Procurement Process (Procure to Pay process): – Every
organisation that operates a business has to purchase materials such as raw materials,
services etc. The procurement process has become part of today’s efficient business
operation. The Company can procure those materials as in-house production or
external procurement.
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Procurement Process Cycle
Procure to pay Process consists the following processes.
1. Material requirement planning
2. Vendor Selection
3. Request for Quotation
4. Purchase Requisition
5. Purchase Order
6. Goods Receipt
7. Goods Receipt Invoice
8. Invoice Verification
9. Payment to Vendors
1. Material requirement planning (MRP) :-
Materials requirements planning (MRP) refers to the technique of using a
projected manufacturing production schedule to figure out what supplied materials
you will need, and when you will need them. Materials requirements planning
(MRP) type controls the MRP procedure, pricing, material valuation. Material
requirement planning carried out by MRP controller in production department.
2. Vendor selection :-
Vendor selection is one of the important step in procurement process. With the help
of obtained quotations from sources and by comparing them, vendors are selected
3. Request for Quotation :-
Requesting potential vendors to submit a quotation for a material or services.
Quotation contains the vendor’s terms and conditions and constitutes the basis for
vendor selection
4. Purchase Requisition :-
A purchase requisition is an internal request to purchasing. You ask the buyer to
provide a certain quantity of a material or service on a certain date.A purchase
requisition can be created automatically by Material Requirement Planning
(MRP) or manually created. PR converts to RFQ, PO or outline agreement. Purchase
Requisition forms include the following information
Material Qty, description of goods & service and total value.
Department Account number.
Signature by an Authorized Department.
Attached Quote from the vendor.
Delivery instructions.
Attach Quote from the suggested vendor.
5. Purchase Order :-
Purchase Order (PO) is a formal request to a vendor to supply certain materials or
services under the certain conditions. A Purchase Order (PO) can be created with
reference, or without reference to a purchase requisition, a request for quotation, or
another purchase order.
POs usually specify terms of payment, incoterms, delivery date, specifications,
material qty, price and reference or part numbers.
Types of purchase orders in procurement process:- Standard PO, Planned PO,
Contract PO.
6. Goods Receipt :-
Goods Receipts (GR) is created to reflect the Goods Receipts for the specified
material ordered from a vendor using Purchase Order process. After receiving the
goods the company can record the following information, this information can be
used for accounting, stock check and rotation, to return any goods if there is a
problem
What goods were delivered,
Which vendor delivered the goods.
Who, how, when goods were delivered and received the goods.
7. Goods Receipt Invoice (GRIN) :-
Goods receipt Invoice process is one of the important process in procurement
process cycle. It is matching the goods that a company receives with the company
PO (purchase order). It involves checking the goods are not damaged and fit for
use, verifying the price, quantity, payment terms. Goods movement are entered in
to the system with reference of Purchase order and goods receipt material
documents are posted, automatically appropriate general ledgers are posted and
stock accounts are updated.
8. Invoice Verification :-
After GRIN process, next process of procurement to pay is invoice verification. It
plays an important role in procurement process and Materials Management
Module which performs the following tasks
A Vendor Invoice can be created with reference to a Purchase Order, a
Goods Receipt, a Delivery Note..
Invoice is verified in-terms of prices, quantity,
Necessary approvals by project managers
After verifying all the data, the invoice is posted and the data is saved in the
system. The system updates the invoice data in Materials Management
and Financial Accounting.
9. Payment to Vendors:-
The last step in procurement process cycle is payment to vendors and it is also
known procure to pay process. Vendors are get paid as per payment terms. In this
fast technology world, companies can pay through many methods to vendors. For
example – through Net banking, Check payment etc
1) How to Maintain Tolerance Limits for Price
Variance in SAP S4Hana
When you are posting a purchase order document, the system checks the price of
PO items and the valuation price stored in the material master record. When price
variance exceeds a tolerance limit, the system gives a warning message. So it is a
mandatory configuration to maintain tolerance limits for price variance in Purchase
Order items.
In this activity, we are going to maintain the tolerance limits for price variance in
SAP.
You can set tolerance limits for price variance by using the following navigation
method.
Transaction code: SPRO
SAP R/3 IMG Path: – SPRO -> IMG -> Materials Management ->
Purchasing -> Purchase Order -> Set Tolerance Limits for Price
Variance
Refer to the below step-by-step procedure to define tolerance limits for price
variance purchasing.
Step 1: Follow the IMG menu path and click on Set Tolerance Limits for Price
Variance
Step 2: One the change view “tolerance limits” overview screen, Select “new
entries”
Standard SAP provides tolerance keys PE (price variance purchasing
and SE (Maximum cash disc. the deduction, (purchasing))
Select tolerance key: PE – Prince Variance: Purchasing
Enter your company code: AD06 – Adarsh Technologies
Update tolerance limit percentage – Update Lower Limit Percentage and
Upper Limit Percentage
After updating the data, choose the save button to save the data in the SAP system.
Successfully we have maintained tolerance limits for price variance purchasing in
SAP.
2) Maintain source list
The following step guides how to maintain the source list in SAP.
Step 1: – Access the transaction using one of the following navigation options.
SAP R/3 Path: – SAP Easy Access > Logistics > Materials Management >
Purchasing > Master Data > Source List > Maintain
Transaction Code: – ME01 – Maintain
ME03 – Display
ME04 – Changes
Step 2: – On the “Maintain source list: initial screen” enter the following details
Enter the material number that you to maintain the source list.
Enter respective plant code.
Step 3: – On the”maintain source list: overview screen” enter the following details
1. Enter the valid period until which you can procure this material from
this vendor.
2. Enter vendor code in the vendor field.
3. Enter respective purchasing organization.
4. Select the fixed source field if the vendor is fixed.
5. Select block source of supply field if the vendor is blocked for
procurement for this material.
6. Enter 1 in to be included in the MRP run.
After updating all the mandatory fields, choose the save icon to save the entries.
The message will be displayed as the source list changes.
Purchase requisition (PR) is an internal request to purchasing. You can ask the
buyer to provide a certain quantity of a material or service on a certain date. A
purchase requisition can be created automatically by Material Requirement
Planning (MRP) or manually created.
PR is created to indicate purchase department to procure materials or services with
details like how much quantity is required, what type of materials or services to be
purchased, and when required.
3) How to Create Purchase requisition (PR) in SAP
A Purchase requisition can be created in SAP using transaction code “ME51N” or
by navigation menu path.
SAP R/3 Menu Path: – SAP menu > Logistics > Materials
Management > Purchasing > Purchase Requisition > Create
Transaction Code: – ME51N
Refer below for step by step procedure to create new purchase requisition in SAP
system using the transaction code ME51N.
Step 1 : Enter transaction code “ME51N” in SAP command
field.
Step 2: – On the Create Purchase Requisition screen, enter the following entries
1. Purchase Requisition Type: Select document type for PR
2. Material: Enter material code in the material field and short text will
automatically updated based on material text.
3. Quantity: Enter quantity of material
4. Deliver Date: Update delivery date
5. Plant: Enter respective plant code
6. Storage Location: Enter corresponding storage location
7. Requisition: Enter PR creator user id
Step 3: – Update purchase requisition text such as Department Account
number, Signature by an Authorized Department, Delivery instructions, terms and
conditions, references etc.
Step 4: After updating all the mandatory fields in PR creation screen, click on save
button to save the purchase requisition in SAP system.
Successfully we have created purchase requisition for stock material in SAP
System.
Important Transaction Code to Remember
ME51N – Create Purchase Requisition
ME52 – Change Purchase Requisition
ME53 – Display Purchase Requisition.
After creation of PR in SAP, the next step is creation of Purchase Order for Stock
Material in SAP.
4) How to Create Request for Quotation in SAP
Request for Quotation (RFQ) is used to inquire in the market to obtain quotations
from prospective vendors. RFQ can be created with reference to Purchase
Requisition, Outline Agreement (Contract), and another RFQ.
You can create RFQ in SAP by using the following navigation menu method
SAP R/3 Path: – Logistics > Material Management >Purchasing
>RFQ/quotation >Request for Quotation > Create
Transaction Code: – ME41
Step 1: Execute T-Code “ME41” in SAP command field.
Step 2: – On the Create RFQ: Initial Screen, enter the following data.
Enter the RFQ type as “AN”
Enter the Quotation Deadline
Enter Purch. Organization and Purchasing Group
Enter plant and storage location
Step 2: – Enter the Collective No to track of all RFQs related to particular
instances and reference data.
Step 3: – On the Create RFQ: Item overview screen, enter the following data.
1. Enter the appropriate item category
2. Enter the Material No
3. Enter the RFQ Quantity
4. Enter the Deliv. Date
5. Enter the Plant code
6. Enter the Submission date
Step 4: – Click on the vendor address button on the toolbar, on Create RFQ:
Vendor Address screen
Enter vendor code and press enter and the vendor details will be displayed
automatically.
Step 5: – Choose save button to save the Request for Quotation (RFQ). The vendor
Address screen allows to creation same RFQ data for a new vendor.
Similarly create RFQ for other vendors in the same screen and RFQ Nos will be
generated.
5) Maintain Quotation in SAP
The following step guides you to maintain quotations in SAP step by step. The
vendor communicates the price for material and the Request for Quotation(RFQ)
needs to be updated in SAP.
Step 1: – Access the transaction using one of the following navigation options
SAP R/3 path: – Logistics > Materials Management > Purchasing>
RFQ/quotation > Quotation > Maintain
Transaction Code: -ME47
Step 2: – On the Maintain Quotation: Initial Screen, enter the RFQ and press
enter to continue
Step 3: – Select line item to enter the details quantity and date, update vendor
details
After updating all the mandatory fields, choose save button to save the quotation.
Successfully quotations are maintained in SAP.
6) Create Purchase Order for Stock Material in SAP
In this scenario, we are going to create purchase order for stock materials in the
SAP system.
Refer below step by step procedure to create PO for stock material in SAP.
SAP R/3 Menu Path: – SAP Menu > Logistics > Materials Management >
Purchasing > Purchase Order > Create>Vendor/Supplying Plant Known
Important Transaction Codes
ME21N – Create Purchase Order
ME22N – Change Purchase Order
ME23N – Display Purchase Order
Step 1: Enter transaction code “ME21N” in the SAP command field and execute.
Step 2: On create purchase order screen, click on “other purchase order” option if
you want create purchase order with reference to the purchase requisition (PR),
> Select variant and select purchase requisition option,
> Enter the PR number and select execute button
> Select PR # and select adopt button, then the system will automatically adopt all
the data from the purchase requisition
Enter vendor code in the vendor field
Enter purchase organization
Enter new price of the material and currency
Update storage location
Select account assignment tab under item option and update the following data
Enter appropriate General Ledger Account
Enter business area for which Purchase order for stock material is
creating
Enter WBS element
Select the invoice tab and update tax code
Select the delivery /invoice tab and update payment terms and incoterms
After all the mandatory fields, press on save button to save the PO data.