Bonn � Boston

Martin Murray

Discover Logistics with SAP®

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Contents at a Glance

Procurement and Logistics ExecutioPART I n

Introduction to Logistics with SAP1 .............................. 25

Procurement2 ................................................................ 39

Inventory Management3 ............................................... 67

Warehouse Management4 ............................................ 89

Inbound and Outbound Logistics5 .............................. 109

Product Development and ManufacturinPART II g

Product Planning6 ....................................................... 129

Manufacturing Operations7 ........................................ 153

Plant Maintenance8 .................................................... 181

Quality Management9 ................................................ 209

Sales and ServicPART III e

Sales Order Management10 .......................................... 241

Customer Service11 ...................................................... 275

Transportation Management12 ..................................... 301

Implementation and New TechnologiePART IV s

Implementation13 ......................................................... 327

New Technologies and Conclusion14 ............................ 351

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Contents

Acknowledgments ..........................................................................15Preface ...........................................................................................17

Who This Book Is For ........................................................... 17Navigational Tools for This Book ........................................... 18Organization of This Book .................................................... 18

Section 1 – Procurement and Logistics Execution .............19Section 2 – Product Development and Manufacturing .....20Section 3 – Sales and Service ...........................................20Section 4 – Implementation and New Technologies .........21

Procurement and Logistics ExecutioPART I n

Introduction to Logistics with SAP 1 ........................... 25

Origins of SAP ...................................................................... 25SAP and Logistics ................................................................. 28

Definition of Logistics ......................................................28Logistics Functionality .......................................................... 32

Procurement and Logistics Execution ...............................32Product Development and Manufacturing .......................34Sales and Service .............................................................35

Conclusion ........................................................................... 37

Procurement 2 .............................................................. 39

SAP Organization Structure .................................................. 39Creating the Client Landscape ..........................................40Company Code ................................................................41Plant ................................................................................42Storage Location ..............................................................43Warehouse ......................................................................45Storage Type ....................................................................46Storage Section ................................................................46Storage Bin ......................................................................48

Purchasing Organization Structure ........................................ 48

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Contents

Purchasing Organization ..................................................48Purchasing Group ............................................................51

Purchasing Process ............................................................... 53Purchasing Best Practices .................................................53Purchase Requisition .......................................................55Request for Quotation (RFQ) ...........................................57Quotation ........................................................................59Purchase Order ................................................................59

Accounts Payable ................................................................. 62Invoice Verification ..........................................................62

Summary ............................................................................. 66

Inventory Management 3 ............................................. 67

Plant Structure ..................................................................... 68Plant ................................................................................68Storage Location ..............................................................70

Goods Movements ............................................................... 72Goods Receipt .................................................................72Goods Issue .....................................................................73Returns ............................................................................74Reservations ....................................................................75Stock Transfers and Transfer Postings ...............................76

Physical Inventory ................................................................ 82Physical Inventory Procedures ..........................................83Preparing for the Physical Count ......................................83Performing the Physical Count .........................................84Count Discrepancies ........................................................85Completing the Physical Inventory ...................................86

Summary .............................................................................. 87

Warehouse Management 4 .......................................... 89

Warehouse Structure ............................................................ 90Warehouse ......................................................................91Storage Types ..................................................................92Storage Section ................................................................93Storage Bin ......................................................................95Quant ..............................................................................96

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Contents

Warehouse Movements ....................................................... 97Movements Triggered by SAP Inventory Management .....98Transfer Requirement .......................................................98Transfer Order ..............................................................101Printing Transfer Orders .................................................105

Summary ............................................................................ 106

Inbound and Outbound Logistics 5 ........................... 109

Inbound Logistics ............................................................... 110Shipping Notification .....................................................110Manually Created Inbound Deliveries ............................111Delivery Monitor ...........................................................112Goods Receipt ...............................................................114

Outbound Logistics ............................................................ 117Outbound Delivery ........................................................118Picking ..........................................................................119Packing Using Handling Units ........................................121Goods Issue ...................................................................122Proof of Delivery ...........................................................124

Summary ............................................................................ 124

Product Development and ManufacturinPART II g

Product Planning 6 ..................................................... 129

Sales and Operations Planning ........................................... 130Standard Sales and Operations Planning ........................130Flexible Sales and Operations Planning ..........................132Master Data in Sales and Operations Planning ...............132Reporting ......................................................................133

Demand Management ....................................................... 137Make-to-Stock Strategy .................................................138Make-to-Order Strategy ................................................139Strategy for Configurable Materials ................................141Planned Independent Requirements ..............................142Customer Requirements ................................................144

Materials Requirements Planning ...................................... 145Planning with MRP ........................................................146

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Contents

Executing the Planning Run ...........................................146Summary ............................................................................ 150

Manufacturing Operations 7 ..................................... 153

Manufacturing Structure .................................................... 154Work Centers ................................................................154Bill of Materials .............................................................159Routings ........................................................................161Routings for Configurable Materials ...............................162Production Resources and Tools (PRT) ...........................163

Shop Floor Control ............................................................. 164Production Order ..........................................................165Confirming a Production Order ......................................170Production Order Settlement .........................................173Printing Shop Papers ......................................................174Order Info System .........................................................175

Product Costing ................................................................. 176Cost Estimate with a Quantity Structure ........................176Cost Estimate without a Quantity Structure ...................178

Summary ............................................................................ 179

Plant Maintenance 8 .................................................. 181

Maintenance Organization Structure .................................. 182Functional Location .......................................................182Equipment .....................................................................185

Preventive Maintenance ..................................................... 191Maintenance Task List....................................................192Maintenance Plans ........................................................195Maintenance Scheduling ................................................197

Maintenance Processing ..................................................... 201Maintenance Notifications .............................................201Converting Notifications to Maintenance Orders ...........203Maintenance Orders ......................................................204

Summary ............................................................................ 208

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Contents

Quality Management 9 .............................................. 209

Quality Management Structure .......................................... 211Catalog ..........................................................................211Code Groups .................................................................211Code .............................................................................211Selected Set ...................................................................212Inspection Characteristic ................................................213

Quality Planning ................................................................ 214Material Specification ....................................................215Inspection Plan ..............................................................216

Quality Notifications .......................................................... 218Customer Complaint ......................................................218Complaint Against a Vendor ..........................................220Internal Problem Report ................................................221Notification Monitoring .................................................222

Quality Inspections ............................................................ 224Inspection Lot ...............................................................224Recording Results ..........................................................227Defects Recording .........................................................229Usage Decision ..............................................................230Quality Certificates ........................................................231Reporting ......................................................................233

Summary ............................................................................ 236

Sales and ServicPART III e

Sales Order Management 10 ....................................... 241

Sales Structure ................................................................... 243Sales Organization .........................................................243Distribution Channel......................................................244Sales Division ................................................................246Sales Office ....................................................................247Sales Group ...................................................................248

Sales Ordering .................................................................... 250Customer .......................................................................250Customer Inquiry ...........................................................254

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Contents

Customer Quotation ......................................................255Sales Order ....................................................................256Scheduling Agreements .................................................258Contracts .......................................................................258Credit Memo .................................................................263

Shipping Processes ............................................................. 265Packing ..........................................................................265Outbound Delivery ........................................................266Goods Issue ...................................................................267

Billing Function .................................................................. 267Billing Processes ............................................................267Creating Billing Documents............................................269Reporting ......................................................................271

Summary ............................................................................ 274

Customer Service 11 ..................................................... 275

Service Structure ................................................................ 277Material.........................................................................277Equipment .....................................................................278Functional Location .......................................................279Installed Base ................................................................281

Service Agreements ............................................................ 282Service Contract ............................................................282Warranties .....................................................................288

Service Processing .............................................................. 290Service Notification .......................................................290Activity Report ..............................................................292Service Orders ...............................................................293Repair Order ..................................................................295Confirmations ................................................................297Billing ............................................................................298

Summary ............................................................................ 299

Transportation Management 12 .................................. 301

Transportation Planning ..................................................... 302Transportation Planning Point ........................................303Shipping Type ................................................................304

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Contents

Routes and Stages .........................................................305Forwarding Agent ..........................................................306Shipment .......................................................................308Transportation Planning List ...........................................310Shipment Status Monitor ...............................................312

Freight Costs ...................................................................... 313Modes of Transportation ................................................313Shipping Rates ...............................................................316Shipping Costs ...............................................................318

Transportation Execution .................................................... 320Check-In List .................................................................320Shipment Completion List .............................................321Posting Goods Issue .......................................................322

Summary ............................................................................ 323

Implementation and New TechnologiePART IV s

Implementation 13 ....................................................... 327

SAP ERP Implementation .................................................. 327Why Implement SAP? ....................................................328Implementation Methodologies .....................................330ASAP Methodology .......................................................330Project Preparation ........................................................332Business Blueprint .........................................................334Realization .....................................................................336Final Preparation ...........................................................338Go-Live and Support......................................................340

Total Cost of Ownership (TCO) ........................................... 341History of Total Cost of Ownership ...............................342Direct and Indirect Costs ...............................................342Calculating the Total Cost of Ownership ........................344

Return on Investment (ROI) ............................................... 345Objective Measurements ...............................................346Subjective Measurements ..............................................347

Summary ............................................................................ 348

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Contents

New Technologies and Conclusion 14 .......................... 351

SAP NetWeaver ................................................................. 351Integration ....................................................................352Key Benefits ..................................................................352

Service-Orientated Architecture (SOA) .............................. 353Services and SOA ...........................................................353SOA with Enterprises .....................................................355Enterprise Services Bundles ............................................356

SAP Supply Chain Management (SAP SCM) ........................ 357Flexibility in the Supply Chain ........................................357Phases for an Adaptive Supply Chain .............................357

SAP Supplier Relationship Management (SAP SRM) ........... 359Core SRM Functionality .................................................360Supplier Collaboration ...................................................361Supplier Base Management ...........................................361

Conclusion ......................................................................... 361Lessons Learned ............................................................361Future Direction ............................................................365

Appendices

A Bibliography ............................................................................367

B Glossary ..................................................................................369

Index ............................................................................................379

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Procurement

Every company has to purchase items, from the raw materials that go into making a component in a finished product to the external services needed to help in the manufacture of an item, the equipment that is required to manufacture items, and even buildings to house the manufacturing process. The science of purchasing has become part of today’s efficient business operation. But before any purchasing happens, the purchasing department has to research and negotiate the best prices through policies and technology to ensure that your company is getting the right materials at the best cost.

In this chapter, we’ll examine the organizational structure within SAP, along with the organization of the purchasing department, the com-ponents of the procurement process, and how accounts payable oper-ates within the system.

SAP Organization Structure

Let’s briefly review some of the technical aspects of SAP software and then examine the organizational structure that is defined in SAP.

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Creating the Client Landscape

When your company purchases SAP software, you need to create your SAP landscape by installing and configuring the software according to your specific needs. In SAP terminology, this is called an instance. Your company can have more than one SAP instance, but they’ll exist on dif-ferent SAP systems. Within one SAP instance, a number of clients will be created. A client is an organizational and legal entity in the SAP system.

Master data is the detailed information stored in the SAP system that describes the materials, vendors, and customers you use. Master data is protected within the client, so it can’t be seen from outside. The data in a client is only visible within that client and can’t be displayed or changed from another client. For example, if your company has subsidiaries that also use SAP applications, they can use your physical SAP software and servers, but they use a different client. The subsidiaries would not have access to your data, nor would your company have access to theirs.

SAP systems have multiple clients that each have a different objective and represent a unique environment. Clients also have their own sets of tables and user data.

After the SAP software has been installed, the technical team needs to create a number of clients that reflect the customer needs. The general client structure for an SAP implementation includes a development client, training client, quality client, and production client.

The development client is where all development work, such as the setup of the plants, storage locations, and configuration work, should take place. There may be more than one development client created. For example, there may be a sandbox client, for general users to prac-tice and test configuration. There may also be a clean or golden de-velopment client where the specific configuration is made and from which it’s then transported to the quality client for review before moving to the production client.

The training client usually reflects the current production system and is used primarily for training project staff and end users. When con-figuration is transported to the production client, it’s transported to the training client at the same time. Although the training client is useful for training, it isn’t necessity for a successful implementation.

SAP instance

What is master data?

Multiple clients

Development client

Training client

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SAP Organization Structure2

Other clients may be needed for SAP NetWeaver Business Intelli-gence (SAP NetWeaver BI ) and other SAP software, such as SAP Sup-ply Chain Management (SAP SCM) or SAP Customer Relationship Management (SAP CRM).

To successfully manage this client environment, you need strict pro-cedures and security so that the integrity of the clients is maintained.

Company Code

The company code is defi ned in SAP as the smallest organizational unit for which a complete self-contained set of accounts can be drawn up. It’s important to be able provide data for generating balance sheet s and profi t-loss statements. The company code represents legally in-dependent companies. Using more than one company code allows a customer to manage fi nancial data for different independent compa-nies at the same time. When a customer is deciding on its organiza-tional structure , one or more company codes can be used.

If an American company has components of its organization in Canada and in Mexico, it may be appropriate to use three company codes instead of one.

Example

Figure 2.1 shows the data that is entered for a company code.

Company Code Data ScreenFigure 2.1

Defi ning a company code

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Plant

When you think of a plant, your mind probably goes to a manufactur-ing site where equipment, warehousing, and offi ces are located. In SAP terms, the defi nition of a plant can vary. From a logistics view, a plant can be defi ned as a location that holds valuated stock or as an organizational unit that is central to production planning. A plant can also be defi ned as a location that contains customer service or main-tenance facilities. The defi nition of a plant will vary depending on the need of the customer. Figure 2.2 shows the data that is entered for a plant.

Plant Data ScreenFigure 2.2

The organizational structure within SAP applications allows the plant to be assigned to a company code. So a company code can have one

Plants

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SAP Organization Structure2

or many plants associated with it. If you look at how your own com-pany is structured, you can easily see which locations can be defi ned as plants.

Carefully consider the plant structure before confi guring the SAP system. Although it’s easy to add plants in SAP software, you don’t want to spend unnecessary time changing the structure.

Tip

In Figure 2.3, the plant 9002 is associated with company code 1299.

Plant Associated with a Company CodeFigure 2.3

Storage Location

A storage location is a section or area within a plant. It’s usually de-fi ned as a specifi c area where stock is physically kept within a plant . There will always be at least one storage location defi ned for one plant, but there can be more than one, depending on the setup. Fig-ure 2.4 shows a number of storage locations defi ned for a single plant in SAP.

Storage locations

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Storage Locations Associated with a PlantFigure 2.4

There are no set rules or physical requirements for what a storage lo-cation should look like. SAP customers have a variety of very specifi c inventory-monitoring requirements. A physical storage location is an area that contains inventory separated from other inventory. Depend-ing on the physical size of the materials involved, this may be as small as a 2-inch square bin or as large as an entire building. Storage loca-tions can defi ne areas of racking, shelves, plastic bins, refrigerators, tool cages, safes, and so on.

Create only the number of storage locations that are needed to operate an effi cient inventory process. Unnecessary storage locations create un-necessary movements and reduce effi ciency.

Tip

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SAP Organization Structure2

Warehouse

A warehouse is part of the SAP Warehouse Management (SAP WM) functionality, which allows the customer to further specify locations within a storage location. If you need to know more than just the contents of a storage location, the WM functions can be confi gured. Figure 2.5 shows a number of warehouses confi gured in SAP.

Warehouse Entries in SAPFigure 2.5

The warehouse is a defi ned physical area assigned to a storage loca-tion. Using a warehouse gives a company the ability to track items down to a very low-level location, which is the storage bin. This can be important if there are thousands of items in a single storage loca-tion that are required to be moved, either in or out, with minimum time. The warehouse can be divided into storage types, sections, and bins.

SAP Warehouse Management

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The warehouse is assigned to a storage location or number of stor-age locations in the SAP system. Figure 2.6 shows the assignment of warehouses to storage locations and plants.

Warehouse Associated with Storage LocationsFigure 2.6

Storage Type

A storage type is an area of the warehouse that users can base searches on. Common storage types in a warehouse can be areas such as cold room, bulk storage, and high racking area. Search strategies can be confi gured at the storage type level that allow different types of stock placement and stock removal to be defi ned. Figure 2.7 shows storage types created for a warehouse.

Storage Section

A storage section is an area of the storage type used to divide the stor-age type further; for example, if the bulk storage area had two levels, each level could be defi ned as a storage section. Figure 2.8 shows storage sections for the storage types of Warehouse 276.

Warehouses assigned to storage

locations

Areas within a warehouse

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SAP Organization Structure2

Storage Types Defi ned for Warehouse 276Figure 2.7

Storage Types Defi ned for Warehouse 276Figure 2.8

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Storage Bin

A number of storage bins can be defined for each storage section. A storage bin is the lowest level of storage in the plant.

Now that you understand the organizational structure found in an SAP system, the next section will review the purchasing organization and how it integrates with the structure defined in this section.

Purchasing Organization Structure

Any purchasing function can range from simple to very complex. The largest SAP customers may spend hundreds of millions of dollars in purchasing each year and have a sophisticated purchasing department that works at many different levels, from strategic global procurement to low-level vendor relationships. SAP software can be defined to al-low all purchasing departments to be accurately reflected.

Smaller SAP customers are working to eradicate requisition cards and create a modern purchasing department. Every purchasing depart-ment is unique, but the organizational structure defined within the SAP system allows your company to adopt best practices to maximize the benefits SAP applications provide.

Purchasing Organization

A purchasing organization refers to a group of purchasing activities associated with all or a specific part of the enterprise.

For example, if a company has three plants; New York, Chicago, and Houston, there can either be a single purchasing organization that negotiates contracts for all three plants or a purchasing organization at each plant that locally negotiates with vendors.

The number of purchasing organizations depends on a several factors. For example, if the three plants all use the same materials from the same vendors, then a single purchasing organization may be more suitable; however, if the plants use different materials from local ven-dors, then a purchasing organization for each plant may be more ap-

Smallest location in the warehouse

Modernizing the purchasing function

Purchasing function structure

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Purchasing Organization Structure2

propriate. The decision to adopt the use of more than one purchas-ing organization may be more complex and requires a study of what materials and services are purchased across the enterprise, how those materials are purchased, and by whom.

The fl exibility in the SAP system means that whatever purchasing struc-ture your company has, it can be replicated in the system.

Tip

Figure 2.9 shows a number of purchasing organizations that have been confi gured.

Purchasing Organizations in SAPFigure 2.9

SAP systems provide a number of ways to confi gure the purchasing organization.

Purchasing Across the Whole OrganizationFor large companies, procurement, which some companies call pur-chasing, may take place at the highest level within an organization. If a customer has a central purchasing department that coordinates

Single purchasing organization

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purchasing for all companies within the enterprise, then the purchas-ing organization can be confi gured in that manner. The purchasing organization is defi ned in the SAP software and then assigned to all companies. Companies such as General Motors and Coca-Cola negoti-ate and procure materials and services on a global basis for the com-panies within their organizations.

Purchasing at a Company LevelSome large companies don’t have a single business-wide purchasing function and may have centralized purchasing for each company . This may be appropriate for companies with entities in various countries, in which case, an enterprise purchasing department may not be pos-sible. In this scenario, the purchasing organization is created and as-signed for each company code . However, a purchasing organizationmay cover several companies.

A company that has a purchasing organization for Mexico may be as-signed as the purchasing organization for the companies based in Belize, Honduras, and Guatemala.

Example

Figure 2.10 shows purchasing organizations in the SAP system that have been assigned to a company code.

Purchase Organization Assigned to Company CodeFigure 2.10

Different companies, different

purchasing

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Purchasing Organization Structure2

Purchasing at the Plant LevelIn an enterprise that has companies with large autonomous plant s; the purchasing decisions may be made at a local level. A company may decide that assigning one purchasing organization to one com-pany isn’t appropriate, and it would be a better business decision to assign a purchasing organization at the plant. This scenario is advanta-geous when the vendors are at a local level and few vendor s supply materials or services to more than one plant .

In the oil industry, oil refi neries are so large and geographically dispersed that companies may not be able to use a company-wide purchasing de-partment because the vendors are local to the refi neries and therefore require the purchasing organization to be at the plant level.

Example

Figure 2.11 shows purchasing organizations that have been assigned to a plant.

Purchasing Organization Assigned to a PlantFigure 2.11

Purchasing Group

Your company can defi ne its purchasing department below the level of purchasing organization. The purchasing group can be defi ned as a

Local purchasing function

Organization of purchasing staff

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person or group of people dealing with a certain material or group of materials purchased through the purchasing organization . In larger organizations, there are often groups of employees in the purchas-ing department who work with certain vendors or certain types of vendors.

Large companies can assign each vendor a dedicated person within the purchasing organization to be the point of contact. If the company uses a vendor as a single source for a large number of materials or services—for example, for scientifi c testing products, a company may use VWR, Fischer Scientifi c, or Cambridge Scientifi c Products—then the purchasing department may have a group of employees who are dedicated to that one vendor.

Example

In smaller companies, one single purchasing department employee may deal with a variety of vendors that fall under a specifi c area; for example, in a chemical company, one purchasing department em-ployee may be responsible for all vendors that supply organic com-pounds. Figure 2.12 shows a number of purchasing groups that have been confi gured in SAP.

Purchasing GroupsFigure 2.12

Purchasing group for multiple vendors

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Purchasing Process2

Now that we’ve discussed the SAP purchasing organization, let’s go on to examine the procurement processes that are used.

Purchasing Process

The SAP purchasing processes allow the purchasing department to use the best practices that are found in world-class purchasing orga-nizations.

Purchasing Best Practices

In the procurement of materials and services, the purchasing depart-ment does more than just process orders. The modern purchasing department manages a process that ensures the items the company purchases are of the highest quality, at the lowest cost, delivered in a timely manner. The following subsections describe the best practices used in world-class purchasing department.

Information Gathering When a new product has been developed, design engineers often re-quire materials or services to be procured that may be new to the company. The purchasing department is responsible for searching for suppliers who can satisfy the requirements. Purchasing departments start with their current vendors who offer the best discounts to en-sure that the new material or service is procured at the best possible price.

Request for Quotation If the material can’t be procured from contracted vendors, or the price and quality aren’t acceptable, the purchasing department advertises or sends potential vendors a request for quotation (RFQ), request for proposals (RFP), request for information (RFI), or request for tender (RFT). The purchasing department evaluates any reply based on a set of defined criteria to obtain the best product at the best price.

Best practices improve efficiency, reduce costs

RFQs create vendor competition

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If your company is going to use RFQs, you should implement a set of guidelines that will assist in the process. You probably don’t want to send out an RFQ for every material or service that is purchased, so identifying the relevant items is important.

Tip

Background ReviewIf a company has used a vendor before, the company will have in-formation about that vendor within the system. SAP software has a vendor evaluation function that uses objective and subjective analysis to help in the evaluation of vendors. If the vendor hasn’t been used before, the purchasing department requires references for the mate-rial or service quality. The purchasing department also investigates installation, maintenance, and warranty information. If the material is to be used in the production process, the quality department may examine samples and undertake trials of the material.

Negotiation The purchasing department is also responsible for entering into nego-tiations with potential vendors. The agreement isn’t just about price and discounts but also availability lead times and quality. The negotia-tion of the terms of an agreement can be prolonged, but the purchas-ing department must be fully aware of upcoming sales orders and production lead times.

Contract MonitoringAfter the contract is signed, the purchasing department monitors the performance of the vendor based on the terms of the contract. The purchasing department evaluates on-time delivery, checking that the correct quantity arrived, ensuring that the quality of the material was per the contract, and verifying that the invoicing was sent correctly with the correct price, delivery charge, and appropriate discounts.

Vendor evaluation

Produce significant price reductions

Monitor your contracts

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Contract Renewal After a specific time, determined by the contract, the purchasing de-partment enters into contract renewal negotiations with the vendor. The vendor’s performance with the material and other materials it supplies will be considered and evaluated.

If the vendor has a perfect record with one material but fails evaluation constantly with other materials it supplies, contract renewal with the vendor may not be considered.

Example

Monitoring the vendor’s performance allows the purchasing depart-ment to enter into negotiations with leverage that can produce a bet-ter price for the material in subsequent contracts. If the purchasing department or the production department doesn’t want to renew the contract for the material or service, the purchasing department is re-quired to start a new RFQ process to find a new vendor for the mate-rial.

Purchase Requisition

The purchase requisition is the procedure by which users can request the purchase of materials or services that require processing by the purchasing department. Companies can allow certain authorized us-ers to enter purchase requisitions directly into the SAP system, but in situations involving a particular dollar value or type of goods and services, the company may request another method of informing the purchasing department of the purchasing requisition, such as fax or email. Figure 2.13 shows a purchase requisition that has been entered into SAP. The purchase requisition includes the quantity, cost center, and purchasing group responsible for the purchase. The purchasing group monitors new requisitions and processes those for which they are responsible.

Purchase requisitions shouldn’t specify vendors

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Purchase Requisition Figure 2.13

A growing number of companies have implemented a web-based frontend to purchase requisitioning over their company intranets, and authorized users can go to a URL and enter the material or services they need instead of having direct access to the SAP system. Some companies have purchased Internet requisition software, whereas others have built their own applications in-house. The benefi t of this type of application is that it can allow any employee to create a requi-sition without having to sign on to the SAP system or be an SAP user. This can be benefi cial because it requires less administration work for your SAP security staff.

Figure 2.14 shows an example of an Internet-based purchase req-uisition application. The user can add a vendor, items, and quanti-ties, and, if the application accesses a vendor catalog, a price can be shown.

Placing requisitions via intranet

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Purchasing Process2

Web-Based Purchase Requisition ApplicationFigure 2.14

After the purchase requisition has been created, it can be converted to a purchase order (PO) or can be used as the basis for an RFQ if the material or service isn’t currently purchased by the company.

Request for Quotation (RFQ)

When the purchasing department receives and reviews purchase req-uisitions , there may be a material or service that requires the purchas-ing department to offer an RFQ .

Many scenarios require the purchasing department to produce an RFQ:

Material › or service has not previously been purchased by the com-pany.

Previously used material or service has no valid vendor. ›Material or service requires a new vendor because the previous ›vendor’s contract was not renewed.

Material or service requires a new vendor to be found due to new ›government regulations or laws.

RFQs give new vendors opportunities

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Material or service requires a new vendor to be found due to logis- ›tical issues.

The purchasing department either publishes an RFQ from which ven-dors then send a quotation, or the purchasing department specifi cally sends the RFQ to a number of vendors that have been preselected. These vendors currently have a contract with the company, have been identifi ed by the person who entered the requisition, or have been identifi ed by the purchasing department after investigation.

The RFQ can contain as little or as much information as the purchas-ing department deems necessary for a competitive bid situation. If the material or service is low cost and has little strategic impact, then the RFQ will be relatively simple. However, if the item or service is of high value, it may not be a question of just cost but other factors that determine which vendor offers the most competitive bid. In complex RFQs, the purchasing department may require vendors to supply in-formation on quantity discounts and rebates, detailed quality specifi -cations, delivery and lead time requirements, period of warranty, de-tailed drawings, and so on. Figure 2.15 shows an RFQ that has been entered into the SAP software. The RFQ shows the required material, quantity, delivery date, and the deadline date for a response.

Request for Quotation Figure 2.15

Detailed RFQs produce accurate

vendor quotes

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59

Purchasing Process2

The RFQ can be transmitted to the vendor by email or EDI (Electronic Data Interchange), or it can be printed from the SAP system and then faxed or sent. Each vendor sends back to the purchasing department a quotation based on the contents of the RFQ.

Quotation

The vendor sends a quotation to the purchasing department via email, EDI, fax, or mail. Each vendor’s quotation is evaluated by the purchas-ing department to ensure that it abides by the stipulations of the RFQ that was sent out. If the vendor failed to reply in the format required, this may disqualify the vendor’s bid. The purchasing department may enter into negotiations with one or more vendors before making a decision on a primary and secondary vendor. After a final decision is made, the details of the contract are entered into the SAP application, so that the information is available when a PO is created.

Purchase Order

A purchase order (PO) is a commercial document issued by a purchas-ing department to the vendor. The PO specifies the material or service required, the quantities, and the negotiated price that the vendor and purchasing department have agreed upon.

You can create a PO from a purchase requisition that has been entered into the SAP system. It can be created as a direct result of a quota-tion from a vendor replying to an RFQ. In addition, you can enter a PO directly into SAP without a requisition. Your company policies on procurement determine the purchasing processes allowed.

Allowing staff to enter POs without any requisition is a valid purchasing process, but it bypasses the requisition process and negates any possible savings and efficiencies.

Tip

The PO can only be given to one vendor via email, fax, mail, or EDI. Figure 2.16 shows a PO that has been entered into SAP.

Transmitting an RFQ

Vendor response to RFQs

PO equals vendor contract

Submitting a PO

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60

Purchase Order Entered into SAPFigure 2.16

Vendors can receive an acknowledgement of the PO via EDI.

Changes to the PO, such as additional items or quantities, can be made and communicated to the vendor via either fax or EDI trans-action number 860. A number of different POs can be created for a variety of situations that occur within your company.

Outline Purchasing AgreementAn outline purchasing agreement is often referred to as a blanket PO and is used between a company and a vendor where a set of terms and conditions are agreed upon that covers a number of materials or services that will be purchased over a period of time.

A purchasing department sets up an outline purchase agreement with an offi ce supply company, and the offi ce staff requisitions a variety of offi ce supplies from the vendor’s catalog. The purchasing department then pur-chases these items against the existing outline purchasing agreement.

Example

Scheduling AgreementA scheduling agreement is similar to an outline purchase agreement because it’s created between a company and a vendor for items over

Different types of POs

Blanket PO

Purchased items required at regular

intervals

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61

Purchasing Process2

a given period based on agreed terms and conditions. However, a scheduling agreement is used where the vendor is to supply the items on a given schedule required by the company.

A company that manufactures vacuum cleaners has determined its sales forecast for the year and has put a production plan into place that manu-factures 5,000 vacuums a week. This requires 20,000 feet of electrical cord for each weekly run. The company creates a scheduling agreement with the vendor of the electrical cord that will deliver 40,000 feet of electrical cord every 2 weeks.

Example

Quantity ContractIn some instances, the purchasing department and the vendor negoti-ate an agreement whereby the terms and agreement of the deal are valid for a quantity of material or services over a given period of time. This is called a quantity contract and is used when a company has a specific requirement that has been identified.

A quantity contract can be used with new vendors when you guarantee a minimum purchase. When the quantity in the contract has been ex-ceeded, the purchasing staff can assess whether the contract should be renewed.

Tip

It the vacuum cleaner manufacturer has a special promotion that includes a handheld cleaner with every full-size vacuum purchased, the purchas-ing department can create a quantity contract with a vendor to provide a service to create special packaging for the promotion. The company has identified a specific quantity of vacuums that it wants to include in the promotion, and the contract with the vendor is based on that given quantity.

Example

Contract for a specific quantity of material from a vendor

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62

Value ContractSimilar to the quantity contract, a value contract is an agreement with a vendor in which the terms and agreement of the deal are valid for a given period of time, but are based on value rather than quantity of materials or services.

If the vacuum manufacturer wants to analyze how consumers viewed its special promotion, the company can hire a market research company to perform in-store surveys. The sales department has a budget of $20,000 for this analysis, and the purchasing department negotiates a value con-tract with the market research company to allow the sales staff to requisi-tion services against that contract.

Example

After the vendor has been notified of the company’s requirements through the submission of a PO, the materials or services are sent or provided. The vendor then invoices the company to get payment.

The next section examines the accounts payable processes in the SAP system, which is where these vendor invoices are dealt with.

Accounts Payable

Accounts payable can be defined as the money that your company owes to vendors for materials or services purchased on credit. The items appear on your company’s balance sheet as a current liability. When accounts payable are paid off, it represents a negative cash flow for the company.

Let’s examine the accounts payables processes found in SAP.

Invoice Verification

Invoice verification is part of the accounts payment process where vendors are paid for materials or services that they have provided. The verification of the invoice is important to both the vendor and the purchaser because it ensures that the quantities and the pricing

Paying vendors

Verifying invoices

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63

Accounts Payable2

are correct and that neither party has made an error. The standard method of invoice verifi cation is the three-way match.

Three-Way MatchInvoice verifi cation using a three-way match takes the PO supplied to the vendor , the goods receipt or delivery note supplied by the vendor , and the invoice sent to the customer from the vendor . In a success-ful three-way match , the quantity and price of the three documents match, and the payment to the vendor is sent via check or bank trans-fer at a date defi ned by an agreement between the company and ven-dor. Figure 2.17 shows the entry of an invoice into SAP.

Invoice Entered into SAPFigure 2.17

Evaluated Receipt SettlementInstead of the traditional three-way match, some companies are working with their vendors to allow payment without an invoice, so they are performing a two-way match. This method was developed by General Motors in 1994 and is called evaluated receipt settlement (ERS). This process allows the purchasing department to electronically match the goods receipt with the PO, and if there is no variance, a payment is sent.

Invoice matching to PO and receipt

Two-way match

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64

ERS should only be considered with trusted vendors. By foregoing an invoice, your company is committed to paying on receipt. However, this is beneficial because it means that your company can take advantage of any discounts.

Tip

The process works when a high level of communication and trust exists between vendor and purchaser. The evaluated receipt process usually includes the following elements:

As part of an ERS agreement, the vendor is usually required to keep ›the purchaser informed of current prices at a more frequent period than normally expected. This reduces any price variances issues that normally arise.

The purchasing department uses the most recent pricing informa- ›tion sent by the vendor when an order is placed. The PO is sent to the vendor who usually acknowledges the PO by sending an Advance Shipping Notification (ASN) to the purchasing company. The ASN can be sent electronically via EDI 856, through a fax or email.

The vendor ships the materials to the customer with an itemized ›bill of lading or packing slip that references the PO.

The purchasing department matches the goods receipt, which can ›be the vendor’s bill of lading or packing slip to the ASN, PO, or contract, to validate accuracy.

Instead of receiving and paying against a vendor’s invoice, the pur- ›chasing department calculates payment based on price information. The type, quantity, and condition of the goods received are entered into the SAP software, which calculates the payment amount with respect to accrual or payment of tax. The goods receipt date is used as the basis for taking discounts and determining the due date of the payment. The payment to the vendor is made either by elec-tronic funds transfer (EFT) or check.

The benefits of the ERS process are experienced by the purchasing company and the vendor. The process reduces costs, reduces errors,

Evaluated receipt settlement (ERS)

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65

Accounts Payable2

and eliminates activities that don’t add value as described in the fol-lowing list:

Reduced costs › Less resources, equipment, and floor space are required thus re-ducing costs. An automated process eliminates lost discounts and eliminates the cost of printing invoices.

Reduced errors › Invoices don’t need to be entered, so there are fewer keying errors. Other processes such as checking PO numbers, quantity and pric-ing discounts become automated and further reduce errors.

Eliminating activities that don’t add value › The process eliminates manual activities such as invoice entry, in-voice filing, and voucher payment preparation, as well as the cost of mailing invoices.

More timely payments › By eliminating the vendor invoice, the process allows the vendor to receive payment sooner.

Maximized discounts › ERS results in fewer errors to resolve, thus allowing purchasing departments to take full advantage of payment discounts.

In 2001, a major U.S. retailer was using the traditional invoice verification process to match POs created in a standalone purchasing system, with the goods receipt and invoices entered into its aging ERP system. The errors matching the three documents caused the company to fail to pay invoices on time and often incorrectly. This produced a growing number of legal cases in which vendors filed suit against the retailer to reclaim the money owed. That year, the retailer implemented SAP ERP, and as part of the implementation, introduced ERS with a number of vendors, some of which had been involved in legal action against the retailer. By 2004, the company reported that in the two years of operating the ERS process under SAP, it had saved more than $2 million in legal costs and reduced material spending by $200,000 due to implementing best prac-tices, including taking advantages of discounts offered by vendors for prompt payment.

Case Study

ERS benefits

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66

Your company may already use ERS with selected vendors and al-ready receive some of the benefits outlined in this section. The ac-counts payable process is important because it provides payment for the vendor for the materials and services they have provided.

Summary

This chapter has given you an overview of the organizational structure that is used by SAP software for the purchasing function, as well as introduced you to the purchasing functions in SAP, such as purchase requisition, re-quest for quotations (RFQs), purchase orders (POs), and accounts payable.

The SAP purchasing function is important in the logistics process be-cause it ensures that the correct material is at the manufacturing site at the lowest cost at the required time. Purchasing professionals can reduce your raw material spend by using the functionality in the SAP system. SAP purchasing functionality, such as RFQs, vendor evalua-tion, and contract monitoring, gives your purchasing staff the tools to negotiate with vendors and save your company money.

In this chapter, there are some key points that you should remember:

Whether your company purchases at the enterprise, company, or ›plant level, SAP has the flexibility for any scenario.

SAP contains purchasing best practices such as RFQs, vendor evalu- ›ation, and contract monitoring.

With SAP systems, company can use RFQs and requisitions, or if ›your purchasing needs are simple, just POs can be used.

Quantity and value contracts, scheduling agreements, and purchase ›agreements are available to your purchasing staff.

ERS, two-way match, can be used with trusted vendors to eliminate ›the need to use vendor invoices.

The next chapter describes the SAP functions used in inventory man-agement. You’ll be introduced to the logical structure of the plant as well as the goods movements within the plant, and physical inven-tory of material.

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379

A

Account balances report, 272Accounts, 41Accounts receivable report, 271Activity report, 292Adaptive supply chain, 357Adjustment, 85Administrative element, 154Air transportation, 314ASAP implementation, 331ASAP methodology, 330Asset-based carriers, 314ASUG, 26Automatic goods receipt, 170, 172Automatic reservation, 75Availability check, 205

B

Backflushing, 170, 171Balance sheet, 41Baseline result, 340Batch management, 32Best-of-breed, 26Billing, 298

Automatic, 269Documents, 269Function, 267Manual, 269Manual conversion, 270Process, 267

Bill of materials (BOM), 146, 154, 159, 160, 165, 363Bins, 91Blocked status, 83Blocked stock, 116Book quantity, 85Budget, 335Business blueprint, 331, 334, 336, 365Business decision matrix, 296

C

Calibration order, 294Call horizon, 198Call object, 199Capacity, 155Capacity requirements, 165, 168Cash flow, 130Catalog, 211

Predefined, 211Change management program, 333Chart of accounts, 41Check-in, 309

List, 320Class rate, 316Client, 40Client/server enterprise, 25Code, 211Code group, 211, 212Collective billing process, 268Commission, 307Company, 41, 50, 51, 114, 116Company code, 50Component item, 140Configurable materials, 141Confirmations, 170, 297

Collective, 297Consignment stock, 83Continuous inventory, 82Contract rates, 318Contracts, 258

Master contract, 259Quantity contract, 260Release orders, 263Value contract, 262

Cost estimate, 176, 177, 178Costing, 155

Department, 173Information, 170

Cost of goods manufactured (COGM), 176Cost of goods sold (COGS), 176Cost receivers, 173

Index

5257 BOOK.indb 379 11/26/08 3:08:30 PM

Index

380

Counter, 188Count procedure, 83Credit memo, 263

Financial aspects, 263Request, 264

Customer, 63, 72Customer defect report, 235Customer inquiry, 254Customer inspection, 225Customer location, 83Customer quotation, 255, 257Customer record, 251Customer Relationship Management (SAP CRM), 328Customer requirements, 144Customer satisfaction, 343Customer service (CS), 31, 36, 83, 130, 275Cycle counting, 82

D

Defects recording, 229Delivery, 116Delivery documentation, 124Delivery information, 36Delivery note, 63Demand management, 129, 137, 145, 363Digital signature, 228Direct costs, 342, 344

Initial, 342Recurring, 343

Distinct sales area, 247Distribution center, 78Distribution channel, 244Distribution SIG, 26

E

End load, 309Engineering change management, 32Equipment, 185, 278

Master record, 186Task list, 193

Equipment record, 185, 279E-sourcing, 360

Evaluated receipt settlement (ERS), 33, 362Evaluations, 144Exception message, 146Exception rate, 317

F

Fast-moving stock, 82Final preparation, 331, 338, 339, 365Finished goods, 83, 277Flexible sales and operations plan-ning, 132Forecast accuracy, 130Forwarding agent, 306Freight charge, 319Freight costs, 313Freight forwarder, 306

Air, 314Full truckload (FTL), 316Functional location, 182, 185, 194, 279

Functional, 280Hierarchy, 183Process related, 182, 280Spatial, 183, 280Task list, 194Work center, 182

G

General maintenance task list, 192Go-live and support, 331, 340, 365Good Manufacturing Practice (GMP), 35Goods issue, 73, 122, 123, 267, 322, 323, 362Goods movement, 362Goods receipt, 63, 72, 73, 114, 362Gross freight

Rate, 319

H

Handling unit, 121, 265Management, 32

Helpdesk, 341

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381

Index

I

Implementation methodology, 330Implementation strategy, 327Inbound logistics, 33, 362Indirect costs, 343, 344Individual billing document, 267Industry solutions, 329Initial costs, 343Initial stock creation, 73Inspection, 169, 181

Characteristic, 211, 213, 217Lot, 168, 224, 225, 226Method, 211Operations, 216Plan, 214, 216process, 237Specification, 226

Instance, 40Internal problem report, 221Internal transfer, 72International shipment, 303Inventory, 83Inventory differences, 85, 86Inventory inaccuracies, 83Inventory management, 33, 89, 98Inventory sampling, 82Inventory stock, 122Inventory variance report, 82Invoice, 63Invoice split, 268

K

Key performance indicator (KPI), 348

L

Labor, 154Legal entity, 40Less-than-truckload (LTL), 315Local rate, 317Logistics, 28, 32

Definition, 28Logistics execution, 361, 362

M

Maintenance notification, 201, 202Maintenance order, 196, 203, 204, 206Maintenance plan, 196

Scheduling, 197, 199, 200Maintenance processing, 201Maintenance tasks

List, 192Operations, 192

Make-to-order strategy, 139Make-to-stock strategy, 138Manufacturing, 361, 363

Operations, 34, 153Plant, 304Structure, 154

Master contract, 259Master data, 132Master production scheduling (MPS), 34Material, 56, 57, 59, 72, 75, 77, 78, 83, 85, 114, 116

Counts, 85Discrepancies, 85

Material defect report, 233Material master record, 138, 139Material price, 177Material requirements planning (MRP), 34, 129, 145, 146, 363Material routings, 154Materials management (MM), 31, 181, 209, 241Material specification, 214

Advantage, 215Inspection characteristics, 215

Materials production schedule (MPS), 135Material usage report, 135Measurement, 188Measurement document, 190Movement type, 116

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Index

382

N

National Motor Freight Classification (NMFC), 317Negotiated price, 59Nonasset-based companies, 314Notification, 201, 335, 364Notification monitoring, 222

O

Objective measurement, 346Offsetting adjustment, 85Ongoing costs, 343Operations, 83Order, 201Order fulfillment, 130Order Info System, 175Organizational structure, 41Outbound delivery, 118, 266

Document, 117, 121, 266Outbound Delivery Monitor, 119Outbound logistics, 33, 117, 362Overseas shipment, 307

P

Packing information, 121Partner functions, 252, 253Periodic billing, 285Permit, 186, 188Physical elements, 154Physical inventory, 82, 83, 85, 362

Count sheet, 84Picking, 119Picking status, 120Planned independent requirements, 142, 143Planning functionality, 142Planning hierarchy, 132Planning situation report, 135Planning strategy, 138Plant, 42, 43, 51, 72, 75, 77, 82, 83, 97Plant maintenance (PM), 31, 35, 154, 163, 181, 209, 363

PONumber, 116

Prevention, 181Preventive maintenance, 191

Plan, 196Single-cycle, 196

Pricing information, 36Process orders, 154Procurement, 362Procurement SIG, 26Product availability, 36Product costing, 154, 158, 176, 180, 363Product development, 361, 363Product group, 132

Breakdown, 133Usage, 134

Production, 75, 83, 209Production component, 181Production line, 154Production order, 75, 165, 167, 169, 174

Confirmation, 170Settlement, 173

Production planning (PP), 31, 241Production process, 72Production resources and tools (PRT), 163Product planning, 34, 129Project, 75Project preparation, 331, 332, 334, 365Proof of delivery, 124Purchase order, 59, 63Purchase order (PO), 114, 116Purchase requisition, 55, 57, 165Purchasing department, 55, 57, 59Purchasing group, 51Purchasing organization, 48, 50, 51, 52Purchasing proposals, 146

Q

Quality certificate, 231Incoming, 231

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383

Index

Outgoing, 232Quality inspection, 83, 209, 224Quality maintenance, 209Quality management (QM), 31, 35, 209, 364

Basic data elements, 214Reports, 233Structure, 211

Quality notification, 209, 211, 218, 237

Customer complaint, 218Internal, 218Report, 222

Quality planning, 209, 214, 236Quant, 96Quantity contract, 260Quantity structure, 176Queue time, 157Quotation, 255

r

R/2, 26Radio frequency, 33

Identification, 30Rail transportation, 314Raw material, 83Realization, 331, 336, 338, 365Recording results, 227Recurring costs, 343Released value rate, 317Repair, 181Repair order, 295Reporting, 133Reports, 271Request for quotation, 362Request for quotation (RFQ), 57Research and development, 329Reservation, 75, 165Resource use, 130Return Material Authorization (RMA), 263Return on investment (ROI), 327, 333, 345, 365Returns, 362

Routing, 161, 165Configurable materials, 162

Routings, 363

S

Sales, 248Sales agreement, 290Sales and distribution (SD), 31Sales and operations planning, 137

Information structure, 131Sales and service, 35, 361Sales division, 246Sales function, 246Sales group, 248Sales office, 247, 248Sales order, 118, 256Sales order management, 36Sales organization, 243Sales structure, 243Sample size, 226SAP, 25SAP Business Suite, 27SAP Contract Lifecycle Management (SAP CLM), 360, 366SAP Cost and Quotation Management (SAP CQM), 360, 366SAP Customer Relationship Manage-ment (SAP CRM), 41SAP Environment, Health & Safety (SAP EH&S), 32SAP ERP, 26, 27, 359SAP Extended Warehouse Manage-ment (SAP EWM), 30SAP Inventory Management (SAP IM), 90SAP Logistics Information System (SAP LIS), 131SAP NetWeaver, 351

Components, 352SAP NetWeaver BI, 41SAP Product Lifecycle Management (SAP PLM), 27SAP sales and distribution (SD), 241SAP Sales and Operations Planning

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Index

384

(SAP SOP), 34, 129, 363Planning tools, 132

SAP Solution Manager, 331SAP SRM, 359, 366

Core functionality, 360SAP Supply Chain Management (SCM), 27, 357, 359, 366

Flexibility, 357SAP Transportation Management (SAP TM), 365SAP Warehouse Management (SAP WM), 89, 362Schedule performance, 130Scheduling, 146, 155, 167, 205Scheduling agreement, 258Scheduling data, 157Scheduling function, 199Sections, 91Selected set, 212Serialized material, 277Serial number, 277Serviceable object, 277Service agreement, 282, 290

Long-term, 282Quotation, 283Short-term, 282

Service contract, 282, 284, 285Inquiry, 283Quantity, 286

Service department, 290Service notification, 290, 291Service order, 287, 293Service-oriented architecture (SOA), 353Service Parts Management, 356Service processing, 290Services, 59Service tasks, 292Settlement rule, 173Shipment, 308Shipment completion, 309

Checklist, 320List, 321

Shipment costs, 301Shipment start, 309Shipment status, 309

Monitor, 312Shipment type, 311Shipped quantity, 122Shipping, 98Shipping assets, 306Shipping costs, 318Shipping notice, 362Shipping process, 265Shipping rates, 316, 318Shipping route, 305Shipping stages, 305Shipping type, 304, 305, 308Shop floor control, 164Shop papers, 174Single item MRP, 146Single item planning, 148Slow-moving stock, 78SOA, 355

Environment, 355Software services, 354Special stock, 83Spend analytics, 360Standard price, 178Start load, 309Stock, 43Stock level, 72, 83, 114Stock/Requirements List, 144Stock transfer, 72, 362Stock valuation, 130Storage bin, 48, 99, 100, 101, 102Storage location, 43, 44, 72, 75, 77, 82, 89, 90, 97Storage section, 93, 94Storage type, 46, 94, 97Strategy for configurable materials, 141Strategy group, 139Subjective measurement, 347Supply chain, 30Supply Chain Planning SIG, 26

T

Technical object, 182, 191Three-way match, 63Total cost of ownership

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385

Index

Calculating, 344History, 342

Total cost of ownership (TCO), 327, 341, 344, 365Total planning, 147Transfer order, 98, 101

Confirmation, 103Printing, 105

Transfer posting, 362Transfer requirement, 107Transit time, 305Transportation management, 36Transportation options, 313Transportation planning, 302

List, 310, 311Point, 303, 308

Transportation SIG, 26Truck transportation, 315

U

Unrestricted, 83Usage counter, 170Usage decision, 230

V

Value contract, 262Variance, 83

Variance location, 85Variances, 82Variant configuration, 32Vendor, 48, 51, 63, 72, 116Vendor defect report, 234

W

Warehouse, 46, 82Warehouse management (WM), 32Warehouse movement, 97, 98Warehouse section, 83Warranty, 288Warranty counter, 289, 290Work center, 153, 154, 170, 216, 363

Capacity, 155Costing, 158Record, 157Scheduling, 157

Y

Yearly inventory, 82

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