C_TS452_2022 Procurement Processes

Procurement Processes Detailed Explanation

This module covers how organizations manage procurement from the initial request to the final order and receipt. Each phase in this cycle plays a unique role in ensuring that the right materials and services are available to support business needs.

Overview: Procurement Cycle in SAP

In SAP S/4HANA, procurement refers to the entire process of obtaining goods or services. This cycle begins with identifying a need, creating a formal request for that need, and finally purchasing from a supplier. The procurement cycle is essential for organizations that rely on various materials, supplies, or outsourced services to operate efficiently. SAP’s system is designed to streamline these processes, improving efficiency and ensuring all actions are documented.

Key parts of this process include:

• Purchase Requisitions (PRs): An internal document created to identify and request items needed by the business.
• Purchase Orders (POs): A formal document issued to suppliers, legally confirming the purchase details.
• Supplier Negotiations: Discussions to agree on pricing, delivery terms, and other procurement specifics.
• Self-Service Procurement: Allows employees to directly request certain items, especially non-inventory items like office supplies.

1. Standard Procurement Process

• Definition: Standard procurement refers to the most common process used when purchasing regular items needed by the organization, such as raw materials or finished goods.
• Steps in the Process:
  1. Create Purchase Requisition (PR): A department or individual in the company raises a PR to request materials. This document includes details like quantity, required date, and any special requirements.
  2. Convert PR to Purchase Order (PO): Once the PR is approved, it is converted into a PO. This PO is then sent to a chosen supplier, confirming the order officially.
  3. Supplier Fulfillment: The supplier acknowledges the PO and prepares the order.
  4. Goods Receipt: When the ordered items arrive, they are received and recorded in the SAP system, updating inventory.
  5. Invoice Verification and Payment: Finally, the invoice from the supplier is verified against the PO and goods receipt before payment is issued.
• Purpose: The standard procurement process ensures that materials are ordered, received, and documented correctly, reducing the risk of errors or delays in the supply chain.

2. Subcontracting

• Definition: Subcontracting is a specialized procurement process used mainly in manufacturing. Here, the company provides some materials to a supplier, who then uses these materials to produce a finished product and returns it to the company.
• Steps in the Process:
  1. Create Subcontracting PO: The company issues a subcontracting PO to the supplier, detailing the production requirements.
  2. Issue Components to Supplier: Necessary materials or components are provided to the supplier, usually recorded as stock under the supplier's custody.
  3. Supplier Manufacturing: The supplier manufactures or assembles the final product.
  4. Receive Finished Product: The company receives the finished product from the supplier, and inventory records are updated accordingly.
  5. Invoice and Payment: After confirming the receipt and quality of the product, the supplier’s invoice is processed.
• Purpose: Subcontracting allows companies to outsource certain production steps to specialists, which can be cost-effective and allows the company to focus on other parts of production or logistics.

3. Self-Service Procurement

• Definition: Self-service procurement simplifies the ordering process for frequently used or low-value items (such as office supplies). It allows employees to directly initiate purchase requests for these items without going through complex procurement procedures.
• Process:
  1. Employee Creates Requisition: Employees can create a requisition for predefined items through a catalog or online portal.
  2. Automated Approval Process: Based on predefined rules, the requisition may automatically convert to a PO and be sent to a supplier.
  3. Order Fulfillment: The supplier receives the order and delivers the items.
• Purpose: This process reduces administrative workload and speeds up the acquisition of non-inventory items that do not require extensive approval, improving overall efficiency.

Exam Objectives

Mastering these processes is crucial for efficient procurement management, ensuring timely order fulfillment, accurate inventory records, and controlled spending. By understanding each step, you’ll be able to handle procurement activities effectively within SAP, contributing to streamlined business operations and cost control.

Procurement Processes (Additional Content)

In SAP S/4HANA, procurement processes extend beyond standard procurement, subcontracting, and self-service procurement. To gain a more comprehensive understanding of procurement in SAP, it is essential to explore special procurement types, procurement contracts, supplier management, approval workflows, situation handling, and procurement analytics.

1. Special Procurement Types

SAP S/4HANA supports various special procurement types that allow organizations to handle unique purchasing scenarios efficiently. These procurement types extend beyond standard purchasing to include consignment procurement, third-party procurement, and stock transfers.

1.1 Consignment Procurement

• Definition: In consignment procurement, the supplier provides stock, but ownership remains with the supplier until the material is used or sold. Payment is only made when the material is consumed.
• Process Flow:
  1. The supplier delivers materials to the company's storage location.
  2. The stock is recorded in SAP under a special consignment stock category, indicating that it belongs to the supplier.
  3. When the company consumes or sells the material, an invoice is generated, and payment is made to the supplier.
• Key Benefits:
  • Reduces upfront purchasing costs.
  • Ensures availability of materials without immediate financial commitment.
• SAP Transaction Codes:
  • ME11 – Create Purchasing Info Record for consignment.
  • MB1C – Post consignment stock.
  • MRKO – Settle consignment liabilities.

1.2 Third-Party Procurement

• Definition: In third-party procurement, a company purchases goods from a supplier but does not take physical possession of them. Instead, the supplier directly delivers the goods to the final customer.
• Process Flow:
  1. A sales order is created in SAP.
  2. SAP automatically generates a purchase requisition linked to the sales order.
  3. A purchase order is issued to the supplier.
  4. The supplier delivers the goods directly to the customer.
  5. The supplier sends an invoice, which is matched against the PO for payment.
• Key Benefits:
  • Reduces inventory handling and storage costs.
  • Enhances supply chain efficiency in trading businesses.
• SAP Transaction Codes:
  • ME21N – Create purchase order with item category S (Third-Party).
  • MIRO – Post supplier invoice.

1.3 Stock Transfers

• Definition: Stock transfers involve the internal movement of materials between different company locations or plants. Unlike external procurement, no supplier is involved.
• Types of Stock Transfers:
  • Plant-to-Plant Transfers: Movement of goods between two plants under the same company code.
  • Storage Location Transfers: Movement of stock within the same plant but between different storage locations.
  • Company Code Transfers: Transfer between different legal entities.
• Process Flow:
  1. Stock transfer request is created.
  2. Transfer posting is done to update inventory records.
  3. A material document is generated.
• Key Benefits:
  • Optimizes stock distribution.
  • Reduces procurement costs by using internal inventory.
• SAP Transaction Codes:
  • MB1B – Stock transfer posting.
  • MIGO – Goods movement transaction.

2. Procurement Contracts and Supplier Management

Long-term procurement planning relies on effective contract management and supplier evaluation.

2.1 Procurement Contracts (Outline Agreements)

• Definition: Outline agreements define long-term purchasing conditions with suppliers. These include:
  • Scheduling Agreements: Predefined delivery schedules with agreed prices over time.
  • Quantity Contracts: Commitment to purchase a fixed quantity within a specified period.
  • Value Contracts: Commitment to purchase up to a specified monetary value.
• Key Benefits:
  • Ensures price stability for a defined period.
  • Reduces administrative effort in repetitive purchasing.
• SAP Transaction Codes:
  • ME31L – Create scheduling agreement.
  • ME31K – Create quantity contract.

2.2 Supplier Management (Supplier Evaluation)

• Definition: Supplier evaluation involves tracking supplier performance using key indicators such as:
  • On-time delivery rate.
  • Material quality.
  • Price competitiveness.
• Purpose:
  • Improves supplier selection for future purchases.
  • Enhances supplier relationships.
• SAP Transaction Codes:
  • ME61 – Maintain supplier evaluations.

3. Release Strategy for Purchasing Documents

• Definition: The release strategy in SAP defines the approval process for procurement documents like purchase requisitions (PRs) and purchase orders (POs).
• Key Components:
  • Release Conditions: Approval requirements based on criteria such as amount, material type, and plant.
  • Release Levels: Approval hierarchies (e.g., manager, procurement head).
  • Release Status Changes:
    • Blocked: PR or PO cannot be processed.
    • Partially Released: Some approvals have been completed.
    • Fully Released: Document is fully approved and ready for processing.
• SAP Transaction Codes:
  • OMGS – Define release strategy.
  • ME28 – Approve purchase orders.

4. Situation Handling

SAP S/4HANA provides Situation Handling, an intelligent system feature that automatically detects critical procurement scenarios and alerts users.

• Examples of Procurement Situations:
  • Delayed deliveries: Alerts procurement teams about potential disruptions.
  • Supplier performance drops: Notifications when supplier performance KPIs decline.
  • Contract expiration: Reminders about expiring supplier contracts.
• Key Benefits:
  • Enhances proactive decision-making.
  • Automates issue tracking.
• SAP Configuration:
  • Fiori App: Manage Situation Types – Used to configure automated alerts.

5. Procurement Analytics

SAP S/4HANA includes advanced procurement analytics to track procurement performance.

5.1 Fiori Analytical Reports

• Procurement KPIs Monitored in Fiori:
  • Purchase Order Delivery Status: Tracks on-time and delayed deliveries.
  • Supplier Performance Analysis: Evaluates supplier effectiveness.
  • Procurement Spend Analysis: Monitors company-wide procurement expenses.
• SAP Fiori Apps:
  • Procurement Overview – Displays key procurement data in one dashboard.
  • Manage Purchase Orders – Tracks open, completed, and overdue orders.

5.2 KPI Monitoring

• Definition: KPI monitoring allows procurement teams to set and track performance indicators such as:
  • Cost Savings Percentage: Reduction in procurement costs.
  • Delivery Accuracy Rate: Percentage of orders delivered on time.
  • Purchase Requisition Approval Time: Speed of internal approvals.
• SAP Tools:
  • Smart Business KPIs in SAP Fiori – Displays real-time metrics.
  • Embedded Analytics – Provides interactive reports within SAP.

Conclusion

The procurement process in SAP S/4HANA extends beyond standard purchasing to include special procurement types, procurement contracts, supplier evaluation, approval workflows, situation handling, and procurement analytics. These additional capabilities ensure cost efficiency, supplier reliability, and smooth procurement operations.