Think about a perfect business scenario – you have every product always available when you need, in just the right quantity and quality, right on time!
Sounds ideal, doesn’t it?
That’s exactly what SAP MM, or Materials Management, aims to achieve. As a key module in SAP ERP software, it streamlines purchasing and store management processes, ensuring smooth operations from start to finish.
Let’s learn more about it with the SAP MM course. Also, with this blog, we will be outlining the process flow of SAP MM in a step by step wise and elementary manner.
Ready to get started?
1. Master Data Management
SAP MM master data consists of material data, vendor data and purchasing info records. Master data management is at the core of the entire process flow thus it is a prerequisite to subsequent activities in the data life cycle.
- Material Master: This record comprises all information on materials that are bought, created, stocked, and sold in a company. Key data in the material master includes:Key data in the material master includes:
- Material Type: These features describe the part that the material in question plays (for example, this material is a raw material, this material is a finished product).
- Material Description: It also gives a detailed description of the material to the reader or the intended audience.
- Base Unit of Measure: Defines the type of unit in which the material is also handled for example in pieces or in kilograms.
- Procurement Type: Defines the nature of the material by pointing out the fact that it was acquired from a third party or it was produced locally.
- Material Group: Clusters related items in order to better control and report them.
- Valuation Class: Specifies the way in which its value precisely is estimated in the press account.
- Plant-Specific Data: Facility locations, batches and other specific features of the plant systems are typically stored/reported.
- Vendor Master: This is a record that contains all the details of the suppliers through which the company gets its supplies from. Key data in the vendor master includes:
- Vendor Name and Address: The simplest information, which is name and address, and any other related means of communication.
- Payment Terms: Factors are used in determining payments that are to be made to the vendor.
- Bank Details: Details that are relevant to the business financial dealings.
- Purchasing Organization Data: Pertaining to the purchasing organization, aspects like delivery terms, order currency.
- Accounting Information: Taxing information and realization accounts.
- Purchasing Info Record: This record connects material and vendor information and offers information on a material’s cost and conditions in relation to a vendor. Key data includes:
- Material and Vendor Combination: Gives the particular type of material required and the supplier from where it is bought.
- Pricing Information: Services price, quantity, and options; applying of discounts, surcharges, and any conditions, which were discussed with the customer by the employees of the company.
- Delivery Terms: Lead time, shipping instructions and delivery schedule.
2. Procurement Process
SAP MM procurement is a systematic procedure of obtaining goods required by an organization in the course of its operations. It makes sure that adequate and efficient material is sourced, bought and obtained at the right cost. The main steps include:
- Purchase Requisition (PR): This is an internal document where one department orders the other, in this case, the procurement department, to buy a particular amount of a material. It can be created by the users, such as departments who require materials, or it can be created through MRP or Material Requirement Planning. Key aspects of a purchase requisition include:
- Material Details: This entails description of the product, the quantity needed as well as the time frame that the order must be delivered.
- Requester Information: The department or individual that has requested for the material to be provided.
- Approval Workflow: A flow chart depicting the measures to be taken according to the organizational policies of approval.
- Source Determination and Vendor Selection: Once a purchase requisition is developed, the procurement team begins looking for potential suppliers. This step may involve:
- Source List: A list of small firms that are approved to supply a given material, List of having pre-qualified suppliers.
- Outline Agreements: The type of purchase includes long-term arrangement with the vendor for example when a contract or a scheduling agreement has been signed.
- Request for Quotation (RFQ): Its RFQ process is tied to the act of requesting potential vendor quotes. This step includes:
- Preparation and Sending of RFQs: Long- list specifications/terms are forwarded to potential suppliers.
- Receipt of Quotations: Vendors reply with their bid which involves offering the price, delivery period and the terms of payments.
- Quotation Comparison and Vendor Selection: The procurement team then analyse the quotations that have been offered then look for the best vendor. Criteria for selection include:
- Price: The accumulative expense of various fees and taxes incorporated in the final bill of the services.
- Quality: Adherence to the set specifications as well as quality standards.
- Delivery: Lead time and the reliability of delivery schedules.
- Vendor Reputation: Credit standing, or the performance of repayment in the past and the level of reliability in the future.
- Purchase Order (PO): Once a vendor is chosen, there is an issuing of a purchase order. The PO is a formal document that lists the product details, material and its quantity, price, and delivery time. It also becomes a legal agreement that exists between the company and the vendor. Key components of a purchase order include:
- Purchase Order Number: To help track the progress, a unique identifier is assigned.
- Material and Quantity: Descriptions of the items which were bought.
- Price and Conditions: Made on the agreed price line, discounts allowed / extended and payment terms/conditions.
- Delivery Details: Delivery date, place and how to deliver.
3. Goods Receipt and Inventory Management
Once the materials are delivered by the vendor, the following steps take place to ensure proper receipt and management of inventory:
- Goods Receipt (GR): This step ensails receiving the received materials and comparing it with the purchase order to check whether it meets the required standard. Activities include:
- Verification: Measuring the amount and kinds of material used.
- Documentation: When the supplier delivers goods, entering such details to update the stored stocks and generating a material document.
- Quality Inspection: Inspections to ascertain appropriateness of the materials to quality needed in construction.
- Inventory Management: Receiving of these materials is followed by registering them in the inventory system. This entails change of stocks, space management as well as the manner in which the materials are dealt with. Key tasks in inventory management include:
- Stock Update: When creating records for the inventory control the records are adjusted to reflect the quantities received.
- Storage Location Assignment: Evaluating materials for the right collection storage place where they belong to.
- Batch Management: Organizing materials in sets for tracking and approvals regarding quality.
- Stock Movements: Recording movements of material in and out of the organization or in and out of one location in the organization to another.
4. Invoice Verification and Payment
After the goods are received and recorded, the next steps are related to financial transactions to complete the procurement process:
- Invoice Verification: Once the goods are delivered the vendor issues an invoice to the buyer. What must be done and demanded as a proof is to compare the invoice with purchase order and goods receipt to make sure that it is accurate. This process is known as the three-way match, involving:
- Invoice Entry: Enter the recorded amount in the system against the vendors’ invoice.
- Matching: Actually, comparing the invoice reproduced below with the purchase order and the goods receipt to check the quantities and prices of the order.
- Discrepancy Resolution: As a result, handling any differences that the auditors found when they matched corresponding items.
- Payment Processing: Once a client approves the invoice, it goes for payment to the finance department from the supplier. The payment terms agreed on in the purchase order and in the invoice are implemented. Steps in payment processing include:
- Payment Proposal: Receiving and making a list of all the invoices that are due for payments.
- Approval and Execution: Making the payment to the vendor or getting other necessary approvals may also be needed.
- Clearing Accounts: Reconciling the accounts containing details of the supplier’s balance and updating it to show the payment made.
5. Integration with Other Modules
SAP MM interfaces with other modules in the SAP system of business to support the flow of information including the following. Key integrations include:
- SAP SD (Sales and Distribution): Linking makes it possible for the sales orders to be connected to the procurement process and the status of the materials. This ensures order satisfaction and proper, timely completion of the orders placed by the customers.
- SAP PP (Production Planning): Integration helps in organizing the production activities in relation to availability of material. This helps in meeting the production schedules and also proper use of resources.
- SAP QM (Quality Management): This increases probability that quality checks of the materials are done at the time of goods receipt. This makes sure that only good stocks with higher quality are admitted in the system.
- SAP FICO (Financial Accounting and Controlling): It also makes a contribution towards ensuring that all the procurement related financial dealings are recorded in the right manner. This assists in the preparation of the organization’s budget as well as cost management given that the financial information is very comprehensive.
6. Reporting and Analytics
There are numerous reports and solutions in SAP MM by which procurement and inventory management and control can be done effectively. These tools assist organizations in providing decisions and reducing operation costs. Key reports and analytics include:
- Stock Overview: Shows the overall, available, and issued stocks of all the materials stored at different storage areas. This is useful in tracking the levels of stock and what needs to be ordered.
- Purchase Order Reports: Enables clients to get information on the available, accomplished, and ongoing purchase orders. It assists in monitoring the procurement processes and making sure that goods are delivered on time.
- Vendor Evaluation: Refers to the evaluation of the performance of the vendor with respect to such aspects as delivery time, quality and costs. It assists in keeping good relations with the vendors and develops good techniques to get connected with good suppliers.
- Material Consumption Reports: Records how the different materials have been utilized within a given time frame. This is as it aids in identifying trends and help in planning on the next purchase as well as helps in minimizing on cases of wastage.
- Invoice Verification Reports: Controls the invoice and payment status and prohibits delays in payment processing and other payment related issues.
- MRP (Material Requirements Planning) Reports: Aids in planning for the materials needed for production, sales and stock updates and the time they are needed.
Conclusion
Any firm that wants to manage materials effectively must comprehend the SAP MM process flow. Businesses can make sure they get the correct materials at the correct time, optimize inventory levels, and keep positive relationships with suppliers by learning the processes from managing master data to procurement, goods receipt, and invoicing verification. SAP MM offers a complete ERP solution by integrating with other modules and streamlining the purchase process.