SAP S4HANA Overview of Procure to Pay process_v2

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Introduction to ‘Procure to Pay’ process
‘Procure to Pay’business process refers to obtaining/procuring the materials needed for manufacturing a product or providing a service and making payment for the procured materials
· Key business functions in ‘Procure to Pay’ are requisitioning, purchasing, receiving, paying and accounting for goods and services.
· All Purchase data are updated in system such as ERP.
· Key features of the ‘Procure to Pay’ are depicted in the picture here.
Supply management
Supply managementis the process of identifying, sourcing, negotiating and managing the resources and suppliers that are essential to the operations of an organization.
· Its helps to keep costs stable and use resources effectively to increase the profit and efficiency of the business.
· Acquisitioning of services is called contractingand buying of goods/products is called purchasing/procurement.
Vendor selection
Vendor selectionis a process of identifying a suitable vendor to purchase necessary material to support organization’s needs.
· The process involves analyzing the organization’s business requirements, searching for prospective vendors, assessing vendor capabilities and selecting the vendor.
· Vendors may be evaluated by organization on periodic basis.
Requisition
Requisitioning’is the process of notifying the purchase department about the materials needed to fulfill organization’s goal.
· It is a request to purchasing department to place an order.
· For example, production department creates a purchase requisition form for raw materials used in production. This form will notify the purchase department to procure the raw material. This request can be approved, modified or denied by the purchase team. If approved, purchase department will create a purchase order with reference to the purchase requisition form.
Purchase order
Purchase orderis a legal document issued by buyer to seller (vendor) indicating the details, quantities, agreed prices, payment terms and other terms & conditions for the product or services.
· For example, purchase order created by purchase team is sent to vendor. If vendor accepts the order, they produce and deliver the goods with an invoice.
· Purchase orders are essential part of Enterprise resource planning.
Material and services delivery
Delivery process refers to a set of activities when a material or service is provided by vendor to the requisitioner.
· It includes activities like inspection of incoming goods and marking them with relevant tags as received.
· The receiving staff can reject the delivered goods in case of any discrepancies or quality issues. *Inventory records are updated after receiving the goods.
Vendor invoice
· After completing the delivery of material or services invoice is provided by the vendor.
· Invoice acts as a proof of fulfillment of contractual obligations by the vendor.
· Invoice contains information likebasic price, taxes, due dates
Accounts payable
· Accounts payable is thefinal stepin procure to pay process.
· It focuses on handling the purchase orders forpayment and sending the payment to vendor.
· Accounting systems are updated once payment is made.
Procurement analytics
Procurement analyticsis a process of using quantitative methods to derive actionable insights from the data.
· These insights are used fordecision makingand gaining competitive advantage. *Procurement metric/KPI(Key performance indicator) is a measurable value in procurement analytics. These metrics enable the procurement department to control and optimize the purchasing processes.
· Some of the procurement metrics include, purchase order cycle time, lead time, number of vendors etc.
Key concepts of ‘Procure to Pay’
Understanding of ‘Procure to Pay’ process requires knowledge of key concepts which are listed here:
· Purchase order document type
· Procurement scenarios
· Account assignment category
· Sources of Supply
· Material requirement planning
· Self service procurement
· Schedule line
· Goods movement and Movement type
· Transfer posting
· Pricing procedure
· Under and Over Delivery tolerance
· Purchasing order history
· Three way matching concept
Purchase order document type
· Purchase order document type is a identifier for differentiatingvarious kinds of purchasing documents in SAP system.
· Document type controls thenumber range assignment of the purchase order.
· Some of the examples of purchase order document type are listed below,
	Purchase order document description
	Purchase order document type
	Standard Purchase order
	NB
	Stock transportation order
	UB
	Framework order
	FO
Procurement scenarios
Internal procurement
· Internal procurement is a process of getting material and services from another legal entity of the same group of company.
· A business partner is created as an inter-company vendor.
External procurement
· External procurement is a process of procuring material from external suppliers.
· Procurement can be done against one time contract or in accordance with rate or quantity contract.
· Arate contract fixes the price per unit with a limit to the contract value
· Aquantity contract fixes the total quantity to be delivered over a period of time
Procurement scenarios
Subcontracting in procurement
· Subcontractingrefers to the process of entering into a contractual agreement with an outside person or company to perform a certain work.
· A typical example of subcontracting process is, the manufacturing company gives raw materials to the subcontracting vendor.
· The vendor processes these raw material to another product.
· Subcontracting is often done to reduce costs, as subcontractors can often utilize specialized knowledge or resources and achieve cost advantages by producing in large numbers.
· For example, a smaller businesses might use an outside firm to prepare its payroll
Account assignment category
· Account assignment category indicates type of procurement such as
· Procurement of services
· Procurement of materialfor which stock is maintained such as raw material *Procurement of a fixed asset
· Procurement of material which is not stocked such as stationary
· The assignment is made at item level of the purchasing documents
· Some of the examples account assignment category are listed below,
	Account assignment category description
	Account assignment category
	Cost center
	K
	Asset
	A
	Sales order
	C
	Project
	P
Sources of Supply
A Source of Supply defines from whom a product or service can be procured.
· Source of supply refers to the business partner/ vendor
· Source of supply can vary from country to country, location to location
· An evaluation processis carried out to determine before maintaining the source of supply in system
Material Requirement Planning
Material requirement planning (MRP) is a production planning, scheduling and inventory control system used to manage manufacturing processes.
· MRP system calculates the current stock of material being used for production, identifies gaps in the requirement and schedules the production/procurement of the additional material needed.
Self service procurement
Self service procurement is a process which enables employees of the organization to create and manage shopping carts for their requisitions.
Self-service requisitioning is the first step of self-service procurementand the process is depicted in the below picture.
Schedule line
Schedule lineis a document that contains all delivery related information such as, delivery quantity, delivery dates etc.
· For example, if the total quantity of a material is planned to be delivered in four partial deliveries, the system proposes four schedule lines and determines the appropriate quantities and delivery dates for each schedule line.
· Schedule line categorycontrols the schedule lines. They can be created in three ways
· Copya standard schedule line category and modifyaccording to our requirements
· Changea standard schedule line category
· Createa new schedule line category
· Schedule line category is a two character alphanumerickey
Goods Movement and Movement type
Goods movementrefers to the physical or logical movement of material that causes change in material stock.
· When goods movement is entered in the system, movement type has to be mentioned to differentiate between the various goods movement.
A movement type is a three character identification code which depicts either an increase in stock, decrease in stock, or Transfer from one stock to another
· Examples of movement type:
· 261 - Goods issue for an order
· 101 - goods receipt into stock
· Good movement is also integrated with inventory valuation in finance
Transfer Posting
Transfer postingrefers to the change in material stock. Example: Release of stock from quality inspection.
· During transfer posting material canremain in its original storage bin or can be transferredto another storage bin.
· Transfer posting may not involve physical goods movementin cases of movement from unrestricted stock to quality stock
Pricing
Pricing procedure determines the prices of the items in the purchasing documents.
· It allows the user to define calculation types based on the needs.
· Price is defined as a set of conditions when calculated.
· Conditions are maintained ascondition records.
Under and Over delivery tolerance
Under and Over delivery tolerance controls the quantity of goods delivered during the purchasing process.
· Under-deliveries are seen as partial deliveries in the purchasing process and are usually allowed, as they do not exceed a defined quantity.
· Over-delivery tolerances in a purchase order item is allowed if it is defined in the delivery tab of the item.
· Delivery tolerance can be maintained in
· Material master
· Purchasing info record
· Purchase order
Purchase order history
· All transactions related to a purchase order are displayed in purchase order as history
· It enables to drill down to related documents from a purchase order such as
· Goods receipt
· Invoice receipt
· Service confirmation
Three way matching concept
· During procurement process, it is important to ensure that payments are done in accordance with what has been agreed with the vendor and the materials delivered
· To safeguard the interest of the organization and to prevent fraud, three way matching concept is applied during procure to pay process
· In SAP three way matching concept, following checks are applied
· Quantity received is checked with the purchase order quantity
· Invoice received from vendor is checked with goods receipt
· Invoice received is checked with purchase order price
· This helps to avoid any discrepancy during invoice payment
Modules in SAP S/4HANA
· SAP S/4HANA has multiple components to manage procurement processes
· Each module integrates with each other
· The table here does not provide all components related to procurement processes, only core modules are depicted here
Modules in SAP S/4HANA- Materials Management
· Materials management module caters to procurement and inventory valuation related processes
· Sample processes managed
· Vendor contracts
· Vendor purchase orders
· Goods receipts and returns
· Goods movement
· Vendor evaluation
· Requisitioning
Modules in SAP S/4HANA- EWM
· Extended warehouse management (EWM) caters to all processes related toinventory movement in a warehouse.
· Sample processes managed
· Inbound process for goods movement
· Outbound process for goods movement
· Handling Unit management
· Bin and inventory management
Modules in SAP S/4HANA- QM
· Quality management caters to all processes related to Quality checks performed on the material received from the vendor.
· Sample processes managed
· Quality engineering
· Quality planning such as inspection planning, sampling strategy
· Quality execution such as inspection
Processes Overview – Procure to Pay
· Procure to Pay process refers topurchasing the materials needed for manufacturing a product or providing a service and making payment for these.
· A typical procurement process includes the following phases
· Determination of requirements
· Determination of source of supply/Supplier selection
· Purchase order processing
· Purchase order monitoring
· Goods receipt
· Quality management
· Invoice verification
· Payment processing
Procurement cycle
Processes Overview – Determination of requirements
· Determination of requirement is the very first step in procurement process.
· Employees from any department of the organization can create a purchase requisition to the purchasing department.
· This will inform about the material requirements to the purchasing department.
· If Material requirements planning is active for any material, then SAP system will create a purchase requisition automatically.
Processes Overview – Determination of Source of Supply
· Determination of Source of Supply is theprocess of selecting supplier for a purchase requisition.
· The sources of supply is determined from already existing records in the system such as purchase orders, agreements, purchasing info records.
· Price comparisonscan be made among suppliers to determine which supplier has the best price.
Processes Overview – Purchase order processing
· A purchase order is a formal request to a supplierto supply goods or services.
· Purchase orders can be created with or without reference to purchase requisition.
· While creating purchase orders, data can be copied from other documents (purchase requisition or quotation) to reduce the number of entries to be made.
Structure of Purchase order
· The structure of purchase order is divided into two levels.
· Header Level– includes details about document number, supplier, Purchase order date, terms of payment, etc.,
· Item Level – includes details about the materials number, order quantity, Price etc.,
Processes Overview – Purchase order monitoring
· Status of purchase orders can be monitoredin the SAP System.
· Dates and events can be trackedthroughout the process chain.
· Examples include,
· Determining whether a delivery/invoice has been received for a purchase order
· Reminding a vendor about outstanding deliveries
Processes Overview – Goods receipt
· A Goods receipt is a physical inbound movement of goods or material into the warehouse.
· It is goods movement that is used to post goods received from external vendors or in-plant production.
· When goods are delivered against apurchase order (PO), goods receipt is generated with reference to the PO.
· Subsequently purchase order history is updated.
Processes Overview – Quality management
· Quality management is an integral part of goods receipt
· All materials received are inspected for quality issues
· In case any issue is identified, same is updated in the system as restricted stock which cannot be used
· Materials can be returned to vendor for repair or order may be cancelled
· In case of services, service acceptance is taken from the user
Processes Overview – Invoice verification
· Invoice verification refers to the process ofverifying the invoice before making a payment.
· Previous purchase orders, delivery documents, goods receipts are used to check the calculations and accuracy of the invoice.
· Once the invoice is posted in the system, all financial documents are updated.
· Invoice verification marks the end of procurementafter purchase order and goods receipt.
Processes Overview – Payment processing
· Automatic Payment Program (APP)serves the purpose of posting accounts payable like payment to a vendor based on vendor invoices automatically.
· The accounting department is responsible forrunning this program on regular basis
Enterprise structure for Procurement
· Organizational Units represents the structure of business.SAP provides organizational units for all areas.
· In this course, units relevant to Sourcing and procurementare covered.
· SAP S/4HANA uses various organizational units of all areas. Procurement uses other organizational units as well for the purchasing and inventory management.
· Some of the organizational units used in Sourcing and procurement are listed below,· Client
· Company code
· Plant
· Storage location
· Purchasing organization
· Purchasing group
nterprise structure for Procurement - Client
· Enterprise structure is created within a client.
· Depending on the landscape design,all legal entities can be created within a single client or in multiple clients.
· Each client has aclient role,based on the purpose and intended use.
· It defines the nature of the particular client.
Enterprise structure for Procurement – Company Code
A company code is the smallest organizational unit of financial accounting.
· For example, a company code can represent a company in a corporate group or a subsidiary.
· All financial and logistics transactions are done within a legal entity. It means that all organizational units will be directly or indirectly assigned to a legal entity or a company code.
· A company code is defined in SAP system by means offour character alphanumeric that is unique in the client
Enterprise structure for Procurement – Plant
A plantis a place where material stock is stored. It can also represent a production unit.
· Eachgeographical location from where sales, procurement, manufacturing or inventory management is carried out is created as a plant.
· A plant may represent variety of units in an organization like
· Production facility
· Sales office
· Maintenance location
· Warehouse
· Corporate office
· Plant is uniquelyassigned to company code. All transactions within a plant is reflected in the company code to which plant is assigned to.
Enterprise structure for Procurement – Storage location
Storage locationis the physical location where materials are stored. There can be multiple locations in a plant where materials are stored.
· Storage location helps to identify where material is kept
· For example a manufacturing plant can have storage locations for raw materials which can be used for production process. It can have storage location for finished product after it is packed or for a semi finished product.
· Materials selected for quality check can be stored in a different location. However, one storage location can have multiple bins for easy identification of location.The same is managed via warehouse management.
· Storage locations are assigned to plant.
Enterprise structure for Procurement – Purchasing organization
Purchasing organizationis responsible for procurement of materials and services for one or more plants.
· A purchase order can contain only one purchasing organization
Enterprise structure for Procurement – Purchasing group
Purchasing group represents a team who is responsible for procurement of materials and services for a specific category assigned to them.
· For example, in a large enterprise procurement of hardware and software can be done by two different purchasing groups
· Normally, there is more than one purchasing group within a purchasing organization.It represents theteam structure of the purchasing department of the company.
Master data for Procurement
· Master data is the core data of business objects which needs to be captured to run different operations in SAP. They are generally created once and will not change frequently.
· These data records are maintained centrally and used for cross application functions.
· The following are the different types of data for Procurement process,
· Business partner master data
· Material master data
· Purchasing info record
· When any purchasing document is created, data is copied from these master data records to the documents
Business Partner Master data
· The business partner data relevant for suppliers can be subdivided into the following categories
· General data
· Accounting data
· Purchasing data
· General data is relevant for a single client.It includes data such as vendor’s address, control data, bank details etc.,
· Company code data isrelevant for accounting and valid for the respective company code.
· Purchasing data is relevant for purchasing organization. This includes data such as purchase order currency, Incoterms, partner roles etc.,
Business Partner Master data
· Business partner‘supplier’ can take various roles according to the enterprise functions.
· During procurement process supplier is first the purchase order recipient, and then goods supplier, then invoicing party and finally payee.
· Before moving ahead go through the DEMO- SAPS4Foundation13 - 01
Master data for One-time Supplier
· In Procure to Pay process, a special business partner grouping is available for one time supplier.
· No separate master record exists for one-time supplier,even though they are used in purchase orders and invoices.
· One-time supplier master record can be used for several other suppliers as well, since no supplier specific data like supplier address, bank details are maintained.
· When a purchase order or invoice is created for one-time supplierall supplier specific data are entered manually
Material Master data
· Material master is thecentral repository of materials-specific data in an organization.
· It is used in all areas of logistics likepurchasing, sales, inventory, warehousing.
· The data stored in material master is used for various activities like, Purchasing data for ordering activities, inventory management data, accounting data, materials planning data.
Material Master data
· Various department within an organization uses material master record for different purposes. Therefore data in material master is sorted into individual views reflecting various departments.
· Data screens used in material master can be sub-divided into main data and additional data.
· Main data contains data relevant for individual departments.
· Additional data contains information such as alternative units of measure, material description, consumption values etc.
Material Master data – Organizational Levels
· Data maintained in a view is valid for different organizational levels
· Some examples of organizational levels in logistics department include, client level, plant level, storage location level.
· Client Level– This level contains data that is relevant for all individual units of the organization. Examples: Material number, material group.
· Plant Level– This level contains data relevant to a specific plant. Examples: Purchasing data, MRP data
· Storage Location level– This level contains data relevant to a specific storage location. Examples: Storage bin, Picking area.
· Before moving ahead go through the DEMO- SAPS4Foundation13 - 02
Purchasing info record
· Purchasing info record containsinformation specific to a material and the vendor supplying that material.
· The data stored in purchasing info record is taken asdefault values in purchase orders.
· The following are some the information that can be defined in info records
· Current and future prices
· Conditions
· Delivery information
· Supplier specific data
· Purchase order Texts
· Purchase document numbers
Purchasing info record – Organizational Levels
· Info records are relevant for bothstandard procurement process and specific procurement process.
· Info type of the record determines for which process the data is to be used. Some of the info types include, standard, sub-contracting, consignment, Pipeline.
· The data for purchasing info record can be sub-divided into
· General Data (At client level)
· Purchasing organization Data (At purchasing organization/Plant Level)
· Purchasing info records can becreated/modified either manually or automatically (using Info Update Indicator feature
· The type of purchasing document decides which updates are triggered by info update indicator feature.
Purchasing information record – Source List
· Source list includes alist of possible sources of supplyfor a material over a given framework of time.
· Source list specifies the time period of ordering a particular material from a given vendor.
· Source list can be copied from one plant to another.
· Source list can be created either manually or automatically.
· Source list can be automatically by maintaining purchasing datain material master.
Purchasing conditions
· Conditions in purchasing refers to the agreements with vendorsregarding prices, discounts or surcharges etc.,
· Conditions are maintained when entering quotations, info records, contracts and purchase orders.
· Net prices in the documents are determined using these conditions. (Price Determination)
· The following types of conditions are used in purchasing
· Conditions in a contract
· Conditions in a purchasing info record
· General conditions
· Validity can be maintained for conditions.
Process overview and demo
Scenario 1- Self Service requisitioning
· The scenario covers theprocess- Self service requisitioning.
· This process allows employees to create and manage shopping carts.
· The process steps are depicted in the process flow here
· The process is explained via SAP demonstration in next section
· Before moving ahead go through the DEMO- SAPS4Foundation13 - 04
Process overview and demo
Procurement of a Raw material
· The scenario covers theprocess of procuring a raw material from a vendor.
· The process steps are depicted in the process flow here
· The process is explained via SAP demonstration in next section
· Before moving ahead go through the DEMO- SAPS4Foundation13 - 05
Course Summary
· ‘Procure to Pay’ business process refers to obtaining/procuring the materials needed for manufacturing a product or providing a service and making payment for the procured materials
· Various organizational units, used in Procurement processes are Company code, Purchasing organization, Plant etc.
· Some of the master data used in Procurement module includesbusiness partner, material master, Purchasing info record etc.,
· This course also covers fewprocurement scenarios to understand the process flow.
If vendor accepts the order, they produce and deliver the goods with ____
an invoice
State True or False: Supply management is the process of identifying, sourcing, negotiating and managing the resources and suppliers.
True
_____________ refers to the physical or logical movement of material that causes change in material stock
Goods movement
Storage locations are assigned to _________
to plant.
State True or False: Not all materials received are inspected for quality issues.
False
_____________ contains information specific to a material and the vendor supplying that material.
Purchasing info record
PO is _________
Purchase order
Accounts payable is the final step in _______
procure to pay
State True or False: ‘Requisitioning’ is the process of notifying the purchase department about the materials needed to fulfill organization’s goal
True 
__________ is responsible for procurement of materials and services for one or more plants.
Purchasing organization
State True or False: Procurement analytics is a process of using quantitative methods to derive actionable insights from the data.
True 
A______ is a physical inbound movement of goods or material into the warehouse.
Goods receipt
Buying of goods/products is called _____
Purchasing
State True or False: In Procure to Pay process, a special business partner grouping is available for one time supplier.
True 
State True or False:Pricing procedure determines the prices of the items in the purchasing documents
True 
MRP stands for _________
Material requirement planning
All transactions related to a purchase order are displayed in purchase order as _________
Purchase History
The business partner data relevant for suppliers can be subdivided into _________
All of the above
Delivery tolerance can be maintained in______.
All of the above
Inventory records are updated after _______
receiving the goods