Explaining Purchase Order Handling


After completing this lesson, you will be able to:

  • Outline the purchasing process
  • Explain purchase order functionalities
  • Explain purchasing contracts
  • Explain and create flexible purchasing contracts

Purchase Orders


The demand which was calculated by the MRP has been assigned with an appropriate source of supply. The buyer now has to convert purchase requisitions into purchase orders (PO).

When creating POs the buyer checks the price and rebate conditions. He makes himself sure, that the output messages have been determined and checks the email or EDI.

After a couple of weeks, the buyer receives purchase order updates, which he maintains in the system.

Buyer checks whether an ASN has been already received for the executed PO.

Purchase Order Handling

Purchase orders can be manually created using transaction code ME21N. The general structure of a purchase order is divided into three levels:

  • Header
  • Item overview
  • Item details

All three display levels can be displayed on the screen simultaneously, or accessed individually. Purchase order items can be entered in the item details and displayed on the item detail screen.

A purchase order can be a vendor order (see the process detailed above) or a stock transport order (warehouse order).

For organizational purposes, a purchase order is assigned to one purchasing organization and one purchasing group only. In addition to this, a purchase order is assigned to one order type only (NB = standard purchase order, UB = stock transport order) for control purposes.

Purchase Order Functionalities

The figure shows a screenshot, illustrating the pricing conditions in purchase orders.

Purchase order uses the transportation chain as a template for generating the dateline in the document.

Transportation chains consist of master data that you create for dates and assign, for example, at vendor level. A transportation chain maps the whole route between the vendor and the distribution center or distribution center and store and describes the individual transportation times for each route segment along the transport route.

This is the process:

  • The system saves the dates calculated by scheduling in a dateline.
  • In the dateline, the dates appear with their description, time interval, and a concrete date.
  • The dateline appears in a separate tab in the item detail of the PO.
  • The following dates are available:
    • Latest Order Date
    • Ex-Factory date
    • Departure date
    • Arrival date
    • DC Delivery date
    • Availability date

With the datelines you can monitor the processing of the purchase order and the associated events for each item along the supply chain.

The following are further details about the transportation chain:

  • A transportation chain maps one possible itinerary along with its route segments by which merchandise that is ordered. It either describes the itinerary from a vendor to a distribution center or store, or from a distribution center to a store.
  • The transportation chain is used to define key dates within the supply chain, that is, the dates that scheduling should calculate. These dates are stored with a name (such as delivery date) and in the right sequence, but without a concrete calendar date.
  • Concrete calendar dates are saved in a different structure, called the dateline. Dates appear there with their name, the period of time since the preceding date and a calendar date. The dateline appears in the PO, after activating the appropriate business function.
  • The transportation chain is also used to determine which mode of transport (such as sea) will be used to transport the merchandise on each route segment and how long the associated transportation time will be.

The confirmation control key is used to define the sequence in which the individual confirmations (= confirmation categories) are due to arrive.

Confirmation categories define:

  • The date and time by which the confirmation must have arrived;
  • The relevancy for requirements planning and goods receipt

The confirmation control key is defined in Customizing. It can be created in the vendor or Material master data. It is either copied to the order item from the vendor or material master data, or it can be entered in the order item manually.

Purchase requisitions, purchase orders and other purchasing documents can undergo a release strategy (approval process), which will check whether certain criteria are fulfilled (e.g. quantity, or value) and potentially in case the document is above the threshold the system will apply a release procedure. In this case an additional user can be asked to authorize such a purchasing document.

Once the purchase order has been approved by the designated levels of the release procedure, can it then be released to the vendor.

When a purchase order is stored, an output method is created for the purchase order. This output format represents a type of message.

The message type defines which information is to be sent, the format in which it is sent (for example, printed form, EDI, mail) and the time the message is sent:

  • Immediately after the purchase order is saved
  • At defined intervals as part of a constant processing program
  • Upon request by the user after making a menu selection

Purchasing Contracts

Further explanations about purchasing contracts:

  • Purchasing Contract is a type of a long term agreement between the fashion company and the vendor for a quantity or value of products, which are supposed to be ordered in a given period of time.
  • Contracts have specific conditions, which apply when the subsequent PO is referenced to the contract.
  • Items in a centrally agreed contract do not typically refer to a particular receiving plant.
  • A company that has a central purchasing organization for several plants can negotiate a contract at a higher level that benefits all of these plants. As a result, better conditions can be negotiated.
  • The plant conditions function of the centrally agreed contract enables you to define prices and conditions for each individual receiving plant. This means that you can take into account different transportation costs for different routes, for example.

Flexible Purchasing Contracts

Flexible Purchasing Contracts - Fashion Features Enablement

The standard purchasing contract document provides the following functionalities:

  • Enablement of Generic material concept with Variant Matrix inside the Purchase Contract.

  • Possibility of creating Purchase Contracts with or without specifying Destinations, and optionally without also specifying the Variants SKUs, i.e. only containing the Generic Material.

  • Enable Open Quantity Calculation at Generic Material within Purchase Contracts.

  • Report to create a Purchase Contract with or without specifying the plant out of multiple Purchase Requisitions.

  • Enablement of Fashion Features like Segmentation, Seasons, Value Added Services (VAS), Characteristic Value Conversion, Distribution Curve and Application Variants within Purchase Contracts.

The concept of Flexible Purchasing contracts is to enable fashion features in the standard purchasing contracts and to allow early procurement planning from forecasted quantities at a generic material level without the need to even specify a plant.

Integrated and Inter-Connected Scenarios

The above figure shows two possible business scenarios where the flexible purchasing contracts can be used. The contracts can be created when the planning figures are obtained from:

  • Within the same system as a result of forecasted quantities in the form of purchase requisitions.
  • When the forecasted quantities are coming from external systems.


The figure shows the customizing of Purchasing Document Types and the Fashion Specific View for Type/Org/Group

The new features can be enabled in the system with the help of customization settings.

Purchase Contract, Without Plant

In the purchasing contracts, with the enablement of the fashion functionality, it is possible to only specify the generic materials without specifying any plant. The contract can be saved in this form and subsequent call-offs can be referenced to this contract for any variant of the same generic material across any plant.

Flexible Purchase Contract Call-off

The subsequent call-off orders duly referenced from the contract allow for consumption of the contract at any variant - plant combination. The contract history gets updated with the details of the call-off orders.

In this case, the call-off is referencing a contract at the generic material - variant level, when the variant quantities have been specified in the contract without any plant reference.

The figure shows the results and details of the release process.

Contract Call-off Reference Handling from Generic Material Item

In this case, the call-off is referencing a contract at the generic material, when the variant quantities have not been specified in the contract, only the generic material is maintained and without any plant reference.

Contract Call-off Reference Handling from Non Material Item

In this case, the call-off is referencing a contract at the material group level, when no specific materials have been specified and again without any plant reference.

Automatic Creation of Purchase Contracts from Requisitions

This functionality can be accessed via the transaction code: RFM_PCO.

In this scenario, it is possible to create a flexible purchasing contract from several purchase requisitions that may been created in the system manually or via MRP runs.

Additional Features in Flexible Purchasing Contracts

The contract has also been enabled to:

  • Allow for variant quantities entry in the matrix form.
  • Hold character value conversions.
  • Allow for segment level pricing

Segmentation can now be maintained for outline agreements - namely the flexible purchasing contracts.

Log in to track your progress & complete quizzes