Introducing the Indirect Materials Procurement Process

Objective

After completing this lesson, you will be able to explain the process steps and use cases of procurement of indirect materials.

Description of the Generic Indirect Material Procurement Process

The generic indirect material procurement process refers to the steps and activities involved in acquiring indirect materials for a business or organization. Indirect materials are goods or supplies that are not directly used in the production of a final product but are necessary for the smooth operation of the business. ​

Indirect materials follow the typical procurement process:

  • Requirements Determination
  • Source of Supply
  • Purchase Order Processing
  • Purchase Order Monitoring
  • Goods Receipt
Requirements Determination, Source of Supply, Purchase Order Processing, Purchase Order Monitoring, Goods Receipt and Invoice Processing

List of Terms Relevant for Indirect Materials 

Processing Purchase Orders

Processing purchase orders, both for direct and indirect material purchasing is crucial. This process entails generating purchase orders, which are official documents that outline the items or services to be acquired from a vendor or supplier. Purchase orders can be created either manually or automatically. ​

During the creation of a purchase order for indirect material, you have to take into consideration:​

  • Account Assignment​ Category
  • Item Category​
  • Free Text

Account Assignment Category

When you buy a material for indirect consumption you must specify the consumption purpose in the purchase order by manually entering account assignment data, such as the account assignment object. ​

Here are some examples of account assignment categories defined in the SAP S/4HANA system:​

  • K for cost center​
  • P for project​
  • C for sales order​
  • F for production order​
  • A for asset​

To be able to enter account assignment data in a purchase order item, you must first specify an account assignment category in the item.​

Free Text

A material master record is not obligatory when acquiring a material for immediate use. Consequently, it is possible to input a material number in a purchase order item along with an account assignment category without the need for a material master record.​

​If a consumable material is procured without a material master record, it is necessary to manually input a brief description, material group, and purchase order unit in the purchase order item. This information cannot be retrieved from a master record, which distinguishes it from a material that does have a master record.

  1. When we want purchase indirect material, we are required in item details to provide material number if material has been created in material master or provide information what material we need by providing description in field: free text.
  2. All indirect materials required to provide Account Assignment category.
  3. Other information, like:​
    • Quantity
    • Unit of Measure
    • Unit of Measure
Screenshot of an order processing system interface with three sections: General Information, 1.- with fields for Material and Short Text; 2.- with field for Account Assignment category and 3.-.with fields for Order Quantity and Material Groups .

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