SAP ERP

Procurement -- Purchase Order Managament

The following business goals and objectives can be achieved through the implementation of these processes:

Reducing Operating Costs & Increasing Efficiency

•   Reduce order processing costs

Increase Speed & Efficiency

•   Improved quality and accuracy

Purchase Order Types

You can procure materials for direct consumption or for stock. You can also procure services. Furthermore, the special procurement types "subcontracting", "third-party" (involving triangular business deals and direct-to-customer shipments) and "consignment" are possible. You can use purchase orders to cover your requirements using external sources (i.e. a vendor supplies a material or performs a service). You can also use a purchase order to procure a material that is needed in one of your plants from an internal source, i.e. from another plant. Such transactions involve longer-distance stock transfers. The activities following on from purchase orders (such as the receipt of goods and invoices) are logged, enabling you to monitor the procurement process.

You can use purchase orders for once-only procurement transactions. If, for example, you wish to procure a material from a vendor only once, you create a purchase order. If you are thinking of entering into a longer-term supply relationship with this vendor, it is advisable to set up an outline agreement, since this usually results in more favorable conditions of purchase.

Because not all materials or services to be procured justify the effort involved in individual monitoring, you can also create a purchase order with an extended, predefined validity period and a value limit. (You may wish to do this when procuring office supplies, for example.) This type of purchase order is similar in nature to the "contract". In this case, you need not specify the individual materials or expend any effort with respect to goods receiving activities. You can also reduce the amount of work involved in invoice verification to a minimum by employing automatic processes.

Order Management

Complete purchase orders can then be sent to the supplier as a printout, or by e-mail, fax or XML. The communication channel is defined in the vendor master and can be overwritten individually in the purchasing document. Processing the purchase order via SAP Supplier Self-Services or SAP Supply Network Collaboration allows for enhanced and automated order collaboration processes not only for order and order confirmation processes but also for follow up processes like Advanced Shipping Notifivation (ASN) Goods Receipt and Invoice processing.

Several types of purchase order responses can be received from the supplier (for example, order acknowledgements, loading confirmations, or shipping notifications). Depending on the rules that have been customized, reminders are sent automatically if follow-on activities (for example, a confirmation or delivery by the supplier) are missing or delayed. If the order confirmation from the supplier deviates from the original purchase order data (e.g. due to changes in quantity or delivery date), a workflow is triggered to the inbox of the buyer. These allows the buyer to take appropriated actions like accepting the changed data or canceling the original order and ordering by a different supplier.

Functions for transportation management and foreign trade are available for both the inbound and outbound sides. Monitoring functions provide an overview of the status of all running procurement processes.

Configuration Variants

Working with scheduling agreements can shorten processing times and reduce the amount of paperwork you are faced with. One delivery schedule can replace a large number of discrete purchase orders or contract release orders. Inventories can be reduced to a minimum. You can carry out your manufacturing operations on the Just-in-Time (JIT) principle.

Your vendors require shorter lead times. Smaller deliveries are required, which can be spaced out over a longer period. Delivery scheduling enables vendors to plan and allocate their resources more efficiently.

Scheduling agreement releases provide information to vendors regarding the quantities of a material that are to be delivered and the desired delivery dates. A scheduling agreement release enables you to record the current status of the lines of a delivery schedule stored in the system for a scheduling agreement item and then transmit this status to the vendor. In repetitive manufacturing involving large quantities, it is desirable for releases to be generated against a scheduling agreement automatically. In the ERP System, you can use the application component PP Material Requirements Planning for this purpose. Schedule lines can also be created manually.

Configuration Variants

Commodity Management comprises the activities of purchasing, selling, trading, logistic and financial planning and execution of Commodities.Companies, who need a commodity management solution are all companies that have to handle commodities in procurement, are selling commodities or that are trading commodities as such. The main difference between handling (exchange traded) commodities and other products, is the pricing: The pricing in commodity management is usually based on exchange noted prices. Physical buying or selling contracts can be either fixed (price is decided and fixed) or unfixed (price is not decided and based on a formula that again is based on exchange indices). Market risk exists in both cases: In the fixed contract case, because of the variance against the market, in the unfixed contract case, because of the price itself. If the contract is unfixed, an agreement towards a calculation rule is in place. The calculation rule is usually based on either the market price of the commodity, an average over a specified period of the market prices of the commodity or an index.
Usually classes of commodities are distinguished:

• Agricultural products ; grain, soft commodities: coffee, cotton and sugar, citrus and orange juice, livestock and other
• Metals
• Oil & Gas
• Electricity
• Coal, emissions and weather

The front office comprises those activities that interface to the outside word, in our case the activities carried out by the dealer, the normal trading activities. This includes “situation analysis, decision support and future simulation” within the cockpit a trader needs to get a view of the internal and external world, to simulate possible future scenarios and come to a decision.In comprises information as:
External market information like commodity prices, company news, etc.

• Internal demand and supply information like how much of a certain commodity is needed and    do we have for production supply?
• Position Reporting like overview over the open buying and selling positions (physical and paper) in quantity and value.
• Value at Risk reporting (How big is the risk of loss?) including calculations based on mathematical models as briefly touched in chapter

In the middle- and backoffice the logistic execution, margin processing and financial settlement takes place.