Enterprise Wide Information Systems
The Procurement Process
Instructor: Richard W. Vawter
University of
Southern California
Objectives
Rather than selling, as you studied in the Customer Order
Management process, you will now be focusing on the
purchasing process. You will be able to:

Describe the basic business process of procuring stock
materials in an ERP System.

Discuss the integration points in procurement to Financial
Accounting and Inventory Management.

Execute the procurement process in the SAP R/3 System.

Discuss the reporting and analysis tools used by R/3 in the
procurement cycle.
University of
Southern California
Topics
 Organizational Elements and Master Data
 Business Process for Procurement
 Reporting and Analysis
University of
Southern California
Procurement
The primary SAP R/3
application modules that
support the Procurement
process are:

Materials Management





Goods Receipts
Invoice Verification
Financial
Accounting
Materials
Mgmt.
Controlling
Production
Planning
Fixed Assets
Mgmt.
R/3
Purchasing
Production Planning

Sales &
Distribution
Client / Server
ABAP/4
Quality
Mgmt.
Plant
Maintenance
Human
Resources
Project
System
Workflow
Industry
Solutions
Purchase Requirements
Financial Accounting


Payment Processing
Materials Valuation
University of
Southern California
Organizational Elements
 The SAP R/3 Procurement business process uses the
following organizational elements:
Company Code
Purchasing Organization
Plant
Storage Location
Purchasing Group
University of
Southern California
Master Data
The following master data is used in the Procurement
cycle:

Material master

Vendor master
University of
Southern California
Material Master Primary Views
 Basic Data
 Purchasing
 Material Resource Planning
 Sales
 Stocks in Inventory
 Work Scheduling
 Accounting
 Quality Management
 Storage
 Forecasting
 Warehouse Management
 Classification
University of
Southern California
Vendor Master
 The Vendor Master includes all data necessary for
processing business transactions and corresponding
with vendors.
 Information is shared between the accounting and
purchasing departments.
 All data is grouped into three categories:

General data

Company code data

Purchasing data
University of
Southern California
Topics
 Organizational and Master Data
 Business Process for Procurement
 Reporting and Analysis
University of
Southern California
Procurement Cycle
 The procurement cycle may consist of eight processes:
Purchase Order
Purchase Order
8. Payment
1. Requirements
determination
2. Source
determination
7. Invoice verification
Purchase Order
Purchase Order
6. Goods receipt and
inventory management
5. Order follow-up
3. Requisition assigned
to a Vendor
University of
4. Order processing Southern California
Business Process Flow for Procurement
 The main documents and transactions in the
Procurement process are:
Purchase
Requisition
Purchase
Order
Goods
Receipt
Invoice
Posting
Planning, Reporting, and Analysis

Note: Payments to vendors are usually made at specified times
(e.g. at the end of the month).

Payment amounts are determined according to the ‘open’
invoices posted on the system.
University of
Southern California
Purchase Requisition Processing
or
Material Resource
Planning
Direct Entry
Purchase requisition
Determine source of supply
Purchase Order
Purchase Order
Purchase Order
Release strategy
Purchase order
University of
Southern California
Purchase Orders
 A purchase order is a formal request to a vendor to
provide certain materials or services under specific
conditions (quantity, price, delivery date, etc.)
Purchase
Requisition
Purchase
Order
Goods
Receipt
Invoice
Posting
Planning, Reporting, and Analysis
University of
Southern California
Purchase Order Processing
Purchase
Purchase
Order
Order
Direct Entry
or Purchase
Requisition
• •Standard
Standard
• •Sub
Subcontract
contract
• •Consignment
Consignment
• •Third-party
Third-party
Statistics
Order History
Purchase Order
Purchase Order
Purchase Req.
Stock material
Consumable material
Service
Account assignment
(cost center, asset,
project…)
University of
Southern California
Goods Receipt
 When goods are received from a purchase order, the
item data is copied from the purchase order into the
goods receipt document.
Purchase
Requisition
Purchase
Order
Goods
Receipt
Invoice
Posting
Planning, Reporting, and Analysis
University of
Southern California
Goods Receipt for Stock Material
 Entering the goods receipt increases the inventory
level of a material that is procured for stock.
Purchasing
documents
Items
1.
2.
3.
Vendor
Goods
Receipt
Warehouse / stores
 Inventory Management (MM module)
controls and records all goods movement,
form purchase order receipt through the
plant, to consumption
University of
Southern California
Results of a Goods Receipt Posting
 Transaction documents are created both for materials
management and finance.
Accounting
document
G/L accounts:
Consumption account
GR/IR account
Material
document
Stock quantity
Consumption statistics
Goods Receipt
Posting
Goods receipt
slip
Purchasing data:
Order item, Order history
Point of consumption
Cost center Order
Transfer
Order
University of
Southern California
Invoice Processing
 This last step in the procurement process includes
invoice verification and updating accounts payable in
the FI module.
Purchase
Requisition
Purchase
Order
Goods
Receipt
Invoice
Posting
Planning, Reporting, and Analysis

Payment will then be made later based upon the ‘open’ invoices
posted on the system
University of
Southern California
Invoice Verification Environment
 Invoice verification accesses data from purchasing,
inventory management, material master, and vendor
master files.
G/L accounts
Purchase
Order
Assets
Purchase Order
Purchase Order
Cost centers
Vendor
Invoice
Goods
Receipt
Projects
Invoice
verification
Orders
Posting
Postingan
aninvoice
invoicein
inthe
theR/3
R/3System
System
updates
updatespurchasing
purchasingand
andaccounting
accountingdata
data
Material master
Vendor master
University of
Southern California
Vendor Payment
 Accounts payable reads the invoice file and pays all
posted invoices due. (Payment runs can be automated
to occur at specific times.)
Vendor
Financial
Accounting
1000
Bank
Payment
Payment
program
program
1000
1449
Motor Sports International
1234 Main Street
New York, NY 10181
Date _______________
Pay to: ________________________________________
________________________________________________________
_______________
Released
Invoice
_________________
12930 39040 2020 20202 10923 1449
University of
Southern California
Procurement Integration
MM
PP
Purchase Order
FI
FI
Purchase Order
Goods Receipt
Invoice Verification
Invoice
University of
Southern California
Topics
 Organizational and Master Data
 Business Process for Procurement
 Reporting and Analysis
University of
Southern California
Reporting and Analysis
 Standard Reporting provides List Displays (pre-defined
programs) by:

Vendor

Material

Account assignment

Material group

Purchase order number

Tracking number
 General Analysis
 Order Value Analysis
 Inventory Transaction Analyses
University of
Southern California
Logistics Information System (LIS)
 The Logistics Information System (LIS) contains
several information systems such as:

Purchasing Information System

Inventory Controlling

Sales Information System

Shop Floor Information System
 LIS extracts its data from the operative applications; it
offers many different views on this information.
University of
Southern California
Logistics Information System (LIS)
 The LIS exists for the entire logistics system in R/3
 The LIS contains several information systems such as:

Sales Information System

Purchasing Information System

Inventory Controlling

Shop Floor Info System
 The LIS extracts data from the operative applications;
offering it in many different views, the depth of which
is determined by the user.
Logistics
Information
Systems
Logistics Information Library
Sales
Information
System
Purchasing
Information
System
Inventory
Controlling
Shop Floor
Information
System
Maintenance
Information
System
Quality Mgmt
Information
System
R/3
Sales and
Distribution
(SD)
Materials
Management
(MM)
Production
Planning
(PP)
Plant
Maintenance
(PM)
Quality
Management
(QM)
Logistics
Processing
Systems
In Summary
 The basic procurement process includes:

Purchase requisition

Goods receipt

Purchase order

Invoice processing
 Procurement master data includes the vendor and material
master files.
 At various times during the Procurement process,
integration occurs between the PP, MM and FI modules.
 The two reporting tools used in the procurement
environment are:

Standard Reporting


List Displays
 General Analysis
 Inventory Analysis
Logistics Information System

Purchasing Information System
 Inventory Controlling System