Chapter Overviews
Chapter 1
Materials Management: Manage Sourcing, Supply and Inventory through SAP
1.1 Materials Management
Materials management is central to manufacturing and trading industry. Materials management forms the
internal part of complete supply chain. If we look at the IT framework of supply chain, it is evident that
ERP is central to the supply chain. Material is sourced, procured, stored, processed or produced,
distributed and sold. This forms the core of any Supply Chain
Supply Chain Management Framework
Information flow
giving Visibility
Manufacturing
/ Processing
Information flow giving
Visibility
ERP
Information flow
giving Visibility
Information flow
giving Visibility
SRM
Product and
Process
Design
Fig 1.01 IT supply chain framework
From process point of view, logistics (goods movement) can be categorised into:
1. Inbound logistics (Procurement logistics)
2. Internal logistics (Store logistics)
CRM
3. Outbound logistics (Sale and Distribution Logistics)
As per product SAP scope of materials management module is sourcing, supply (procurement and
procurement logistics) and inventory management (includes internal logistics).
Materials management basically helps to answers following questions
1.
2.
3.
4.
What to buy
How much to buy
When to buy
From where to buy
1.2 Material
Lets us understand the term “Material”. The meaning of the term “Material” is very vast in nature. A
“Material” is a tangible matter. A “Material” is an item, an article, a product, a chemical, a metal piece, a
piece of cloth, a liquid, gas, anything which is tangible in nature and is a part of business. All materials are
not stocked. Some materials which are procured and consumed as soon as they are received, they are
called as non-stock material. Materials can also be categorised as raw material, semi-finished, finished,
WIP (work-in progress) ET cetera. Henceforth, the term “Material” shall be used for any kind of tangible
matter.
1.3 Procurement
Procurement consists of two functions Sourcing and Supply. Sourcing function deals with strategic and
tactical activities and Supply function deals with operational activities of procurement. Sourcing needs to
be always proactive to ensure and secure, regular Supplies of input materials to the business.
1.3.1 Sourcing
Sourcing is strategic part of procurement. Sourcing is a different function in most of the big and global
organizations but still in many organizations sourcing and supply functions are managed by same set of
people. This section discusses the sourcing function and its scope.
Sourcing is a process to find source(s) for the required material(s). Sourcing takes care of internal as well
as external need of procurement. Internal need of sourcing can be seen only in large global organizations
spread in many countries. Sourcing is a strategic activity which has long term impact on the organization
in terms of saving, cost cutting, smooth operations and quality of finished goods (which affects sales).
Sourcing is always evaluating existing vendors, alternate and import vendors for getting competitive
pricing, meeting marketing specification of finished goods, securing supplies during climatic, political and
other types of emergencies. Sourcing also evaluate packaging and handling of material. Packaging and
handling directly affects transportation and handling cost, transportation and handling damages and store
space utilization.
During the development of new vendors or development of new material with the existing vendors
samples are tested and trial lots are purchased for trial run. Sourcing also evaluates that the
specifications given by R&D team or marketing team is not over specified. Over specification leads to
higher cost of production and less number of sources who can meet the given specification. Lowering the
specification to acceptable level reduces the cost of production and increases the number of sources
available. Specification relates to material as well as its packing. If a new material needs to be developed
by the vendor on requirement, sourcing team can guarantee some minimum volume of purchase to offset
the development and production cost of the new material. Sourcing team can also ask for rebate
(discount on the volume of purchase and calculated after the agreed purchase cycle is complete) debited
to vendor account.
Sourcing continuously need to look for new vendors to keep the prices competitive and keep them as
alternate vendor. In case of foreign source (which may be cheaper than local source because of local tax
structure and local availability of the material), local sources are still to be located as an alternate
sources, if required. Alternate vendors should also be available for foreign source in another country. Any
crisis in vendor’s country can hamper the supply; hence alternate vendor in different country would help
to maintain the supplies. Sourcing also need to consider the tax structure applicable to various sources
due to their specific location in different state, region, province, special economics zone and tax holiday if
any granted by the government.
In a big global MNC’s having there presence in many countries they have there global sourcing team as
well as local sourcing team. All of them are in continuous coordination with each other. All of them work
with one another and together to consolidate the requirement of materials at group level and to locate
vendors who can offer most competitive price. Each one them has the responsibility of informing other
local and global sourcing team if they spot any opportunity to save cost on procurement due to
competitive cost, transportation, better quality material, alternative source during emergencies. Sourcing
team help one another to arrange logistical needs if the source is located near them or in their country.
In nut shell, sourcing needs to take all the possible proactive steps to ensure and secure supplies to the
business.
In manufacturing industry sourcing requires to have knowledge about following aspects:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Understanding the function of the material
Its requirement in the organization
Metallurgical characteristics of the material
Chemical composition and nature of the material (safety aspect)
Manufacturing process of the material
Storage handling and packaging requirement of the material
Transportation handling of the material
Logistical requirement (transportation as well as legal documentation)
Costing of the material
However, in trading industry sourcing requires to have knowledge about following aspects:
1.
2.
3.
4.
5.
6.
7.
Understanding the customer requirement
Understanding the function of the material
Understanding the comfort and safety with the material
Storage handling and packaging requirement of the material
Transportation handling of the material
Logistical requirement (transportation as well as legal documentation)
Costing of the material
So what is the process to find the source? It is an exhaustive process that requires many set of activities.
Some of them are as follows:
1. Floating tender
2. Visiting various industry specific trade fairs, for example automotive trade fair, paper trade fair,
consumer goods trade fair etc.
3. Going through directory of industry specific manufacturers and traders
4. Developing a vendor for a particular kind of required material
5. Strategic location of vendor
6. Receiving quotation and comparing them (for new requirement of material only)
7. Negotiation for pricing and volume of supply
8. Contract preparation with terms and conditions. Contract could be global as well as local
9. Handing over the contract to procurement team to take care of supply of material to business
10. Vendor evaluation and performance discussion with vendor
1.3.2 Supply
Supply process is an operational part of procurement. Supply takes all the inputs from sourcing and
material planner to carry out their operations. Function of supply is to assure that business is receiving
material from predetermined sources at the right time and in the right quantity.
Supply team receives the requirement and delivery schedule for a period from material planner and
accordingly they communicate this information to vendors (predetermined by sourcing team) using
purchase order (either print format or PDF format). Supply team tackles all the operational issues which
come up during procurement process; quality problems, delivering required quantity by vendor as per
delivery schedule, logistical document arrangement, demurrages, duty payments to government offices,
meeting custom officials, on time vendor payment, transportation arrangement, dealing with any
emergency requirement so arranging air transport rather than road transport, returning of material if that
is found unfit to use or expired et cetera. Procurement operational team also does certain sourcing
function with existing vendors at plant level.
Procurement team for machinery and spare parts, non-stock item, asset materials execute both the
functions; sourcing and ensuring supplies.
Following are the set of activities done by supplying function:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Receiving aggregate requirement from material planner or marketing team
Receiving delivery schedule from material planner
Receiving quotation from vendor, if there is any change in pricing
Creation of purchase order
Release of purchase order
Messaging purchase order to vendor
Arrangement of procurement logistics
Follow up with vendor for timely delivery
Arranging logistical requirement (transportation as well as legal documentation)
Vendor evaluation and vendor monitoring
1.4 Inventory Management
Function of Inventory management is to manage inventory in most cost effective manner without being
into the situation of stock out and inventory pile up.
Out of the four objectives of materials management first three objectives are met by Inventory
Management.
1. What to buy
2. How much to buy
3. When to buy
Following are the set of activities done by store function of inventory management:
1. Receiving inbound material from vendor, supplying plant and customer (sales return)
2. Issuing outbound material to customer, storage warehouses, receiving plant and vendor
(purchase return)
3. Warehouse management
4. Segregation of inventory (quality stock, unrestricted stock, damaged, scrap stock, block stock
etc.)
5. Physical inventory process
6. Managing stock based on shelf life and perish-ability of the material
One of the major activities of inventory management is material requirement planning based on
production, sales data and marketing forecasting. And the data to do planning is received from marketing
function and store function. Discussion on material requirement planning is out of scope of this title.
1.5 SAP Materials Management
SAP has some core functions and some central functions. Core functions are those which are specific to
a specific module, like purchasing is specific to MM module and sales is specific to SD module. Central
functions are those functions which are common to many modules, like batch management, configurable
material; active ingredient etc. Focus of this title is primarily on core functions and somewhat on central
functions wherever it falls in the purview of MM module
SAP materials management module has provided following major functions:
1.
2.
3.
4.
5.
6.
Consumption-Based Planning
Purchasing
External Services Management
Inventory Management and Physical Inventory
Valuation and Account Assignment
Logistics Invoice Verification
This title has not covered each and everything of core functions of MM module. Scope of this book is up
to the most widely used and applicable functions of MM module.
1.5.1 Business Process
From process point of view we have following business processes that are generally mapped in materials
management module of SAP :
Procurement
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Domestic Procurement of raw material and packaging material
Import procurement
Inter-company stock transfer
Intra-company stock transfer
Procurement of Services (with service master)
Procurement of Non stock material
Procurement of engineering material and consumables
Subcontracting procurement
Capital item procurement
Return Purchase order
Authorization of quotation, purchase requisition, purchase order, service entry sheet as per
schedule of authority
Inventory Management
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Goods receipt of raw material, packing material, engineering material and non-stock items
Service entry sheet
Return Delivery (vendor report just after the GR or Quality inspection report)
GR to blocked stock, batch split, storage location split
Transfer posting, storage location to storage location
Goods issue to subcontracting vendor, shop floor, asset, and cost center
Physical inventory process
Return of material from storage location, cost centers
Return purchase order goods receipt (return to vendor due to line rejection)
Goods issue to other plants
Logistics Invoice Verification
1. Verification of material’s vendor’s invoice against goods receipt
2. Verification of delivery vendor’s invoice against goods receipt
3. Handling various variations or differences between vendor invoice and purchase order.
Differences like quantity and rate variation, over invoicing, under invoicing, unplanned invoices et
cetra are few examples.
4. Credit Memo
5. Debit Memo
1.5.2 Operations Activities to execute Business Processes
To execute a business process users execute set of predefined activities (transactions) in SAP system.
Activities (transaction) which can be executed in SAP to execute Business processes are as follows:
Sourcing
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Local Purchasing organization
Global Purchasing Organization (Reference Purchasing Organization)
Global and Local Contract Preparation (without plant specific pricing)
Global and Local Contract Preparation (Plant specific pricing)
Scheduling agreement
Request for Quotation
Quotation maintenance
Quotation Comparison
Purchasing info record updating
Source List
Quota arrangement of vendors for selective procurement
Vendor Evaluation
Supply
1.
2.
3.
4.
5.
6.
7.
Purchase requisition
Request for Quotation
Quotation maintenance
Quotation Comparison
Purchasing info record maintenance
Purchase order
Delivery Schedule maintenance in scheduling agreement document. Delivery schedule can also
be maintained in Purchase order .
8. Release procedure
9. Inbound shipping notification
10. Vendor evaluation
Inventory management
1.
2.
3.
4.
5.
6.
Inbound goods movement
Internal goods movement/consumption/adjustment/conversion
Outbound goods movement
Stock monitoring
Physical inventory
Material Requirement Planning
Logistics Invoice Verification
6.
7.
8.
9.
10.
11.
12.
Verification of material’s vendor’s invoice against goods receipt
Verification of delivery vendor’s invoice against goods receipt
Invoice reduction process
Invoice blocking and release of blocked invoice for further payment to the vendor
subsequent Debit/Credit Process
Credit Memo
Debit Memo
1.6 Introduction to SAP System
To understand the “SAP System’”, we shall understand the term SAP and System differently and then, we
shall consolidate the two definitions to derive the definition of SAP system.
System can be understood as set of different people, parameters, and mechanism to perform a specific
task, an activity or set of activities or a process. Simplest example of system could be a personal
computer (set of Keyboard, Monitor, CPU and UPS), to perform desired calculation by the user,
uninterrupted by power failure
Before understanding SAP, let us understand the concept of Enterprise resource Planning (ERP). An
ERP is a system, which integrates the various business processes of various functions of an organization,
to deliver the product or service to their customer at the right time and to maximize their profit. Apart from
these major goals, there are various other objectives of ERP system, demand management, operations
control and management, financial management, human capital management etc.
SAP is an ERP product of SAP AG Germany, Stands for Real time 3 tier structures. Real time implies
information is available immediately after event is over. 3 tiers imply hardware structure of the system.
SAP system or SAP system can be understood as an ERP system, which uses hardware and software
configuration either specified or designed by SAP AG and used by different users of the organization,
which owns the system. SAP system could also be understood as an Information Technology enabled
System (ITeS), as it uses various information technologies to support and run the ERP system.
SAP is arranged into distinct functional modules, covering the typical functions in place in an organization.
Most widely used modules are financials (FI/CO), purchasing (MM), sales (SD) and production (PP).
Those modules as well as the additional components of SAP are detailed in the next section
(www.wikipedia.org).
Each module handles specific business tasks on its own, but is linked to the others where applicable. For
instance, an invoice from the Billing portion of Sales & Distribution will pass through to accounting, where
it will appear in accounts receivable and cost of goods sold.
SAP has typically focused on best practice methodologies for driving its software processes, but has
more recently expanded into vertical markets. In these situations, SAP produces specialized modules
geared toward a particular market segment, such as utilities or retail.
SAP is a client/server based application, utilizing a 3-tiered model. A presentation layer, or client,
interfaces with the user. The application layer houses all the business-specific logic, and the database
layer records and stores all the information about the system, including transactional and configuration
data.
SAP functionality is structured using its own proprietary language called ABAP (Advanced Business
Application Programming). ABAP, or ABAP/4 is a fourth generation language (4GL), geared toward the
creation of simple, yet powerful programs. also offers a complete development environment where
developers can either modify existing SAP code to modify existing functionality or develop their own
functions, whether reports or complete transactional systems within the SAP framework.
ABAP's main interaction with the database system is via open SQL statements. These statements allow a
developer to query, update, or delete information from the database. Advanced topics include GUI
development and advanced integration with other systems.
The most difficult part of SAP is its implementation. Simply because SAP is never used the same way in
any two places. For instance, Atlas Copco can have a different implementation of SAP from Procter &
Gamble and so forth. Two primary issues are the root of the complexity and of the differences:
 Customization configuration - within , there are hundreds of database tables that may be used to
control how the application behaves. For instance, each company will have its own accounting
"Chart of Accounts" which reflects how its transactions flow together to represent its activity. That
will be specific to a given company. In general, the behavior (and appearance) of virtually every
screen and transaction is controlled by configuration tables. This gives the implementer great
power to make the application behave differently for different environments. With that power
comes considerable complexity.
 Extensions, Bolt-Ons. In any company, there will be a need to develop interface programs to
communicate with other corporate information systems. This generally involves developing
ABAP/4 code, and considerable "systems integration" effort to either determine what data is to be
drawn out of or to interface into to load data into the system.
Due to the complexity of implementation, these companies recruit highly skilled SAP consultants to do the
job. The implementation must consider the company's needs and resources. Some companies implement
only a few modules of SAP while others may want numerous modules (www.wikipedia.org).
SAP has several layers. The Basis System (BC) it include the ABAP programming language, it is the
heart of the data operations and should not be visible to higher level or managerial users. Other
customizing and implementation tools exist also. The hearts of the system from a manager’s viewpoint
are the application modules. These modules may not all be implemented in a typical company but they
are all related and are listed below:
FI Financial Accounting : Designed for automated management and external reporting of general
ledger, accounts receivable, accounts payable and other sub-ledger accounts with a user defined chart of
accounts. As entries are made relating to sales production and payments journal entries are automatically
posted. This connection means that the "books" are designed to reflect the real situation.
The FI module has 8 sub modules:
FI-GL General Ledger Accounting
FI-LC Consolidation
FI-AP Accounts Payable
FI-AR Accounts Receivable
FI-BL Bank Accounting
FI-AA Asset Accounting
FI-SL Special Purpose Ledger
FI-FM Funds Management
CO Controlling : represents the company's flow of cost and revenue. It is a management instrument for
organizational decisions. It too is automatically updated as events occur.
The CO module has following sub modules:
CO-OM Overhead Costing (Cost Centers, Activity Based Costing, Internal Order Costing)
CO-PA Profitability Analysis
CO-PC Product Cost Controlling
AM Asset Management : Designed to manage and supervise individual aspects of fixed assets including
purchase and sale of assets, depreciation and investment management.
PS Project System : is designed to support the planning, control and monitoring of long-term, highly
complex projects with defined goals.
WF Workflow : Links the integrated SAP application modules with cross-application technologies, tools
and services.
IS Industry Solutions : Combine the SAP application modules and additional industry-specific
functionality. Special techniques have been developed for industries such as banking, oil and gas,
pharmaceuticals,
etc.
Following Industry Specific Solutions are supported by SAP:
IS-A Automotive
IS-ADEC Aerospace & Defense
IS-AFS Apparel and Footwear
IS-B Bank
IS-BEV Beverage
IS-CWM Catch Weight Mgmnt
IS-DFS Defense & Security
IS-H Hospital
IS-HER Higher Education
IS-HSS Hospitality Managment
IS-HT High Tech
IS-M Media
IS-MIN Mining
IS-MP Mill Products
IS-OIL Oil
IS-PS Public Sector
IS-R Retail
IS-REA Recycling Admin
IS-SP Service Provider
IS-T Telecommunications
IS-U Utilities
HR Human Resources: is a complete integrated system for supporting the planning and control of
personnel activities.
PM Plant Maintenance: `In a complex manufacturing process maintenance means more than sweeping
the floors. Equipment must be serviced and rebuilt. These tasks affect the production plans.
MM Materials Management: Supports the procurement and inventory functions occurring in day-to-day
business operations such as purchasing, inventory management, reorder point processing, etc.
QM Quality Management: is a quality control and information system supporting quality planning,
inspection, and control for manufacturing and procurement.
PP Production Planning : Is used to plan and control the manufacturing activities of a company. This
module includes; bills of material, routings, work centers, sales and operations planning, master
production scheduling, material requirements planning, shop floor control, production orders, product
costing, etc.
SD Sales and Distribution : Helps to optimize all the tasks and activities carried out in sales, delivery
and billing. Key elements are: pre-sales support, inquiry processing, quotation processing, sales order
processing, delivery processing, billing and sales information system.
WM Warehouse Management : Control of stock to a physical level down to a warehouse bin. Placement
and removal rules can be configured, stock counts can be done see SAP Business Information
Warehouse.
HUM Handling Unit Management : This is used as a unique ID for each pallet of stock held in the
warehouse.
Chapter 2
Business Processes in Procurement
2.1 Basics of Procurement
Before moving on to main topic, let us discuss about organization structure and mapping of the
organization’s entity into SAP.
2.1.1 Organization Structure
Organization has many functions or department, like purchasing, stores, production planning,
maintenance, finance, marketing, sales and distribution, logistics etc. There could be many site or
locations of operations. Procurement could be centralized controlled or controlled locally. Inventory is
always controlled locally at site or location.
Client is the highest and technical organizational entity. All the data of a group of company is maintained
at client. Company entity is next to client. Company is the highest organization entity, which represents a
group of company, and all the financial results are consolidated at company level. Company code is next
level of organizational entity.
Purchasing Organization is an entity in SAP, which represents the purchasing department controlling
procurement at company level. Company Code represents that legal entity at which balance sheet is
made. A purchasing organization can procure for one company or for many companies (centralized). A
purchasing organization may be or may not be assigned to the company code/s, depending upon the
scope of procurement.
Purchasing organization can procure for many sites of a single company code. These different sites of
company can be defined as a plant. Plant is that entity of SAP, where, any of ………………………………
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Chapter 3
Inventory Management, Valuation and Physical Inventory
3.1 Movement Type
Movement type is the heart of the inventory management in SAP . Movement type is a three-digit numeral
classification key indicating the type of material movement (for example, goods receipt, goods issue,
physical stock transfer). This classification has been done to have clear distinction between various
material movements in the manufacturing industry or trading business. Different types of material may go
through various types of different material movements. For example raw material is consumed or
processed for finished product, a spare part/ engineering material is consumed at a cost center and a
capital material is issued to an asset and is capitalized on the asset. Any material movement type is
characterized by stock update and value update or sometimes only stock update. In other words, the
movement type enables the system to find predefined posting rules determining how the accounts of the
financial accounting system (stock and consumption accounts) are to be posted and how the stock fields
in the material master record are to be updated.
Example of goods movement are given below
Plant A
Storage Location A1
Material
Movement
possible in both
the direction
Plant A
Storage Location A2
Fig 3.01: Goods movement within a plant, only stock update
Plant A
Storage Location A1
Material
Movement
possible in both
the direction
Plant B
Storage Location B2
Fig 3.02: Goods movement between a plant, stock as well as value update
To have a better and deep understanding of material movement, we need to understand stock type also.
Stock type is a classification of different types of stock of the same material, which defines their state,
usage and usability. Various types of stock types are, unrestricted stock, quality inspection stock,
restricted-use stock, block stock, GR block stock, subcontracting stock, project stock, consignment stock,
sales order stock, stock in transit etc. Transferring material from one stock type to another stock type is
also characterized by movement type. Such material movement types do not necessarily need a physical
material movement. There may not be any material movement. If we transfer material from quality stock
to unrestricted stock, after quality test, there may not be any material movement, but there is a
certification that, stock has been released for unrestricted use from earlier quality stock. These kinds of
stock type change are also recorded in the system using movement type.
When you enter a goods movement, you must always enter the movement type. The movement type has
important control functions in Inventory Management. It is essential for
 Updating the quantity fields
 Updating the stock and consumption accounts
 Selection of the fields used for entering documents
 Printing goods receipt/issue slips
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Chapter 4
Financial Accounting Integration with Materials Management
4.1 Automatic Account Determination (AAA)
SAP is enterprise solution software. Its feature of integrating the various modules is of paramount.
Integration of various business processes with finance module is very strong in SAP ERP package. In
this section, we would focus on integration of purchase and inventory business process with finance
accounting.
First, we shall consider inventory process. In manufacturing or trading organizations, there are various
types of goods movements, which have impacts on financial books. Various goods movements are as
follows:

Goods receipt from vendor

Goods return to vendor

Goods issue to consumption

Goods transfer from one valuation area to another valuation area of one company code or two
different company codes. Valuation area could be plant or company code.

Special stocks goods movement (for example project stock, subcontracting vendor stock,
consignment stock and pipeline material)

Goods issue for sale

Goods receipt from customer (sales return)
There may be various variants of a goods movement also. For example, goods issue to consumption
involves consumption for cost center, production order, and maintenance order, goods movement of
unrestricted stock or special stock.
As we discussed earlier that in SAP every goods movement is characterized by three character
numerical code. These three character numerical codes are known as movement type. Every movement
type has various controls related with value and quantity updation, batch management, quality activation,
special stock indicators, and screen field controls. Those movement types, which have financial impact,
are linked with transaction event keys and account grouping code (or account modifiers or general
modifier).
In automatic account determination process, valuation-grouping code (or valuation modifier) is another
key to determine GL account. Valuation grouping code is used to group different valuation areas from
accounting point of view. Valuations areas under one valuation grouping code have same accounts for
the same type of posting. ………………………………
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Chapter 5
Logistics Invoice Verification
5.1 Logistics Invoice Verification
LIV (logistics invoice verification) is the last step in procurement cycle. Transaction code is MIRO. LIV is
done to verify material quantity receipt during goods receipt and value of quantity receipt. Value is verified
by verifying rate and taxes applicable multiply by quantity. LIV is done separately for all the vendors
involve in procurement cycle. Various vendors, which may be involved in procurement process, are
material supplier, freight vendor, customs house vendor, insurance vendor, and any other planned
delivery cost vendor if any involve in the process. An invoice document is made for a single vendor either
for material or planned delivery cost.
As goods receipt is made against purchase order, LIV can also be made against purchase order.
Purchase order is not the only reference document against which LIV can be made. Other reference
documents against which LIV can be made are scheduling agreement, delivery note number, bill of
lading, service entry sheet, and vendor code. LIV document serve as a documentary proof of verification
for payment to vendors.
To start the process of LIV, let us understand how to do simple invoice verification in SAP . Later on, we
would discuss various variants, controls and features of logistics invoice verification. Transaction code is
MIRO. ………………………………
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Chapter 6
Country India Version (CIN)
Country India Version of SAP deals with the, excise duty, service tax and VAT for India. Here we shall
discuss the processes of mainly excise treatment in India through SAP. Scope of CIN in this chapter is
restricted to MM module transactions only.
Following business processes shall be discussed
1. Taxes in domestic procurement of raw material
2. Taxes in import procurement of raw material
3. Tax treatment in asset procurement
4. Tax treatment in stock transport order
5. Excise invoice capturing and posting
6. Service tax in service procurement
7. Capital Goods transfer of Goods
8. Utilization of excise duty
9. Excise JV (Journal Voucher)
Refer to SAP Note Number 542862 (For MM), 535616 (For SD) for SAP documentation on CIN,
along with this chapter, in order to understand CIN comprehensively,.
6.1 Excise Duty
Excise duty is a duty which is levied on manufacturing of goods. Excise duty is also known as Central
Excise Duty or CENVAT (Central value added tax). Any manufactured goods create a liability to pay
taxes to central government of India. But for the ease of tax calculation and keeping records tax is
calculated at the time sale or stock transport from the manufacturing plant. ………………………………
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Chapter 7
Implementation Guide
SAP is configured to use ERP software package. It is configured by SAP consultants in their respective
domains materials management, production planning, sales and distribution etc. Consultant use
implementation guide to configure software as per the business need. In this chapter configuration of
materials management module is being explained in detail. Configurations of modules are
interdependent. There are precedence dependencies on many configurations of different modules.
Configuration of the package starts with organization structure in finance module, materials management
module and other modules, respectively. Company and company codes are configured in finance
module, further to which organization structure of materials management is configured. Configuration
details are explained as below. ………………………………
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Annexure
ERP Implementation: A Process
Synopsis
ERP, Enterprise Resource Planning is a discipline in which extensive research has been carried out and
numerous methodologies churned out. Enterprise Resource Planning is concept of automating and
integrating the business process. The Information Technology has made a great progress to realize the
ERP from its concept in books. There are various software packages available to implement ERP in
industry. But ERP is incomplete without BPR (Business Process Reengineering). BPR could be done
before, after or along with ERP. This is a debatable issue. But what seems to be lacking is a structured
approach.
The BPR methodology includes the five activities: Prepare for reengineering, Map and Analyze As-Is
process, Design To-be process, Implement reengineered process and Improve continuously.
The ERP methodology includes Title Preparation, Business process mapping and configuration design,
Configuration and Development in Development environment, Final preparation and Unit and Integration
testing in Quality Server and finally Go-live and support.
Many application of ERP have been titled in the manufacturing sector. These sector’s business processes
have been studied and standardized. This has made ERP implementation easier. In this title an attempt
has been made to study the implementation of ERP/BPR with a case study in Agro based industry. In
Agro industry, though many issues are common to manufacturing sector, but it differs due to seasonality
(3 months) purchase and round the year sale, and hence huge inventory and material handling while
purchasing raw material. Moreover, agro products require special; handling due to their perishable nature
and to fulfill the basic necessity of society.
This case study provides a review of ERP and BPR and present best of breed
methodologies from
contemporary literature and practice and introduces a consolidated, systematic approach to the redesign
of a business enterprise and implementing ERP. This is a case study of ERP (SAP) and BPR
implementation in Agro Industry.
Keywords: Enterprise Resource Planning, Business Process Reengineering, Methodology,
Improvement, Implementation, Agro based industry, SAP
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