Introducing Direct Materials Procurement Process

Direct materials are the raw materials or goods that are directly processed or used in a final product. They are an integral part of the product made and can be directly attributed to the cost of the product. ​

The basic procurement process for direct materials can be summarized in the following steps:​

Requirements Determination: 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.​

Source of Supply Determination: refers to the process of identifying and selecting potential suppliers or supply sources for a particular procurement requirement.​

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: is a process that involves tracking and managing the status of purchase orders within a system.​

​Goods Receipt: is a process in which incoming deliveries are recorded in the system by referencing the corresponding purchase order. When you enter the inbound deliveries 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.

Within the procurement process, the most common way of purchasing direct materials is by using Material Requirement Planning. ​

Material Requirements Planning, or, MRP, is a system businesses use to manage and plan for the materials needed for production and sales. It helps ensure that the necessary materials are available in the required quantities and at the right time.​

​One of the key features of MRP is its ability to automatically generate purchase requisitions. Instead of manually entering purchase requisitions into the system, MRP can analyze the stock levels, demand forecasts, and lead times to determine when and how much of a particular material needs to be procured.​

​To enable this functionality, specific configuration activities need to be performed, and the material master data should be maintained with MRP relevant information. This includes lead times, safety stock levels, reorder points, and lot sizes.​

MRP continuously monitors the stock levels and demand for materials. It compares the available stock with the planned requirements and determines if there are any shortages. If a shortage is identified, MRP automatically generates procurement proposals, such as purchase requisitions, to replenish the stock.​

​By automating the procurement process, MRP helps streamline material planning and ensures that the necessary materials are procured in a timely manner. This reduces the risk of stockouts and production delays, improving overall operational efficiency.

A procurement document consists of a header and item-level data. For the item-level data, we can utilize various item categories to differentiate between business processes.​

By assigning the appropriate item category to each item in a procurement document, businesses can ensure better control, monitoring, and analysis of their procurement activities. Possible item categories for direct material procurement are Normal or Subcontracting. ​

For direct material procurement, you always need to have a material master record. The material master record contains all necessary information about automatic planning, as well as, data related to all departments involved, such as accounting and production.​

​To classify materials based on their needs, you use material types to differentiate materials based on their usage. ​

From a direct procurement perspective, some material types are finished products, semi-finished products, raw materials, trading goods, and others. Based on these material types the necessary departments for procuring direct material need to maintain their data. ​

​To use a material master record for direct procurement, you should have at least information about the materials planning, in addition to data for accounting, production and costing when producing finished products. ​

​The necessary procurement documents should be created based on the requirements (mostly from production or maintenance) by a material requirements run. These runs are scheduled frequently and will generate externally procured materials purchase requisitions, or schedule line items when you use scheduling agreements. ​

During the MRP run, it is also possible to allocate the suppliers and then convert the assigned purchase requisitions by another scheduled program into purchase orders.