Materials Management

Presented by
Tripta Nair
 Definition
Materials Management can be defined as that
function of business that is responsible for the
coordination of planning, sourcing,
purchasing, moving, storing and controlling
materials in an optimum manner so as to
provide service to the customer, at a pre-
decided level at a minimum cost.
 Interlinked Sub Functions
• Materials planning and control
• Purchasing
• Stores
 Materials planning and control
• Sales Forecasts and
• Production Plans
 Purchasing
• To provide materials to user Departments
based on 5 R’s of Materials Management
– of the right quality
– in the right quantity
– at the right time
– from the right source
– at the right price
 Stores
• Physical Control
• Preservation ,
• Minimization of damage
• Efficient handling,
• Maintenance of records,
• Proper locations and
• Stocking.
 Inventory control
Setting inventory levels, doing various analyses
such as :
• ABC analysis ,
• Fixing economic order quantities (EOQ),
• Setting safety stock levels,
• Lead time analysis and
• Reporting.
 Lifecycle of Procurement
• Requirement and Information Gathering
• Supplier Contact
• Background Review
• Negotiation
• Order fulfillment
• Consumption, Maintenance and Disposal
• Contract Renewal
Basic Procurement Activities
 Types of Procurement
Stock/Consumables One Time

Basic Procurement

External/Internal Contracts

Scheduling
Consignment
Agreements
Types of
Procurement

Third Party

Pipeline

Special Procurement

Returnable
Transport Stock

Subcontracting

Stock transfer using

stock transport
order
 Types of Materials and Procurement
• Basic Procurement
– Material Type
• Stock Material
– Stock is maintained
– Stock Increases or Decreases
– Material Master is a must
• Consumable Material
– Directly Consumed
– Purpose of Consumption
– May or may not have a Material Master
 Types of Materials and Procurement
• Basic Procurement
– Types of Procurement
• External (from external vendors)
– One Time (for materials ordered irregularly)
– Contracts (Ordered regularly in large quantities)
» Negotiated Price
» Validity Period
– Scheduling agreements
» Delivery with time scheduling
• Internal (from within the company)
 Types of Materials and Procurement
• Special Procurement
– Consignment Stock
• Ownership of material with the vendor
• Payment has to be made based on consumption
– Third-party processing
• Vendor Passes on the sales order to associate external vendor
• External vendor delivers the goods to customer
– Pipeline handling
• No need to order or store material
• Material is obtained as and when required through pipeline/ cable
• Consumed material is settled with vendor on regular basis
• Oil, water, electricity
– Returnable Transport Stock
• Returnable Packaging (pallets/containers)
• Ownership with vendor
– Subcontracting
• Subcontractor (vendor)
• Components are listed in purchase order
– Stock transfer using stock transport order
• Purchase order is prepared as Stock Transport Order
 Organizational Structure
• Framework of the company
• Levels interlinked with one another
• Also referred to as Enterprise Structure
• Enterprise Structure
– Has organizational units interlinked with one
another
 SAP Enterprise System

Learning by Creating a Model Business

• Understanding business processes and their
integrative nature
• Understanding SAP organizational structures
• Combining business processes and SAP
organizational structure (i.e., configuration)
• Test the newly configured system
• View system outputs - statistics, reports, and
graphics
 SAP Enterprise System

Business Process Integration

• “The Stool”
– Components
• Organizational Data
• Master Data
• Rules
• Transactions
 SAP Enterprise System

Business Process Integration

FI M SD
M

Mas
ter
Org

Data
Dat

s
Rule
a

FI FI
M FI M
M M M
SD M SD
SD
 SAP Enterprise System

Organizational Data
• A hierarchy in which the organizational units in
an enterprise are arranged according to tasks
and functions
• Are static data and are rarely changed
• The definition of organization units is a
fundamental step, it is a critical factor in how
the company will be structured
 SAP Enterprise System

Master Data
• Master data is relatively fixed
– Material master data
– Vendor master data
– Purchasing information record
– General Ledger master data
• Before making the master data configurations,
you must have completely defined the
organizational structures
 SAP Enterprise System

Rules
• Defines the parameters for Master Data and
Transactions
• Determines functionality for Master Data and
Transactions
• Relatively fixed
• Changes as policy changes
 SAP Enterprise System

Transaction Data
• Includes internal and external exchanges that
describe business activities
• Unlike master data, aggregate transactional
data is dynamic – each transaction is unique
 Types of Data in SAP System
Organizational Master Data Rules Transaction Data
Data

Company Code Person Price variance Purchase Order

Plant Material Maximum cash Invoice
discount
Storage Location Customer Purchase order Quotation
price quantity
Distribution Vendor Invoice Receipts Sales Order
Channel Tolerances

Purchasing Work Centre Credit Limits Transportation

Organization Order
… … …
 Unit 4

SAP Materials Management (MM)

- Organizational Structures -
 Materials Management (MM)

Unit Concept
• The purchasing process involves the
acquisition of goods and services to support
the creation of goods and services in the
organization
• In this unit the structure required for the
purchasing process is presented
 Materials Management (MM) Integration

Purchasing
• The purchasing process exists in the Materials
Management (MM) module and Finance (FI)
module
• The structure includes elements of the Materials
Management (MM) and Finance (FI) modules
• Master data for the purchasing process exists in
the (MM) and (FI) modules
• The purchasing process can and does interface
with the Production Planning (PP), Warehouse
Management (WM), and Quality Management
(QM) modules
 Materials Management (MM)

Components of Materials Management

Foreign
Valuatio
Trade/
n
Customs
Logistics
Invoice Service
Verificat Master
Materials ion
Purchasi Product
Management ng
MRP
Catalog
(MM)
Service
Material
Entry
Master
Sheet
Inventor Physical
y Inventor
Mgmt. y
 Unit Overview
• MM Organizational Structure
• MM Master Data
• MM Processes
– Procure-to-Pay Process
Organizational Levels in Procurement
 Materials Management (MM)

Business Process Integration

Org
Dat
a

M
M
 Financial Accounting (FI)

Client
• Highest hierarchical
level in an SAP
environment
• A complete database
containing all the tables
necessary for creating a
fully integrated
information system
• Master records are
created at the client
level
• Tcode : SCC4
• Table: T000
 Financial Accounting (FI)

Company
• Consolidated financial
statements are created at
the company level
• A company can include one
or more company codes
• All company codes must
use the same chart of
accounts and fiscal year
• Company is not required in
the definition of an
enterprise (optional)
• Table:T880
 Financial Accounting (FI)

Company Code
• A legally independent entity
• The smallest organizational
unit for which accounting
can be carried out
• Business transactions are
processed at this level
• Accounts are managed at
this level
• Legal financial statements,
such as the balance sheet
and the income statement,
are generated at this level
using the General Ledger
balances
• Table : T001
Financial Accounting (FI)

Client

Company

Company
Code
 Materials Management (MM) Integration

Organizational Structures
• Plant
• Valuation Area
• Storage Locations
• Purchasing Organizations
• Purchasing Groups
 Materials Management (MM) Integration

Plant
• Lowest valuation area
• Organizational level where Material Requirements (MRP) runs
• Plant in SAP is a physical location of company, where the finished
goods are stored for easy distributing the goods to the customers.
• May be a physical or logical unit
• Generally used to describe a production site, a distribution center or
centralized warehouse
• Depending upon the usage, you can define 4 types of plants:
– Production Plant: Where the production facility available
– Inventory Plant: Where the stock of materials are managed
– Maintenance Plant: Where the maintenance of goods take place.
– Distribution Plant :
• Table Name :T001W
Plant
 Materials Management (MM) Integration

Valuation Area
• The valuation area determines at which level a
material is valuated (inventory value is established)
• SAP allows valuation at the company code or plant
level, but recommends valuation area be set at the
plant level
 Materials Management (MM)

Storage Location
• Subdivision of a plant
• Where materials are managed (inventory
management)
– Raw Materials
– Maintenance, Repair, and Other (MRO)
– Finished Product
• May be a physical or logical unit
• Table Name: T001L
Storage Location
 Materials Management (MM)

Organizational Relationships
• Plant/Storage Location

Plant DL00

Storage Location Storage Location

10 - Inventory 20 - Quality
 Materials Management (MM) Integration

Purchasing Organization
• Organizational unit responsible for the
procurement of materials and services.
• SAP requires that purchasing organizations be
assigned at the plant level
• A purchasing organization can be assigned to
more than one plant
• A purchasing organization can be assigned to a
company code
• Table : T024E
 Purchasing Organization
Back - End
Front - End
 Materials Management (MM)

Organizational Relationships
• Plant/Purchasing Organization (1)

Plant DL00

Purchasing Purchasing
Organization – P001 Organization – P002

One plant – multiple purchasing organizations

 Materials Management (MM)

Organizational Relationships
(continued)
• Plant/Purchasing Organization (2)

Plant P001 Plant P002

Purchasing Purchasing
Organization – P001 Organization – P002

Each plant has its own purchasing organization

 Materials Management (MM)

Organizational Relationships
(continued)
• Plant/Purchasing Organization (3)

Purchasing
Organization – P001

Plant – P001 Plant – P002

One purchasing organization for multiple

plants
 Materials Management (MM)

Organizational Relationships
(continued)
• Plant/Purchasing Organization (4)
Purchasing
Organization – P001

Company Code Company Code

C001 C002

Plant – P001 Plant – P002

One purchasing organization for multiple company codes

 Materials Management (MM)

Purchasing Group
• Responsible for specified purchasing activities
• Often used to identify individual buyers
• Used for reporting
• Table Name : T024 (Back-End)

Front - End
 Materials Management (MM)

Organizational Relationships
• Purchasing Organization/Purchasing
Group
Purchasing
Organization – P001

Purchasing Group Purchasing Group

001 002
Assign Plant to Company Code
Table Name: T001K TCode: OX18
Backend Frontend
Assign Purchasing Organization to Company Code

• Table Name :T024E • TCode:OX01

Backend Frontend
Assign Purchasing Organization to Plant
• Back-End

Front – End –OX17

 Purchasing organization
material
group

purchasing organization purchasing group MG 0, 3

purchasing group MG 1, 4

purchasing group MG 2, 5

purchasing group MG 6
plant
purchasing group MG 7, 8, 9
Inventory Management with a Warehouse
Management System
client 0001
0001––ABC
ABCinc.
inc.

company code 0001

0001 –– Jones
Jones inc.
inc. 0002
0002 –– Model
Model Ltd.
Ltd.

purchasing organization 0001

0001 0002
0002 0003
0003 MM
MM
distrib.-
plant center 0001
0001 0002
0002 0003
0003 0004
0004 0001
0001 factory

storage location 0001

0001 0002
0002 0003
0003 0004
0004

warehouse number 001

001

storage type 001

001 002
002 WM
WM

storage bin (physical stock) 05-04-03

05-04-03 05-04-04
05-04-04
 Materials Management (MM)

Organizational Structure
Company Code
C001

Purchasing
Plant P001
Organization – P001

Purchasing Storage Location Storage Location

10 - Inventory 20 - Quality
Group
001
Global Bike Structure for Warehouse
Management
Global Bike Client

Global Bike Inc. US Global Bike Inc. DE Company Code

Dallas San Diego Miami Plant

Trading Goods Finished Goods Miscellaneous

Storage
Location

San Diego Warehouse Warehouse

Number
Shelf Storage GR Area Ext. Pallet Storage Shipping area Stock Transfers Storage Type
Receipts Deliveries (Plant)

Total Section Storage Section

STBN-2-000 STBN-2-001 STBN-2-999 Storage Bin