Chapter 1 Materials Management: Manage Sourcing, Supply and Inventory through SAP 1.1 Materials Management
Materials management is central to manufacturing and trading industry. Materials management forms the internal part of complete supply chain. If we look at the IT framework of supply chain, it is evident that ERP is central to the supply chain. Material is sourced, procured, stored, processed or produced, distributed and sold. This forms the core of any Supply Chain
From process point of view, logistics (goods movement) can be categorised into:
1. Inbound logistics (Procurement logistics) 2. Internal logistics (Store logistics) 3. Outbound logistics (Sale and Distribution Logistics)
As per product SAP scope of materials management module is sourcing, supply (procurement and procurement logistics) and inventory management (includes internal logistics). Materials management basically helps to answers following questions
1. What to buy 2. How much to buy 3. When to buy 4. From where to buy
Before moving on to main topic, let us discuss about organization structure and mapping of the organization’s entity into SAP.
2.1.1 Organization Structure
Organization has many functions or department, like purchasing, stores, production planning, maintenance, finance, marketing, sales and distribution, logistics etc. There could be many site or locations of operations. Procurement could be centralized controlled or controlled locally. Inventory is always controlled locally at site or location. Client is the highest and technical organizational entity. All the data of a group of company is maintained at client. Company entity is next to client. Company is the highest organization entity, which represents a group of company, and all the financial results are consolidated at company level. Company code is next level of organizational entity.
Purchasing Organization is an entity in SAP, which represents the purchasing department controlling procurement at company level. Company Code represents that legal entity at which balance sheet is made. A purchasing organization can procure for one company or for many companies (centralized). A purchasing organization may be or may not be assigned to the company code/s, depending upon the scope of procurement.
Purchasing organization can procure for many sites of a single company code. These different sites of
company can be defined as a plant. Plant is that entity of SAP, where, any of ……………………………… ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..
Inventory Management, Valuation and Physical Inventory
3.1 Movement Type
Movement type is the heart of the inventory management in SAP . Movement type is a three-digit numeral classification key indicating the type of material movement (for example, goods receipt, goods issue, physical stock transfer). This classification has been done to have clear distinction between various material movements in the manufacturing industry or trading business. Different types of material may go through various types of different material movements. For example raw material is consumed or processed for finished product, a spare part/ engineering material is consumed at a cost center and a capital material is issued to an asset and is capitalized on the asset. Any material movement type is characterized by stock update and value update or sometimes only stock update. In other words, the movement type enables the system to find predefined posting rules determining how the accounts of the financial accounting system (stock and consumption accounts) are to be posted and how the stock fields in the material master record are to be updated.
To have a better and deep understanding of material movement, we need to understand stock type also. Stock type is a classification of different types of stock of the same material, which defines their state, usage and usability. Various types of stock types are, unrestricted stock, quality inspection stock, restricted-use stock, block stock, GR block stock, subcontracting stock, project stock, consignment stock, sales order stock, stock in transit etc. Transferring material from one stock type to another stock type is also characterized by movement type. Such material movement types do not necessarily need a physical material movement. There may not be any material movement. If we transfer material from quality stock to unrestricted stock, after quality test, there may not be any material movement, but there is a certification that, stock has been released for unrestricted use from earlier quality stock. These kinds of stock type change are also recorded in the system using movement type. When you enter a goods movement, you must always enter the movement type. The movement type has important control functions in Inventory Management. It is essential for • Updating the quantity fields • Updating the stock and consumption accounts • Selection of the fields used for entering documents • Printing goods receipt/issue slips
Financial Accounting Integration with Materials Management
4.1 Automatic Account Determination (AAA)
SAP is enterprise solution software. Its feature of integrating the various modules is of paramount. Integration of various business processes with finance module is very strong in SAP ERP package. In this section, we would focus on integration of purchase and inventory business process with finance accounting. First, we shall consider inventory process. In manufacturing or trading organizations, there are various types of goods movements, which have impacts on financial books. Various goods movements are as follows: • Goods receipt from vendor • Goods return to vendor • Goods issue to consumption • Goods transfer from one valuation area to another valuation area of one company code or two different company codes. Valuation area could be plant or company code. • Special stocks goods movement (for example project stock, subcontracting vendor stock, consignment stock and pipeline material) • Goods issue for sale • Goods receipt from customer (sales return) There may be various variants of a goods movement also. For example, goods issue to consumption involves consumption for cost center, production order, and maintenance order, goods movement of unrestricted stock or special stock. As we discussed earlier that in SAP every goods movement is characterized by three character numerical code. These three character numerical codes are known as movement type. Every movement type has various controls related with value and quantity updation, batch management, quality activation, special stock indicators, and screen field controls. Those movement types, which have financial impact, are linked with transaction event keys and account grouping code (or account modifiers or general modifier). In automatic account determination process, valuation-grouping code (or valuation modifier) is another key to determine GL account. Valuation grouping code is used to group different valuation areas from accounting point of view. Valuations areas under one valuation grouping code have same accounts for the same type of posting. ……………………………… ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..
LIV (logistics invoice verification) is the last step in procurement cycle. Transaction code is MIRO. LIV is done to verify material quantity receipt during goods receipt and value of quantity receipt. Value is verified by verifying rate and taxes applicable multiply by quantity. LIV is done separately for all the vendors involve in procurement cycle. Various vendors, which may be involved in procurement process, are material supplier, freight vendor, customs house vendor, insurance vendor, and any other planned delivery cost vendor if any involve in the process. An invoice document is made for a single vendor either for material or planned delivery cost. As goods receipt is made against purchase order, LIV can also be made against purchase order. Purchase order is not the only reference document against which LIV can be made. Other reference documents against which LIV can be made are scheduling agreement, delivery note number, bill of lading, service entry sheet, and vendor code. LIV document serve as a documentary proof of verification for payment to vendors. To start the process of LIV, let us understand how to do simple invoice verification in SAP . Later on, we would discuss various variants, controls and features of logistics invoice verification. Transaction code is MIRO. ……………………………… ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..
Country India Version of SAP deals with the, excise duty, service tax and VAT for India. Here we shall discuss the processes of mainly excise treatment in India through SAP. Scope of CIN in this chapter is restricted to MM module transactions only. Following business processes shall be discussed 1. Taxes in domestic procurement of raw material 2. Taxes in import procurement of raw material 3. Tax treatment in asset procurement 4. Tax treatment in stock transport order 5. Excise invoice capturing and posting 6. Service tax in service procurement 7. Capital Goods transfer of Goods 8. Utilization of excise duty 9. Excise JV (Journal Voucher)
Refer to SAP Note Number 542862 (For MM), 535616 (For SD) for SAP documentation on CIN, along with this chapter, in order to understand CIN comprehensively,.
6.1 Excise Duty
Excise duty is a duty which is levied on manufacturing of goods. Excise duty is also known as Central Excise Duty or CENVAT (Central value added tax). Any manufactured goods create a liability to pay taxes to central government of India. But for the ease of tax calculation and keeping records tax is calculated at the time sale or stock transport from the manufacturing plant. ……………………………… ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..
SAP is configured to use ERP software package. It is configured by SAP consultants in their respective domains materials management, production planning, sales and distribution etc. Consultant use implementation guide to configure software as per the business need. In this chapter configuration of materials management module is being explained in detail. Configurations of modules are interdependent. There are precedence dependencies on many configurations of different modules. Configuration of the package starts with organization structure in finance module, materials management module and other modules, respectively. Company and company codes are configured in finance module, further to which organization structure of materials management is configured. Configuration details are explained as below. ……………………………… ………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..
ERP, Enterprise Resource Planning is a discipline in which extensive research has been carried out and numerous methodologies churned out. Enterprise Resource Planning is concept of automating and integrating the business process. The Information Technology has made a great progress to realize the ERP from its concept in books. There are various software packages available to implement ERP in industry. But ERP is incomplete without BPR (Business Process Reengineering). BPR could be done before, after or along with ERP. This is a debatable issue. But what seems to be lacking is a structured approach.
The BPR methodology includes the five activities: Prepare for reengineering, Map and Analyze As-Is process, Design To-be process, Implement reengineered process and Improve continuously.
The ERP methodology includes Title Preparation, Business process mapping and configuration design, Configuration and Development in Development environment, Final preparation and Unit and Integration testing in Quality Server and finally Go-live and support.
Many application of ERP have been titled in the manufacturing sector. These sector’s business processes have been studied and standardized. This has made ERP implementation easier. In this title an attempt has been made to study the implementation of ERP/BPR with a case study in Agro based industry. In Agro industry, though many issues are common to manufacturing sector, but it differs due to seasonality (3 months) purchase and round the year sale, and hence huge inventory and material handling while purchasing raw material. Moreover, agro products require special; handling due to their perishable nature and to fulfill the basic necessity of society.
This case study provides a review of ERP and BPR and present best of breed methodologies from contemporary literature and practice and introduces a consolidated, systematic approach to the redesign of a business enterprise and implementing ERP. This is a case study of ERP (SAP) and BPR implementation in Agro Industry.
Keywords: Enterprise Resource Planning, Business Process Reengineering, Methodology, Improvement, Implementation, Agro based industry, SAP
Chapter 1
ReplyDeleteMaterials Management: Manage Sourcing, Supply and Inventory through SAP
1.1 Materials Management
Materials management is central to manufacturing and trading industry. Materials management forms the internal part of complete supply chain. If we look at the IT framework of supply chain, it is evident that ERP is central to the supply chain. Material is sourced, procured, stored, processed or produced, distributed and sold. This forms the core of any Supply Chain
From process point of view, logistics (goods movement) can be categorised into:
ReplyDelete1. Inbound logistics (Procurement logistics)
2. Internal logistics (Store logistics)
3. Outbound logistics (Sale and Distribution Logistics)
As per product SAP scope of materials management module is sourcing, supply (procurement and procurement logistics) and inventory management (includes internal logistics).
Materials management basically helps to answers following questions
1. What to buy
2. How much to buy
3. When to buy
4. From where to buy
………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..
Chapter 2
ReplyDeleteBusiness Processes in Procurement
2.1 Basics of Procurement
Before moving on to main topic, let us discuss about organization structure and mapping of the organization’s entity into SAP.
2.1.1 Organization Structure
Organization has many functions or department, like purchasing, stores, production planning, maintenance, finance, marketing, sales and distribution, logistics etc. There could be many site or locations of operations. Procurement could be centralized controlled or controlled locally. Inventory is always controlled locally at site or location.
Client is the highest and technical organizational entity. All the data of a group of company is maintained at client. Company entity is next to client. Company is the highest organization entity, which represents a group of company, and all the financial results are consolidated at company level. Company code is next level of organizational entity.
Purchasing Organization is an entity in SAP, which represents the purchasing department controlling procurement at company level. Company Code represents that legal entity at which balance sheet is made. A purchasing organization can procure for one company or for many companies (centralized). A purchasing organization may be or may not be assigned to the company code/s, depending upon the scope of procurement.
Purchasing organization can procure for many sites of a single company code. These different sites of
company can be defined as a plant. Plant is that entity of SAP, where, any of ………………………………
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..
Chapter 3
ReplyDeleteInventory Management, Valuation and Physical Inventory
3.1 Movement Type
Movement type is the heart of the inventory management in SAP . Movement type is a three-digit numeral classification key indicating the type of material movement (for example, goods receipt, goods issue, physical stock transfer). This classification has been done to have clear distinction between various material movements in the manufacturing industry or trading business. Different types of material may go through various types of different material movements. For example raw material is consumed or processed for finished product, a spare part/ engineering material is consumed at a cost center and a capital material is issued to an asset and is capitalized on the asset. Any material movement type is characterized by stock update and value update or sometimes only stock update. In other words, the movement type enables the system to find predefined posting rules determining how the accounts of the financial accounting system (stock and consumption accounts) are to be posted and how the stock fields in the material master record are to be updated.
To have a better and deep understanding of material movement, we need to understand stock type also. Stock type is a classification of different types of stock of the same material, which defines their state, usage and usability. Various types of stock types are, unrestricted stock, quality inspection stock, restricted-use stock, block stock, GR block stock, subcontracting stock, project stock, consignment stock, sales order stock, stock in transit etc. Transferring material from one stock type to another stock type is also characterized by movement type. Such material movement types do not necessarily need a physical material movement. There may not be any material movement. If we transfer material from quality stock to unrestricted stock, after quality test, there may not be any material movement, but there is a certification that, stock has been released for unrestricted use from earlier quality stock. These kinds of stock type change are also recorded in the system using movement type.
DeleteWhen you enter a goods movement, you must always enter the movement type. The movement type has important control functions in Inventory Management. It is essential for
• Updating the quantity fields
• Updating the stock and consumption accounts
• Selection of the fields used for entering documents
• Printing goods receipt/issue slips
………………………………
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..
Chapter 4
ReplyDeleteFinancial Accounting Integration with Materials Management
4.1 Automatic Account Determination (AAA)
SAP is enterprise solution software. Its feature of integrating the various modules is of paramount. Integration of various business processes with finance module is very strong in SAP ERP package. In this section, we would focus on integration of purchase and inventory business process with finance accounting.
First, we shall consider inventory process. In manufacturing or trading organizations, there are various types of goods movements, which have impacts on financial books. Various goods movements are as follows:
• Goods receipt from vendor
• Goods return to vendor
• Goods issue to consumption
• Goods transfer from one valuation area to another valuation area of one company code or two different company codes. Valuation area could be plant or company code.
• Special stocks goods movement (for example project stock, subcontracting vendor stock, consignment stock and pipeline material)
• Goods issue for sale
• Goods receipt from customer (sales return)
There may be various variants of a goods movement also. For example, goods issue to consumption involves consumption for cost center, production order, and maintenance order, goods movement of unrestricted stock or special stock.
As we discussed earlier that in SAP every goods movement is characterized by three character numerical code. These three character numerical codes are known as movement type. Every movement type has various controls related with value and quantity updation, batch management, quality activation, special stock indicators, and screen field controls. Those movement types, which have financial impact, are linked with transaction event keys and account grouping code (or account modifiers or general modifier).
In automatic account determination process, valuation-grouping code (or valuation modifier) is another key to determine GL account. Valuation grouping code is used to group different valuation areas from accounting point of view. Valuations areas under one valuation grouping code have same accounts for the same type of posting. ………………………………
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..
Chapter 5
ReplyDeleteLogistics Invoice Verification
5.1 Logistics Invoice Verification
LIV (logistics invoice verification) is the last step in procurement cycle. Transaction code is MIRO. LIV is done to verify material quantity receipt during goods receipt and value of quantity receipt. Value is verified by verifying rate and taxes applicable multiply by quantity. LIV is done separately for all the vendors involve in procurement cycle. Various vendors, which may be involved in procurement process, are material supplier, freight vendor, customs house vendor, insurance vendor, and any other planned delivery cost vendor if any involve in the process. An invoice document is made for a single vendor either for material or planned delivery cost.
As goods receipt is made against purchase order, LIV can also be made against purchase order. Purchase order is not the only reference document against which LIV can be made. Other reference documents against which LIV can be made are scheduling agreement, delivery note number, bill of lading, service entry sheet, and vendor code. LIV document serve as a documentary proof of verification for payment to vendors.
To start the process of LIV, let us understand how to do simple invoice verification in SAP . Later on, we would discuss various variants, controls and features of logistics invoice verification. Transaction code is MIRO. ………………………………
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..
Chapter 6
ReplyDeleteCountry India Version (CIN)
Country India Version of SAP deals with the, excise duty, service tax and VAT for India. Here we shall discuss the processes of mainly excise treatment in India through SAP. Scope of CIN in this chapter is restricted to MM module transactions only.
Following business processes shall be discussed
1. Taxes in domestic procurement of raw material
2. Taxes in import procurement of raw material
3. Tax treatment in asset procurement
4. Tax treatment in stock transport order
5. Excise invoice capturing and posting
6. Service tax in service procurement
7. Capital Goods transfer of Goods
8. Utilization of excise duty
9. Excise JV (Journal Voucher)
Refer to SAP Note Number 542862 (For MM), 535616 (For SD) for SAP documentation on CIN, along with this chapter, in order to understand CIN comprehensively,.
6.1 Excise Duty
Excise duty is a duty which is levied on manufacturing of goods. Excise duty is also known as Central Excise Duty or CENVAT (Central value added tax). Any manufactured goods create a liability to pay taxes to central government of India. But for the ease of tax calculation and keeping records tax is calculated at the time sale or stock transport from the manufacturing plant. ………………………………
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..
Chapter 7
ReplyDeleteImplementation Guide
SAP is configured to use ERP software package. It is configured by SAP consultants in their respective domains materials management, production planning, sales and distribution etc. Consultant use implementation guide to configure software as per the business need. In this chapter configuration of materials management module is being explained in detail. Configurations of modules are interdependent. There are precedence dependencies on many configurations of different modules. Configuration of the package starts with organization structure in finance module, materials management module and other modules, respectively. Company and company codes are configured in finance module, further to which organization structure of materials management is configured. Configuration details are explained as below. ………………………………
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..
Annexure
ReplyDeleteERP Implementation: A Process
Synopsis
ERP, Enterprise Resource Planning is a discipline in which extensive research has been carried out and numerous methodologies churned out. Enterprise Resource Planning is concept of automating and integrating the business process. The Information Technology has made a great progress to realize the ERP from its concept in books. There are various software packages available to implement ERP in industry. But ERP is incomplete without BPR (Business Process Reengineering). BPR could be done before, after or along with ERP. This is a debatable issue. But what seems to be lacking is a structured approach.
The BPR methodology includes the five activities: Prepare for reengineering, Map and Analyze As-Is process, Design To-be process, Implement reengineered process and Improve continuously.
The ERP methodology includes Title Preparation, Business process mapping and configuration design, Configuration and Development in Development environment, Final preparation and Unit and Integration testing in Quality Server and finally Go-live and support.
Many application of ERP have been titled in the manufacturing sector. These sector’s business processes have been studied and standardized. This has made ERP implementation easier. In this title an attempt has been made to study the implementation of ERP/BPR with a case study in Agro based industry. In Agro industry, though many issues are common to manufacturing sector, but it differs due to seasonality (3 months) purchase and round the year sale, and hence huge inventory and material handling while purchasing raw material. Moreover, agro products require special; handling due to their perishable nature and to fulfill the basic necessity of society.
This case study provides a review of ERP and BPR and present best of breed methodologies from contemporary literature and practice and introduces a consolidated, systematic approach to the redesign of a business enterprise and implementing ERP. This is a case study of ERP (SAP) and BPR implementation in Agro Industry.
Keywords: Enterprise Resource Planning, Business Process Reengineering, Methodology, Improvement, Implementation, Agro based industry, SAP
………………………………
………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………..