manually.

The purchase order is subject to approval based on a predefined amount before being issued to a vendor. Goods are shipped from the vendor and the goods receipt is prepared with reference to the purchase order. The invoice is received from the supplier. Invoices are entered with reference to a purchase order.

The figure, Procurement of Direct Materials Process Overview, shows the process diagram for scope item Procurement of Direct Materials (J45).

• Process purchase requisitions.

• Manage purchase orders.

• Manage goods receipts.

• Manage inbound deliveries.

• Manage stock.

• Manage invoices.

• Manage critical situations using automatic detection.

• Manage down-payments.

The main function of Material Requirements Planning (MRP) is to guarantee material availability. Therefore, it is used to procure or produce the requirement quantities on time, both for internal purposes and for sales and distribution. This process involves the monitoring of stocks and, in particular, the automatic creation of procurement proposals for purchasing and production. In doing so, MRP is used to strike the best balance possible between the following requirements:

• Optimizing the service level
• Minimizing costs and capital lockup

The MRP component (PP-MRP) assists and relieves MRP controllers in their area of responsibility. The MRP controller is responsible for all activities related to specifying the type, quantity, and time of the requirements. In addition, the controller calculates when, and for what quantity, an order proposal must be created to cover these requirements. To calculate quantities, the MRP controller needs all of the information on stocks, stock reservations, and stocks on order. The controller also needs information on lead times and procurement times to calculate dates. The MRP controller defines a suitable MRP and lot-sizing procedure for each material to determine procurement proposals.

Direct materials are used directly in the production process and, therefore, influence the value of the final goods. This material is mostly held in stock and must be kept in inventory management.

If you allocate a material with the item category L and the corresponding settings in the material master to a network activity, the system generates a reservation for the material. The material is procured using MRP. If you assign components that are procured directly to a network activity, the system generates a purchase requisition for the material.

During the MRP run, the system checks whether current material demand can be covered by current inventory and expected material receipts. In a regenerative MRP run, the system plans all materials, irrespective of whether they have been changed since the last MRP run. In a net change MRP run, the system only includes materials that have been changed since the last planning run in the new planning run. If current demand is not covered, the system creates purchase requisitions.

You can use this app to create and schedule a job for executing your MRP runs. To automate the planning process, the MRP run must be performed on a regular basis so you can use this app to create a job that performs this task for you. This reduces your workload by running this task smoothly in the background.

You can perform the following tasks if the Production Planning - MRP Runs role is assigned to your user:

• Create and schedule jobs for your MRP runs. You can define:
  • The description, start date, start time, and recurrence of the MRP run.
  • Specific control parameters for the MRP run.
  • The planning scope of the MRP run.
• Monitor the jobs and display information on the status, such as planned start, end, and duration. In the Job Details screen, you can display a log with information on the planning run.
• Cancel the job.

A purchase requisition is an internal document that defines the requirements of a material or a service. This document authorizes the purchasing department to procure the material in the quantity specified for the specified date.

With the Process Purchase Requisitions app, you can display purchase requisitions. In addition, you can use this app to assign sources of supply to the purchase requisition items and to create follow-on documents. You can only access purchase requisitions if you have authorizations for the respective purchasing group, purchasing organization, and plant.

Using this app, you can convert your purchase requisitions to purchase orders. Whether you can create one or several purchase orders depends on the supplier, purchasing organization, and purchasing group associated with the selected purchase requisition items.

With this app, you can create and manage purchase orders (POs) to ensure that you get the ordered items on time, at the correct location, and in the required quantity. As a purchaser, you can manually order materials as well as services. The list of POs that is displayed is based on the header level of the PO, so the information shown relates to the entire PO. On the overview, you can immediately see the number of overdue items for each PO. The item categories Standard, Consignment, Subcontracting, Third-party, and Limit are supported.

You can perform the following key tasks using the Manage Purchase Orders app:

• Create a new purchase order.
• Jump into the details of a specific purchase order to review it.
• See details for Advanced Purchase Orders.
  Note

  When you choose the Advanced Purchase Order icon, you can see a list of unsupported features for each purchase order. Because these features are not supported in the SAP Fiori app, you can only edit or display the purchase order using the classic apps (Change Purchase Order - Advanced and Display Purchase Order - Advanced). You can click on each unsupported feature to see which database entries are filled and therefore prevent you from using the SAP Fiori app.
• Edit an existing purchase order. Changes you can make to an existing purchase order depend on the status. You can edit purchase orders that are in the status In Approval.
• Create, edit, and display additional information to your suppliers in the form of texts in the notes section.
  Note

  You cannot edit texts containing formatting (SAPscript) using the SAP Fiori app. Changing formatted texts that were created using the classic UI technology (SAP GUI for HTML) is not possible with the SAP Fiori app.
• Add the supplier email address in the purchase order output using custom form templates.
• Save your personal filter criteria as a variant.
• View output items.
• Add attachments at the item level on the item object page. Purchasers can also copy item attachments from referencing and upstream documents to purchase order items when converting purchase requisitions to purchase orders.
• Manage a tax date in addition to the tax code.
• Exclude a purchase order from Intrastat reporting.
• Copy single items as well as entire purchase orders.
• Add a from document.

  You can reorder purchase order items with reference to one of the following purchasing documents that already exist:

  • A purchase order item
  • An info record
  • A purchase contract item

  If the supplier field is not filled in the header of the purchase order, all the data from the referenced purchasing document is taken over.

• Use the Info Record Update checkbox under the Source of Supply section. If you select this checkbox, the info record is automatically updated with data from the purchase order when you choose Save.
• Assign a purchase order item to several accounts. You can distribute costs on a percentage basis.
• Create several schedule lines.
• Use the functionality provided by the flexible workflow. When you create a purchase order, a simulation of the workflow is triggered. If errors occur, you can use the error messages to analyze the issues.
• See details concerning the approval process, such as the processors involved and the status, under Source of Supply.
• See all changes made to a purchase order (both at the header and at the item level) in the corresponding printout document of the purchase order.
• Use the checks related to International Trade Compliance. Note that you cannot create a purchase order that violates one of these checks.
• Use the features available for Budget Availability Control, which are also integrated in other apps for logistics processes (Process Purchase Requisitions and Manage Supplier Invoices) that result in cost postings.
• Use Situation Handling to get automatic notifications when there is a deficit in the quantity of materials to be delivered by the supplier for any purchase order item.
• Use the Account Assignment Category Q to assign the material quantity to a specific stock needed for the completion of a specific project.
• Use customer defined account assignment categories.
• Work with item hierarchies as a means of grouping items (services or materials) in purchase orders.
• Find the comment from the approver explaining the required rework in relation to a purchase order on the Rework tab in the header section of the purchase order.
• View the Status Details on header level of a purchase order. The Status Details include, for example, information on the Delivered Value and the Invoiced Value of a purchase order.
• Include standard and custom purchase order fields in the Decision Tables as Condition Columns of the app Output Parameter Determination.
• Include purchase order item attachments in the purchase order output.

  To know how to include attachments in purchase order items, refer to the topic "How to add attachments in purchase order items using the app Manage Purchase Orders?" on SAP Help for more details.

  To add purchase order item attachments in the purchase order output, the configuration step needs to be enhanced. Refer to the topic "How to include item attachments in purchase order output using the app Manage Purchase Orders?" on SAP Help for more details.

• View all the assigned approvers when the option One of the recipients is selected in the workflow that is applicable for the purchase order.

  To view list of all the approvers, open the purchase order, and click on More in the Approver section.

• Make use of the new field Shipping Instructions.

  The field Shipping Instructions is available on the Delivery Details tab of the purchase order item. You can choose shipping instructions from a drop-down list. To maintain the values for this F4 value help go to Material Management → Purchasing → Material Master → Define Shipping Instructions → Define Purchasing Value Keys .

  Note

  If material or plant are filled after maintaining shipping instructions, the shipping instructions are overwritten by the respective master data as it takes precedence over manual entry.

• See all approvers in the list report and on the object page of a purchase order.

• Print purchase order standard texts in the purchase order output.

• 
  View, assign, or unassign partners, for example, suppliers and their associated partner functions, such as ordering address and invoicing party, to a purchase order on the partner tab on header level of a purchase order.
  Note

  As a configuration expert, you need to enable the Partner tab in the app Manage Purchase Orders. In your configuration environment, use the search function to open the following activity:Maintain Partner Functions in Manage Purchase Orders Application → Sourcing and Procurement → General Settings. Then, turn the switch on by configuring the step Enable Partner Functions in Manage Purchase Orders Application. In a standard system setting this configuration step is switched off by default. Once the switch is on, you cannot turn it off.

  If the Partner tab is activated and a supplier is maintained in the header of the purchase order:

  • A partner with partner function (for example: BA = Ordering Address, LF = Supplier, RS = Invoicing Party), is entered automatically, if maintained in the supplier master data.
  • A default partner with partner function (for example: BA = Ordering Address, LF = Supplier, RS = Invoicing Party), is entered automatically, if more than one partner with the same partner function exists in the supplier master data and one partner is marked as the default partner.
  • If multiple partners exist for the same partner function and no default partner is maintained in the supplier master data, a partner for the specific partner function can be selected manually. (Business functions are, for example, BA = Ordering Address, LF = Supplier, RS = Invoicing Party).
• 
  Add a delivery address that overwrites the plant address or the storage location address. On the Delivery tab of the item you have several entry options. You can,
  • Enter an address ID in the Address field
  • Use the F4 value help of the Address field to search for a particular address ID
  • Use the F4 value help of the Address field to search for a particular address ID filtering on an address group like for example, BP = Business partner, ME03 = One-time vendor addresses, SCTM = Transport Management Address Administration.For third-party purchase order items the field Customer appears on the Delivery Address tab of the item. You can enter a customer ID or choose one by using the F4 value help.
• Make use of the connection with Transportation Management/TM with regards to TM locations for incoterms.

Using the Profile → Settings → Default Values, you can maintain the default values for the fields under Materials Management, which can then be used as a filter defaults while using the Manage Purchase Orders app. The default values for fields such as material, material group, plant, and supplier can be entered. They will be displayed as a default value for filter on the app. You may not see all the setting options; some need to be enabled by your administrator.

Note

• The default values do not have any affect on newly-created purchase orders. When you create a new purchase order, the default values that are set will not display as default on the new purchase order.
• The values for Materials Management that are set using Profile → Settings → Default Values should not be confused with the values that are set using the Default Settings for Users - Purchase Requisitions app. The app Default Settings for Users - Purchase Requisitions is currently meant only to be used with purchase requisitions and therefore, values apply only while using the Create Purchase Requisitions app. It does not affect the default settings or values when a purchase order or contract is created using the corresponding apps. For more information about this app, you can check the module Requisitioning (18J) .

Note

The support of Manage Purchase Orders (F0842A) SAP Fiori app on smartphones is deprecated as of SAP S/4HANA Cloud 2208 and will be deactivated with SAP S/4HANA Cloud 2302.

You will no longer be able to use this app on smartphones as of SAP S/4HANA Cloud 2302.

If you have been using this app on your smartphone, SAP recommends that you make the necessary preparations to be able to continue using the apps on one of the supported device types, which are tablet computers and desktop computers.

Using the app you can post the receipt of goods with reference to a purchase order, which contains order items for stock material (procurement of direct materials). When a material is delivered for a purchase order, it is important for all the departments involved that the goods receipt entry in the system references this purchase order. For example, this app supports warehouse clerks or inventory managers in their daily work.

As an Accounts Payable Accountant for Procurement, using this app, you can create supplier invoices for your purchase orders based on the received document. You can also create credit memos, subsequent credits, and subsequent debits. You can specify the purchase order items to which your supplier invoice relates. If you select the Simulate or Post function, the system compares the quantity and amount data of each supplier invoice item with the data of the related purchase order item.

With this app, you can display purchase order items and monitor their status, using filter criteria such as purchase order, material group, material, supplier, plant, and delivery forecast. You can also choose a purchase order item to view its item level information. You can enable your business users to predict the delivery date of purchase order items, as proposed by SAP Predictive Analytics integrator. The regression algorithm in SAP Predictive Analytics integrator is used to predict whether delivery of purchase order items will happen earlier than scheduled, on time or with a delay. Based on the predicted delivery date, your business users can take necessary decisions.

Note

The predicted date is based on training, which is in turn based on the historical data available in the system.

Users can access to product footprint data maintained in the Product Footprint Management application is provided via the menu of Material links throughout Procurement applications

Requesters have the option to open the value help for Material to see details and help guide selection when creating a Purchase Requisition. The value help for Material has additional two columns to show the amount of CO2 equivalent and unit of measure of the product footprint.

As a Purchaser, using the Manage Supplier Confirmations app, you can create, manage, and search for order acknowledgments to ensure that you receive the ordered items in the required quantity at the defined delivery date. The list of confirmations displayed is based on the header level of the confirmation, so the information shown relates to the entire confirmation. With this business object the supplier confirmations are now separated from the purchase orders, but still connected.

• Create new supplier confirmations from scratch
• Enter confirmations for a purchase order as a whole
• Process single or a series of confirmations at once
• Edit confirmations
• Add confirmation lines
• Add confirmation items and change them
• Delete whole confirmations, individual confirmation items, individual confirmation lines

Note

As the Manage Supplier Confirmations app is an independent business object, confirmations maintained here cannot be maintained in other purchase order applications. Confirmations maintained in other purchase order applications can no longer be maintained in the app Manage Supplier Confirmations.

Down payment is the received or paid amount before the actual handing over of goods. It is often used with the procurement of expensive items.

Down payment integration is available for SAP S4/HANA Cloud and SAP S4/HANA for central finance.

In SAP S/4HANA Cloud, you can create purchase orders manually for down payments using the Create Purchase Order - Advanced app. You can define the down payment parameters, such as DP Category, Down Payment Amount or Percentage, and Down Payment Date in the Invoice section of your purchase order.

Retention is a part of an invoice amount that is retained until a defined due date to ensure the delivery of materials or the performance of services. If a company does not want to pay the full price of purchase orders immediately purchasers can plan a security retention. It is taken into account when the invoice is posted, deducted from the invoice amount, and paid at a later time. The retention amount is released to the supplier when certain expectations are met or on a specified due date that has been agreed upon. For example, the end of the warranty period. Retention is done in order to mitigate the risk to the purchaser.

• When the Purchase Order is entered in the invoice a message is displayed in the application log informing the user that the item is relevant for retention
• In addition, four fields that are relevant for retention are ready for input in the invoice item (Retention amount in document currency, Retention percentage, Due Date, Tax Reduction for Retention)
• Inclusion of the complete configuration to define control parameters, tax handling & default due date