Posted by: ahmedashfaque | July 26, 2014

Price determination in SAP MM

When you buy anything from a vendor, the purchase price is derived based on many price components. Some price components include gross price, transportation cost, seasonal discount, mark up price, reward points, bulk discount, scale discount etc. Taxes are also included in the final price.

Again price terms can be net price, gross price, effective price or landed price. Determining net price, effective price or landed price for any material can be a tricky affair. There are so many price components and at the same time which components should be included or excluded so that you get the net or effective price for a material is a complex calculation.

In SAP MM there is an elaborate mechanism to calculate net and effective price for any material. At the same time, there is also a search mechanism which you can define so that the SAP system can search for the correct price for any material based on your search terms. This search mechanism you can use in cases when you want to search for price of a material based on your search criteria.

So effectively SAP has provided you 2 facilities. One, to derive effective and net price for a  material and second, to find out net and effective price of a material based on your criteria.

In many cases, you provide a fixed formula to calculate net and effective price for a material based on vendor, purchasing organization and sometimes plant. But in some cases, this search facility for calculating effective and net pricing for a material is required. Suppose you have different pricing for a material based on plant or company code any other organization unit or any other factor. In that case, how you will be able to derive different effective and net prices for a material for each of the different organization unit? For this exact reason, SAP has provided the search function for finding net and effective prices.

In SAP MM customization you can create condition tables for creating the search criteria and then you can create an access sequence which will map the search criteria with the price components to calculate net and effective prices.

Posted by: ahmedashfaque | July 23, 2014

Subcontracting cycle in SAP MM video

In the last post we discussed internal procurement in the form of stock transfers. Stock transfers are used in simpler business scenarios where goods are transferred from one location (plant) to another location (plant) in the same legal entity.

There are some limitations of stock transfers.

  • You can not use shipping for stock transfers. this means in transit movement of goods can not be tracked.
  • You can not do receiving planning in advance at the receiving plant.
  • You can not incorporate transportation cost in the movement of goods.
  • If a third party logistics provider is required for movement of goods then this scenario can not be captured in SAP system.

Stock transport orders (STO) provide a solution for all the limitations listed above. As mentioned in the previous post stock transport orders are very similar to external procurements. You create a PO, do goods receipt and finally pay for invoices. STOs even generate billing for the supplying plant which is sent to the receiving plant. The receiving plant then does payment via invoice processing.

To take care of various business scenarios, STOs are of 3 types.

  • STO without delivery: You create a PO then do goods receipt and invoice processing. The shipping component is not involved and so in transit goods movements can not be tracked.
  • STO with delivery: You create a PO and then a delivery. Good receipt planning takes place against the delivery (advance shipping note). You do goods receipt and invoice processing afterwards.
  • STO with delivery and with billing: This is the most complete type of STO where PO, shipping, and billing is incorporated. Here the STO takes care of tracking of in transit goods movements, billing generation at supplying plant, goods receipt, and invoice processing.

Based in the need of the company, STOs can be configured to represent almost any business scenarios.

Due to presence of global companies, there is a need to do procurement of goods and services which are strictly internal procurement but at the same time can be treated as external procurement in many ways. There are many variations in which internal procurement can be done depending on the needs of the company.

Internal procurement can be broadly categorized as stock transfer and stock transport order. Stock transfers are a simpler mechanism to do internal procurement without using a purchase order. In stock transfers, goods are issued from one storage location to another storage location. Stock transfer can happen in 2 ways: one step transfer and 2 step transfer.

One step transfer is used when in transit goods movements need not to be tracked. There is goods issue from one location and there is goods receipt at the same time at another location. This kind of stock transfer is used when distance between the 2 locations is not much.

In 2 step stock transfer, goods issue from one location happens in first step. Then goods are in transit till goods are received at another location. Then in 2nd step, goods are actually received when they arrive at the other location. This kind of stock transfer is used when distance between the 2 locations is significant and in transit movement of goods needs to be tracked.

In SAP, stock transfers are configured to be used when internal procurement is done within a legal entity. When internal procurement is done between 2 different legal entities who are controlled by one business house then stock transport orders are used. Here stock transfers are done using a purchase order. So even though stock transport orders are internal procurement instruments, nevertheless by nature they are very much like external procurement. We will see stock transport orders in nest post.


Posted by: ahmedashfaque | July 17, 2014

SAP MM tip 7 – why your release procedure not working

In SAP MM, purchase documents can be subjected to a release procedure so that they are sanctioned by the authorized persons before further processing is done for purchasing of goods. For instance, there could be a release procedure at the purchase requisition document level for sanctioning goods with following criteria:

  • Purchase requisitions (PR) for plant 2000.
  • For purchases worth $5,000 or more
  • For purchases for purchase group 0002

The criteria for release procedure work with the adding of all criteria and putting the aggregate criteria against individual purchase document to see if the particular purchase document needs a release (sanction) or it can be processed without a sanction. In the criteria mentioned above, if a PR is of value less than $5000 then it does not need a release regardless if the document meets other criteria or not. Similarly if the PR document is not for plant 2000 then it does not need the release.

There could be many release procedures in the SAP system for sanctioning various kinds of goods purchases based on various kinds of criteria. The above mentioned release could be just one release procedure out of many other release procedures. Due to presence of many release procedures in the SAP system, sometimes one individual release procedure may not work due to presence of other ones.

For instance, we can have a release procedure at the PR document level where purchase worth $8,000 or more need to be sanctioned. When a user creates a PR for a value of $6000, he/she may create it for plant 2000 and purchase group 0002. When he saves this PR. he/she thinks that the release procedure will not initiate for this PR as the value is less than $8000. To his/her surprise the release procedure is invoked. He/she may not be aware of the other release procedure in the system. So he/she may report a problem about release procedure not working.

The truth is that all the logic and functionality of release procedures are kept inside characteristics and classes and are not easily visible to users. Only somebody who is experienced with diagnosing characteristics and classes can find out how the rlease procedures work.

My software project management book “Software Project Management: A Process Driven Approach” published by CRC Press, USA is now a prescribed textbook at B.S.Abdur Rahman University, Chennai, India.

this book is already a textbook at many USA, Canadian, European, Indian universities.

Posted by: ahmedashfaque | July 14, 2014

Importance of SAP materials management

As most people know, SAP MM is all about procurement and inventory management. But it is not obvious to most people as to importance of SAP MM on SAP projects. Let us highlight this aspect in this post.

Any company may be in business doing sells of materials or services. Each service or material may need to be defined in the SAP system if the company is implementing SAP. So SAP MM is always a component on any SAP project no matter what kind of business the company is into.

If the company is providing services to its customers then all kind of services offered by the company are defined and kept in the system as a master data. If the company is into trading of goods then all kinds of goods traded by the company is defined and kept into the SAP system. If the company is into manufacturing then all raw materials procured by the company, the intermediate materials manufactured as well as the finished materials manufactured by the company are defined and kept in the SAP system. If the company is only warehousing products and transferring them to some retailer then again materials need to be defined and kept in the system.

So you see, SAP MM is an integral part of any SAP project no matter what kind of business the customer is into.


Posted by: ahmedashfaque | July 14, 2014

SAP MM Tip 6 – International Article Number

International article number (EAN) is used by exporters and importers of goods to make sure that what goods they are importing or exporting matches the specifications required by their partners. This means, the same material should be known by just one name. When the importer or exporter mentions the EAN then its partner immediately knows the specifications of the material. So EANs are very important in international business.

The EAN system was devised as a European standard for countries within Europe who can use this system for exports and imports of goods. In USA, they had their own standard known as Universal Product Code (UPC). Now most of the product naming standards have been merged so that we have a common product naming and specification system. If there is a UPC number available for a product then it can easily be converted into a EAN number and vice versa.

Any material is known by many names. It is because of local language and also due to the fact that companies make their own internal definitions of materials based on their own specifications. Thus the same material is known by many names. This creates problem for customers when you are trading goods. This also creates problems for your own accounting when you have many locations from where you are doing business and at these locations, the same material is known by different names.

Due to these problems in naming conventions, a standard naming convention is much needed even for internal use. Now a days, most products sold at retail stores use EAN numbers. The bar codes used on products are in fact are EAN numbers.

In SAP, you can easily attach EAN numbers to your materials in the material master record.

Posted by: ahmedashfaque | July 13, 2014

Relevance of Mahatma Gandhi in today’s world

Mahatma Gandhi will always be the greatest human being ever. It is because the causes he took and accomplished for the mankind are unparalleled in history. If he is still relevant in today’s world?

Mahatma Gandhi always stood for integrity, truth, courage, and equal rights. If he found that something is wrong then he will fight till this wrong is converted into right even if it meant death for him. he was willing to go to jail or sacrifice his life to fight it out.

If today’s India is a nation of well functioning democracy where majority and minorities live in peace with each other then all credit goes to him. If Gandhi was not there then India would have never be the nation it is today. It would have disintegrated into many pieces long time back. If we look into history and even today’s world, we see that people of different races or ethnicity can not live together. You see it in Iraq, Former Yugoslavia, Palestine etc. Only a powerful leader can unite people together through sheer force. But the moment a powerful leader is gone, there will be infighting among various ethnic groups. See this in Iraq. Once Saddam Hussain was gone, Kurds, Shias and Sunnis have been fighting with each other. We definitely need a Gandhi there who can ensure unity of all people forever, like he did in India. Similarly a Gandhi is required in Palestine where Palestinian people and Israel have been fighting forever.

We are seeing a world where powerful businessmen are dictating terms to head of state of many countries. Ruthless exploitation of resources is being carries out which is threatening existence of civilization on Earth. We need a Gandhi who could stand and stop this greedy exploitation of mother Earth.

Definitely Gandhi is very much relevant in today’s world.

Posted by: ahmedashfaque | July 12, 2014

What is optimized procurement in SAP?

The procurement process starts from creation of a purchase requisition by the user department. This purchase requisition is then passed on to the purchase department. The purchase department then sends it to a vendor. The vendor in turns supplies the requested material or service.

In SAP this process flow is followed for various kinds of purchasing methods like request for quotation, subcontracting, consignment, long term contract or simply  through purchase order. But in any common circumstance, there are always more than one source for procuring a material or service. If you have such a scenario then it is lot better to get all those sources, compare them for price and other terms and then procure the material from the source which offers most favorable purchasing conditions.

In SAP, this is possible. How it is done?

In SAP sources of supply are kept in form of info records, source lists, contracts and vendor quota arrangements. A material thus can have many sources of supply already there in the SAP system. Now when you create a purchase requisition, you can find out all the sources of supply. Then you can do analysis by comparing prices and other terms of purchasing. Once you find out the best source then you can go ahead and assign the requisition to that source.

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