Review Vendor Master and Purchasing Info Records
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Review Vendor Master and Purchasing Info Records
Demo 4.2: Review vendor master
PURCHASING INFO RECORDS
A purchasing info record is an intersection or a combination of material and vendor data, as illustrated in Figure 4-8. It contains data specifi c to one
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Table 4-1: GBI vendor list
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vendor and one material or material group. Purchasing info records include some data that are in the vendor master and the material master, as well as data that are valid for the specifi c combination of vendor and material. These data are grouped into general data and purchasing organization data. General data are applicable to all purchasing groups and include vendor number, material number (or group), and other data used for communica- tion (e.g., contact information, telephone numbers, and reminders). In con- trast, purchasing data are specifi c to one purchasing organization, and they are based on agreements with the vendor regarding delivery times, delivery tolerances, quantities, and pricing conditions. Companies use pricing condi- tions to determine the cost of purchasing the material from that vendor. The info record typically defi nes a number of different condition types, including gross price, discounts and surcharges, taxes, and freight. It also includes text data that are used for notes and instructions to accompany purchase orders, and it keeps track of the last purchase order for the specifi c material-vendor combination. Finally, the company uses data from the purchasing info record as default values when it creates a purchase order for a specifi c combination of material and vendor.
Figure 4-8: Purchasing info record
Figure 4-9 illustrates a purchasing info record for vendor 107000 and material SHRT1000 for purchasing organization US00. It indicates that Spy Gear takes four days to deliver the t-shirts. Further, Spy Gear charges $15 per shirt, but it offers a discount of 4% for orders greater than $1,000.
CONDITIONS
The fi nal type of master data relevant to purchasing is conditions. These data are very similar to the conditions discussed in the section on purchasing info records, and they are used to determine the appropriate prices, discounts, taxes, freight, and so on for the materials. Unlike the conditions in the pur- chasing info records, however, these conditions are not defi ned for a specifi c combination of vendor and material. Rather, they are based on the overall agreements and contracts in place with vendors. The company uses these con- ditions to determine pricing when it creates purchase orders.
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Demo 4.3: Review purchasing info record and conditions
KEY CONCEPTS Before we discuss the procurement process in detail, we pause here to discuss some key concepts that are essential to understanding how the process works. These concepts are related to how the materials are purchased (item catego- ries), how their impact on fi nancials is recorded (account determination), the materials’ usability (stock type), and the movement of the materials as they are received, stored, and shipped to customers (goods movements).
ITEM CATEGORIES
Item categories determine which process steps and data are needed when a company purchases materials or services. Common item categories are stan- dard, consignment, subcontracting, third-party, stock transfer, and services.
Of these categories, standard items are the most common, and the pro- cess used to procure them includes the steps portrayed in Figure 4-1. The ini- tial step is to create a requisition, which is then converted to a purchase order and sent to a vendor. When the vendor receives the purchase order, it ships the materials, which the ordering party receives via the goods receipt step. The ordering party also receives an invoice, and it makes a payment to the vendor. In contrast, when a company purchases materials on consignment, it pays the vendor only when it uses or sells the materials. For this category of materials, therefore, there is no invoice receipt step. Third-party order refers to items
Figure 4-9: Purchasing info record example
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that the vendor ships directly to a customer. Companies employ third-party orders for trading goods, such as helmets, that they purchase and then resell to customers without performing any operations themselves. Because the cus- tomer receives the goods directly from the vendor, there is no goods receipt for the company itself.
Under a subcontracting arrangement, a company sends materials to a vendor, who uses them to create semi-fi nished products. The vendor then sends these products back to the company that initiated the process. In this case, the procurement process includes the additional step of shipping materi- als to the vendor. A stock transfer is the process whereby an organization uses the procurement process to obtain materials from another plant within the same organization. Because the entire process takes place within a single organization, there are no invoice and payment steps. Finally, services — such as janitorial or landscaping services — generally do not involve receiv- ing materials. Instead, a mechanism to record services performed – a service sheet – is necessary.
In our example, GBI will use the standard item category to purchase the t-shirts from Spy Gear.
Demo 4.4: Review item categories
ACCOUNT DETERMINATION
Businesses typically use the procurement process to purchase materials that they place in inventory until they need them. For example, businesses acquire raw materials for later use in the production process and trading goods for sub- sequent sales to customers. Such materials are referred to as stock materials. Recall from the discussion of fi nancial accounting in Chapter 3 that the gen- eral ledger contains multiple inventory accounts, such as raw materials, trading goods, and fi nished goods. How does an ERP system know which of these inven- tory accounts must be updated when materials are received? For stock materials, for which a material master must be defi ned, account determination — the process whereby the system determines which general ledger accounts to use in a given situation — is automatic and is based on data contained in the material master, particularly the valuation class.
Companies also use the procurement process to acquire consumable materials. As the name suggests, these are materials that are acquired to be consumed by or used within the organization. One example of consum- able materials is offi ce supplies, such as pencils and paper, which people in the organization use during the course of their day-to-day work. When a company purchases materials for consumption, the transaction must identify the account assignment object to be charged for the purchase as well as the general ledger accounts to be debited and credited. An account assignment object identifi es the bearer of the cost of the purchase and is the entity for which the materials were purchased. For example, when a company pur- chases offi ce supplies for the marketing department, it debits a consumption account, such as the supplies expense account in the general ledger, and it charges the marketing department cost center for the purchase. Recall that a cost center is a cost object used to accumulate costs for a department. In the
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above example, the account assignment object is the cost center. Companies also use the purchasing process to acquire assets, such as cars, and to obtain materials needed to support processes such as production, fulfi llment, and enterprise asset management and projects such as constructing a new factory. The specifi c accounting data needed are determined by the account assignment category. The typical account assignment categories are described below along with the accounting data — specifi cally, the account assignment object to be charged and the general ledger account number — that are required for each category. The letters in parentheses are the codes used in SAP ERP.
- Asset (A). A company uses this category when it acquires a fi xed asset, such as a car or land. Recall from Chapter 3 that the value of fi xed assets is tracked in separate subledger accounts with corre- sponding asset master records. When assets are purchased using a purchase order (see Chapter 3 for other ways of acquiring assets), the account assignment object to be included in the purchase order is the asset master record.
- Order (F). Companies use this category when they purchase mate- rials for different types of orders. An example of an order is a production order that will be used to produce another material. When a company purchases materials for an order, it must include the order number (the account assignment object) and a general ledger account number in the purchase order.
- Cost Center (K). When a company purchases materials (e.g., supplies) for consumption, then the purchase order must include both the cost center to be charged (the account assignment object) and the appropriate general ledger expense account number (e.g., supplies expense).
- Sales Order (C). When the purchase is associated with a specifi c sales order (which is part of the fulfi llment process), then the sales order number and a general ledger account number must be provided.
- Project (P). When the purchase is related to a project, then the project number and a general ledger account number must be specifi ed.
Note that in several of these categories a general ledger account is neces- sary. The system can be confi gured to automatically determine the appropriate account via account determination procedures. It is not always necessary for the user to provide these data.
Figure 4-10 shows the relationship between stock and consumable materi- als and account assignment categories. It shows the several scenarios related to purchasing – purchase of stock material, purchase of consumable material (with and without material master), and purchase of stock material for consumption. The left side of the fi gure shows that for stock material, account assignment is automatic and is based on data (valuation class) in the required material mas- ter. These data determine which accounts (e.g., which stock account) will be used during the procurement process.
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The right side of the fi gure shows that, for consumable materials, an account assignment category and specifi c account assignment objects, such as a cost center, must be provided when the purchase order is created. The data provided by the user determine which general ledger accounts (e.g., consump- tion account) will be used during the process. Consumable materials may or may not have a material master. If material master data exist, then two options are available. In one, the company doesn’t track the quantity of the material in inventory; in the other, it does. It is important to remember, however, that the company can track only the quantity of inventory on hand. The value of inventory cannot be tracked because a consumption account (refer to Chapter 3), such as supplies expenses, rather than an inventory account is used in the purchasing process.
Finally, the middle of the fi gure illustrates the scenario in which materials that are typically purchased to stock are sometimes purchased for consumption. For example, GBI normally purchases helmets to resell to its customers; that is, it purchases them to stock. However, GBI occasionally purchases helmets to be distributed as gifts at trade shows. In these cases the transactions are considered purchases for consumption rather than for stock. Consequently,
Figure 4-10: Purchase for stock vs. consumption
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an account assignment category of K (cost center) is provided to override the data that are included in the material master, which would otherwise defi ne helmets as stock material. Because category K is used, a specifi c consumption account (e.g., advertising expense) and a cost center associated with the trade show are required.
In our example, the t-shirts are purchased to stock. Because material master data for the t-shirts are defi ned in the ERP system, the data needed for account assignment will be obtained automatically from the material master.
STOCK TYPE OR STATUS
Stock or inventory of materials is classified into different stock types or sta- tuses that determine the usability of materials— that is, how the company can use the materials in its various processes. Four common stock types are unre- stricted use, in quality inspection, blocked stock, and stock in transit. Materials that are classifi ed as unrestricted use—as the name implies—can be used in any manner that management feels will benefi t the enterprise. They can be consumed internally—for instance, to produce other products—or externally, to meet customer demand. In contrast, materials defi ned as in quality inspec- tion or blocked stock can be withdrawn only for sampling or for scrap. A company uses the in quality inspection status when the goods it receives from a vendor must undergo inspection before being released for consumption. Blocked stock is typically used for materials that are damaged or unusable for some reason, such as the when the vendor delivers the wrong materials. Finally, when materials are being moved from one plant to another, they are classifi ed as stock in transit.
GOODS MOVEMENT
A process step that results in a change in stock results in a goods movement. The goods movement is associated with receiving materials from a vendor, shipping them to a customer, or otherwise “moving” them from one loca- tion within the company to another. The four common goods movements are goods receipt, goods issue, stock transfer, and transfer posting. The fi rst three movements involve the physical movement of materials from one location to another. The fourth, transfer posting, is used to change the stock type or status of material (e.g., from in quality inspection to unrestricted use) or to reclassify the material into a different material type.
A goods receipt records the receipt of materials into storage, which results in an increase in inventory quantity. A company usually generates a goods receipt when it receives materials either from a vendor or from the production process. The material document created as a result of a goods receipt will show the location (plant and storage location) where the materials are received as well as the specifi c movement type used. The accounting document will identify the various general ledger accounts that are updated.
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In contrast to a goods receipt, a company uses a goods issue when materials are removed from storage, in which case inventory is reduced. A company typically generates a goods issue when it (a) ships materials to a customer, (b) uses them for internal consumption (e.g., to produce another material), or (c) designates them for sampling or to scrap. The material document created by the goods issue will record the location from which the materials were issued as well as the quantity involved. The accounting document will indicate the relevant general ledger accounts and amounts. For example, when GBI ships materials to a customer, it removes the materials from inventory and records a goods issue in its SAP ERP system.
A stock transfer is used to move goods from one location to another within the organization. Materials can be transferred between storage loca- tions, between plants within the same company codes, and between plants across company codes. In all cases, one or more material documents are cre- ated to record the transfer. In addition, for transfers between plants or com- pany codes, accounting documents are also created. Recall that earlier in the chapter we defi ned stock transfer as an item category. So, why is it also a goods movement? The reason is that the procurement process can be used to transfer materials from one location to another. However, materials can be transferred outside the procurement process as well. In these cases the transfer can sim- ply be recorded via a goods movement. This approach is quicker and more direct than using the procurement process, but it has limitations. We discuss stock transfers in greater detail in the chapter on inventory and warehouse management.
Finally, an enterprise uses a transfer posting to change a material’s status or type. For example, it would use a transfer posting to redefine a material from in quality inspection status to unrestricted use or to change a material type from raw materials to fi nished goods. A transfer posting may or may not involve the physical movement of materials from one location to another. In either case, a material document is created to record the status change. For example, when the company receives materials from a vendor, it stores them and designates them as in quality inspection. After they pass inspection, it issues a transfer posting to “move” them to unre- stricted use status. In this situation a material document is created, but an accounting document is not. As with stock transfers, we will examine transfer postings in greater detail in the chapter on inventory and ware- house management.
A goods movement will always result in the creation of a material doc- ument. In addition, a fi nancial accounting document is created if the move- ment results in a change in valuation. As we discussed in Chapter 2, fi nancial accounting documents record the impact of a process or process step on rel- evant general ledger accounts.
A material document records data related to a goods movement, such as the receipt of goods from a vendor. As illustrated in Figure 4-11, the material document consists of a header and one or more items or details. The header includes data such as the date, the name of the person who created the document, and the source of the document, that is, what process step or transaction was used to create it. The items identify the materials involved, quantities, location, the movement type used, and other relevant data.
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Figure 4-11: Structure of a Material Document
Demo 4.5: Review a Material Document
MOVEMENT TYPES
The four goods movements we just discussed can be accomplished through a number of specifi c movement types. Every goods movement requires a move- ment type. The movement type determines which category of movement is being executed (e.g., goods receipt or goods issue), what information must be provided when executing the movement (e.g., storage location), and which general ledger accounts will be updated (e.g., fi nished goods inventory). It also determines how the stock quantity will be affected (e.g., increase or decrease). Because different movement types require different information, they also determine the screen layout used to record the movement. Each movement type has a corresponding cancellation or reversal movement type that is used to reverse its impact. For example, movement type 101 is used to record the receipt of materials for a pur- chase order, and movement type 102 is used to reverse the receipt. Reversals are typically used to correct an error in recording. If the materials are defective and must be returned to the vendor, then a different movement type, 122, is used to record this movement. Table 4-2 lists examples of movement types in SAP ERP.
Goods Receipt 101: Goods receipt for a purchase order 102: Goods receipt for a purchase order – reversal 103: Goods receipt for a purchase order into blocked stock 122: Return delivery to vendor
Goods Issue 261: Consumption for production order from warehouse 231: Consumption for sales order from warehouse
Transfer Posting 321: Quality inspection to unrestricted 350: Quality inspection to blocked stock
Stock Transfer 301: Plant to plant transfer 311: Storage location to storage location transfer
Table 4-2: Examples of movement types
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Demo 4.6: Review goods movements and movement types
PROCESS Now that you are familiar with the basic concepts involved in procurement, we shift our focus to the process itself. At the beginning of this chapter we introduced a very simple procurement process that included a few key steps. In this section we discuss a more complete process. We also examine each step in detail.
In this section, we discuss the purchase of a standard item. The steps used to procure standard items are diagrammed in Figure 4-12. The fi gure indicates that the procurement process is triggered by some event that results in a requirement to acquire materials. The trigger is often a result of an event in another process. For example, the company cannot fulfi ll a production order (a step in the production process) until it purchases certain necessary materi- als. Alternatively, the materials planning process may alert the company that it needs to increase its inventory of certain materials. Regardless of the trig- ger, the result is a requirement to obtain materials. This requirement typically takes the form of a purchase requisition.
Figure 4-12: A detailed procurement process
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Once a requisition is created, the company must select a source of sup- ply. This source can be either external (e.g., a suitable vendor) or internal (e.g., another plant in the company). If the source is external, then the selec- tion process may include additional steps such as requesting and receiving quotations. After the company receives the quotations, it evaluates them and selects a vendor. It then submits a purchase order. Upon receiving the order, the vendor confi rms receipt and may provide additional information such as the expected shipment date. The vendor then ships the materials to the company, which receives them into inventory. The vendor also sends an invoice. Once the company verifi es the invoice, it sends a payment to the vendor.
If the source of supply is internal, then the process is somewhat differ- ent. A stock transport order is used instead of a purchase order. We will discuss stock transport orders in greater detail in the chapter on inventory and ware- house management.
The preceding paragraphs convey a very simplistic overview of the basic steps in the procurement process. In reality, procurement is much more com- plex. In the next section we examine the steps illustrated in Figure 4-12 in detail. We discuss each step in terms of its key elements— triggers, data, tasks, and outcomes. A trigger is something that causes the step to be executed. The relevant data typically include organizational data, master data, transaction data, and user input that are specifi c to the process step. Outcomes include new transaction data and updates to master data, all of which are stored in the database. In addition, fi nancial accounting (FI) documents, management accounting or controlling (CO) documents, and material documents are cre- ated. Finally, transaction documents are created or updated.
REQUIREMENTS DETERMINATION
The elements of the requirements determination step are summarized in Figure 4-13. Requirements for materials arise from a need that is identifi ed either automatically by another process or manually by an individual. The pro- cess that most commonly generates requirements is the materials planning process. (We will discuss this process at length in the materials planning chap- ter.) Requirements are also generated by the production and plant mainte- nance processes. To complete these processes, the company sometimes must purchase non-stock items or services from another organization. In such cases a requirement for the material or service is created. In addition, the need to send materials for external processing during production (e.g., a part to be repaired) will result in a requirement for a subcontracted item.
Figure 4-13: Elements of the requirements determination step
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Requirements are also created manually for items that are not included in materials planning. This process occurs when an individual manages inven- tory or when the company needs a nonstock item (e.g., supplies) or a service (e.g., janitorial or repair). Regardless of the trigger or source, the need for materials is documented in the form of a purchase requisition. Note that a purchase requisition is a document that is used for internal purposes—namely, to request needed materials. It is not a commitment to purchase the materials or service. Rather, the commitment occurs when a purchase order is created in the next step of the process.
Review Vendor Master and Purchasing Info Records
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