Ordering Merchandise with Procurement for Retail (5FM)

The parties involved in this unit are the distribution center and the external supplier. The aim is to regularly fill up the stocks in the distribution center (DC) with merchandise ordered from the external supplier. Automatic requirements planning is used to determine the relevant order quantities.

The 4 solution processes shown in the figure, Process Overview: Requirements Planning for a Distribution Center, forms this overall retail process with the intention of regularly filling up the stocks in a warehouse (distribution center). The process starts with the Replenishment Planning for Distribution Centers (solution process 3I8). As a result, purchase requisitions are created. Purchase requisitions are then used in the subsequent solution process, Procurement for Retail (5FM), as a basis for creating purchase orders for the external supplier. An inbound delivery (advanced shipping notification) from the supplier announces the delivery of the merchandise. Upon arrival, the goods receipt is posted (solution process 5FU). To complete the process, the Retailer posts the invoice received from the supplier (solution process 5FN).

Each solution process represents a lesson in this unit, and can be completed individually.

This lesson covers the solution process Procurement for Retail (5FM).

In the retail industry, specific terms differ from the standard terms used in other lines of business. The following terms are used synonymously in this document:

There are several different ways to create purchase orders in SAP Retail. They can be created manually, or generated by automatic or manual conversion from a purchase requisition. You can also generate them as follow-on documents from allocation tables, or create them via interface, for example, from SAP Forecasting and Replenishment, or SAP Replenishment Planning. For stores, it's also possible to generate purchase orders through a Store Replenishment run, or using the POS Inbound Store Order function.

In our process, a purchase order is generated automatically from purchase requisitions, which resulted from requirements planning (see previous solution process 3I8). In that process, the quantity and the delivery date were determined using the relevant settings in the article / site master data (logistics view).

A purchase requisition contains the quantity and delivery date for each item. Possible follow-on documents of purchase requisitions are requests for quotation (RFQ), purchase contracts, or purchase orders, as in our example. For the conversion to a purchase order, one prerequisite is that a supply source is assigned to the purchase requisition items. This assignment can take place automatically. Details about the supply source determination process are provided below.

Another prerequisite is that the purchase requisition items are approved. This status can be set automatically upon generation of the item (no release procedure), but may also require a workflow approval.

Purchase Requisition conversion: To create purchase orders automatically from purchase requisitions, the relevant indicator must be set in the site master, the article master, and the supplier master. The Monitor Stock / Requirements List (MD04) app allows you to convert a specific purchase requisition to a purchase order. With the Process Purchase Requisitions app, you can create purchase orders with reference to purchase requisitions. For the automatic conversion of purchase requisitions to purchase orders, you can use the app Schedule Purchasing Jobs - Advanced (F1702).

In Retail, during the conversion, a quantity optimization typically takes place. Using dynamic rounding profiles, the system rounds the quantity of, to a logistical unit of measure defined for the article, for example, case, layer, or pallet. The purchase requisition item is usually maintained in the base unit of measure, such as piece. Quantity optimization will be explained at the end of this lesson.

Supply source determination is used to assign supply sources to requirements. The Material Requirements Planning (MRP) function, is available for cross-industry use. Thus, the supply source determination of this application, which is called simplified sourcing, differs slightly from the retail-specific supply source determination which is used in the other retail system applications.

The MRP supply source determination uses the following determination sequence for articles with procurement type F (external procurement). Note that the maintenance of source lists (site-specific) is not mandatory, unless the supply source requirement indicator was set for the respective site. However, source lists play an important role in MRP supply source determination. They can be used to temporarily include or block existing sources of supply, and the source list entries (records) can be specifically marked, if relevant for MRP:

• Quota arrangement*: These can be used to prioritize sources of supply in case several sources of supply are valid simultaneously
• Outline agreements (scheduling agreements, purchasing contracts)
• Purchasing info records with auto sourcing flag**
• Purchasing info records with regular vendor flag***

* Quota arrangements are rarely used in Retail.

** If several purchasing info records exist, the one with the lowest supplier ID will be selected.

As always, more granular data retention levels have a higher priority than general data retention levels so that, for example, a site-specific purchasing info record has a higher priority than a general purchasing info record.

*** If the first three steps of the MRP source determination logic listed above are unable to determine a unique supply source, then, for retail sites, the retail-specific external supply source determination is performed. This considers the regular supplier indicator.

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 displayed on the screen as suggestions.

The system first checks if there is a quota arrangement for the article that has a validity period that includes the delivery date stated in the purchase requisition. If you want to procure an article 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 split a requirement. The entire quantity demanded in a purchase requisition is assigned to one source of supply, according to the quota arrangement.

If no quota arrangement is available, the system uses the source list to determine a suitable supply source. The sources of supply that are allowed (and not allowed) for an article in a certain site and during a specified period are listed in the source list. You can also determine if the source list record should also be used in requirements planning (MRP). Furthermore, with a "blank" source list record with the "Blocked source of supply" indicator set, you can prevent an article from external procurement for a given period of time. Each source of supply is defined by a source list record.

Quota arrangements and source list maintenance are available in standard / cross-industry as well. However, quota arrangements are not commonly used in Retail. The source list is used by some Retailers.

SAP Retail provides a specific supply source determination logic with the Supply Source field in the article master. The following options are available:

• The system searches for an external source of supply (external vendor).

• The system searches for an internal source of supply.

• Both methods can be used one after another.

Search sequence in external supply source determination: The outline agreements* have the highest priority. If there are no outline agreements, the system searches for purchasing info records. If several purchasing info records exist for the same article, you can use the regular supplier indicator to force a unique selection, provided that the regular supplier indicator is activated for the ordering site.

If the regular supplier indicator is set in a purchasing info record, it is proposed as the fixed vendor for a purchase requisition item.

Search sequence in internal supply source determination: The first step is to search for a stock transport scheduling agreement between a DC and the ordering site. If there is no such scheduling agreement (they are not commonly used in retail), the supplying site (distribution center) is determined from the site master. Supplying sites can be maintained on site level (general level), or on merchandise category / site level (more specific level). On both levels, it is possible to maintain several supply sites, even with overlapping periods. However, a priority indicator must be assigned to each.

*An Outline agreement is a long-term agreement between a purchasing organization and a vendor for the delivery of articles, or the performance of services at specified conditions during a certain period. The following outline agreements are possible: value contracts, quantity contracts, and scheduling agreements. In Retail, contracts are commonly used.

Choose a value contract if the total value of all contract release orders is to reach a specified amount. The contract is fulfilled when the agreed-upon value has been reached as a result of contract release orders.

Create a quantity contract if the total quantity to be ordered during the validity period of the outline agreement is to be specified. The contract is fulfilled when the quantity agreed-upon has been reached as a result of contract release orders.

You can also define group-wide contracts (centrally agreed contracts) with your vendors. These apply to all sites and company codes in a client, set up on reference purchasing organization level. However, site-specific conditions can still be created in centrally agreed contracts.

Next, the structure, and functions of purchase orders in SAP Retail will be explained. The app for creating purchase orders manually in Retail is Create Purchase Order - Advanced (ME21N).

In the Purchase Order application, you can see that the document comprises three main areas: Header, Item Overview, and Item Detail. All three document areas can be displayed individually, or two at a time, displaying a header with item overview, or item overview with item details. Purchase order items are entered in the item overview, and for each item, an item detail view is available.

The Purchase Order transaction provides a Document Overview, which can be used to select documents to be processed by the user, such as purchase requisitions, contracts, existing purchase orders, and so on.

A purchase order can be an external supplier order (standard order), or an internal warehouse order. Note that other terms for warehouse order are stock transport order, or stock transfer order.

For organizational purposes, a purchase order is assigned to one purchasing organization and one purchasing group, as well as a company code. Also, for control purposes, a purchase order is created for a specific order type, for example, NB = standard purchase order, UB = stock transport order.

A user can personalize the purchase order transaction using the Personal Setting options which include maintaining default values on header and on item level. You can also adjust the sequence and width of columns in the item table, by defining a variant in the item table configuration.

A number of additional functions are available during purchase order processing. At header level, for example, you can do the following:

• Maintain additional texts

• Maintain partner functions and partners if the supplier, invoicing party, and payee are not the same.

• Adjust the supplier address for this document.

• Display the document header conditions.

• Display the messages and a print preview.

• Access the supplier master record.

Additional functions at item / item detail level in a purchase order are. for example:

• Display and maintain conditions.

• Order generic articles using a variant matrix.

• Create returns items. For example, for returns of transport equipment, empties, and standard merchandise.

• Display the empties, such as case or crate, or empty bottles, as a sub-item of the full product.

• Display the components of structured articles as sub-items of the header product.

• Display free goods items.

• Maintain schedule lines.

• Access the material master record, stocks, info record, source list, and so on.

Another important feature is the automatic price determination in the purchase order. Based on condition records maintained in the system, such as the basic purchase price of the supplier, discounts, and surcharges, the system determines the correct price for each item. It then aggregates these values in the header conditions. It is possible to define for which date the system performs the price determination. Options include the document date, current date, delivery date. In the product assistance (SAP Help Portal) https://help.sap.com/docs/SAP_S4HANA_CLOUD, you can find details about this topic. Choose: Home → SAP S/4HANA Cloud → Sourcing and Procurement → Generic Features → Pricing.

For monitoring your purchase orders, several apps are available. For example, to display a single document, you can choose Display Purchase Order - Advanced (ME23N). Other apps are Monitor Purchase Order Items (F2358), or the Procurement Overview Page (F1990).

To communicate with business partners, you can have the system issue and receive messages using various channels. As an example: When a purchase order is saved, an output message is created for the purchase order. These messages are based on business rules, which are defined by using the app Output Parameter Determination.

Here, for each kind of document, in this case the Purchase Order, the relevant business rules are maintained. First, the output type is maintained. The default value for purchase orders is PURCHASE_ORDER. Also, the dispatch time is defined. The options are immediately, or scheduled. Next, the receiver is set. For example, the supplier with partner role LF. The channel is then determined: Print, EDI, Email, or XML.

Depending on the selected channel, printer, email settings / recipients, and form templates are defined. With the output relevance, you determine if the output is possible, or remains in status 'preparation'.

For further information on available apps, you can check the product assistance: help.sap.com → SAP S/4HANA Cloud → Sourcing and Procurement. Here, for example, choose Operational Procurement → Purchase Order Processing → Purchase Orders → Output Management in Purchase Orders.

Quantity Adjustment

One of the functions available when converting purchase requisitions to purchase orders, or when purchase orders are created in other ways, is Quantity Optimizing:

Quantity Optimizing processes a specified quantity, for example, the net requirement quantity in the base unit of measure of a purchase requisition item. You can make specific settings in customizing (system configuration). These include the definition of control profiles, rounding rules, unit of measure groups, as well as of rounding profiles (static or dynamic), which are then assigned to the product. The quantities can be rounded up or down. With dynamic rounding profiles, the system can also consider alternative units of measure, which were specified for the article in the Basic Data view. You can use a rounding profile to round up or down, and to round to multiples. Static rounding profiles don't use alternative units of measure. Rounding profiles can also be used to check whether fixed limits are observed. Limit values for quantities of a document item are specified in master data for purchasing. Therefore, quantity optimizing ensures that the minimum quantity is reached and that the maximum quantity is not exceeded.

Quantity optimizing is also available for sales transactions, so a rounding profile, a unit of measure group and minimum and maximum quantities can also be maintained in the article sales view.

Net requirement quantities from requirements planning in a purchase requisition and, for example, manually specified order quantities can be rounded. The following information is taken into consideration during rounding: Minimum and / or maximum order quantity (if specified), the assigned rounding profile, and the unit of measure group, if specified.

The units of measure defined in the dynamic rounding profile, and the (optional) unit of measure group, are taken into consideration when the allowed units of measure for dynamic rounding are determined. A unit of measure group can be used to limit the possible logistical units of measure for ordering the article from that specific vendor. For example, a specific logistical unit of measure, which was defined in the Basic Data view of the article, cannot be ordered from that specific vendor. However, it can be ordered from other vendors, so it must be maintained in the Basic Data view. The unit of measure group would then only contain the other defined logistical units of measure, which are possible for ordering from that specific vendor.

When rounding quantities to logistical units of measure with dynamic rounding profiles, the system always attempts to place an order for the largest possible unit of measure from a vendor. This ensures that the best possible conditions will be achieved. To allow rounding to the various logistical units of measure, the smallest allowed unit of measure for a purchase order has to be set as the explicit order unit of measure in the respective purchasing info record. Additionally, the Variable order unit indicator must be set to Active. The purchasing info record can be maintained by using the Manage Purchasing Info Records (F1982) app, or via the purchasing view of the retail article master, with the app Maintain Article (MM42).

The figure Rounding Profile shows examples of rounding results of unrounded order quantities, specified in the base unit of measure each (EA). Unit of measure EA is not an allowed order unit as per the assigned dynamic rounding profile RCLP, therefore quantity optimizing applies. The explicit order unit of measure is CSE, which is the smallest allowed order unit in this example.

Let's analyze the numbers for a pallet. A pallet containing 240 EA is ordered, if the unrounded order quantity is in the range from 216 to 264 EA. This is due to the rounding rule which determines that within 10% off the quantity of one pallet (as of 90%: round up, up to 10% more: round down), the system should round to one pallet. 10% of 240 EA = 24 EA: 240 - 24 = 216, and 240 + 24 = 264.

Accordingly, two pallets, containing 480 EA, are ordered from 480 - 24 = 456 to 480 + 24 = 504.

If, for example, the unrounded quantity lies between 265 and 455, the system checks if the rounding to the next smaller unit of measure is possible (LAY). If not, then the system will determine the number of CSE to be ordered. The Rounding off method specified in profile RCLP determines that a zero quantity only applies. If not, even the smallest quantity can be ordered. This is the case for net requirements of 1-5 EA in our example, as the rounding down rule of 50% for unit of measure CSE applies.

You can test the quantity optimization settings for a specific article, site, and application using the simulation tool: Simulate Quantity Optimizing (WLB8).

Summary