Introduction to Purchasing in SAP - Logistics and Supply Chain
How does the Purchasing module work in SAP?
Introduction to Purchasing in SAP
Businesses of any size use their supply chain function to purchase items either to manufacture finished goods or to provide services. Before a purchasing department can purchase material in SAP, the department's unique infrastructure must be configured.
To design a structure that best meets a business's needs, you need to understand the SAP organizational structure and the decisions a purchasing department needs to make.
SAP Purchasing Organizational Structure
Every purchasing department is unique, but the organization structure defined within SAP will allow a company to adopt best practices in order to maximize the benefits of the system.
- Purchasing Organization - This is the highest level of the purchasing infrastructure. A purchasing organization is defined as a group of purchasing activity that is associated with all or a specific part of the enterprise.
If a company has a large number of locations that are geographically independent then each area may have their own purchasing organization. However, a small business with one or two locations may only use one purchasing organization.
- Purchasing Group - The purchasing group can be defined as a person or group of people dealing with a certain products or group of products that are purchased through the purchasing organization.
In larger organizations there are often groups of purchasing professionals in the purchasing department who work with certain suppliers or types of suppliers.
There are a number of purchasing documents that are used by purchasing departments in SAP.
- Purchase Requisition - If a product is required through the production planning process, a purchase requisition can be generated. Products and services not part of the planning process can be requested manually using a purchase requisition.
A requisition can be created by authorized users and they will either request items from a web-based catalog or by entering requisitions directly into the SAP system. If a requisition is raised for an item that is not been purchased before, a request for quotation can be created and sent to existing or new vendors.
- Request For Quotation - If the product cannot be bought from contracted supplier or the price and quality is not acceptable, the purchasing department can send new or existing suppliers a Request for Quotation (RFQ).
The supplier can review the RFQ and send back their best price and conditions for the items.
- Quotation - When the supplier sends back their quotations, they can be entered into SAP and then the purchasing department can review and compare.
There may be some negotiation with the suppliers for the best quotation, where the purchasing department will try to get more favorable delivery times, discounts or freight costs.
- Purchase Order - This is a commercial document issued by a purchasing department to the vendor, which identifies the product or service required, the quantities, and negotiated price that the supplier and purchasing department have agreed upon.
It is possible to set up the system so that a vendor has to acknowledge that they have received the purchase order.
Also, it is possible to require vendors to send an advanced shipping notice, so that it is possible to know when the items are to be delivered.
- Contracts - Instead of a single purchase order with a vendor, it is possible to create a contact where the vendor agrees to send a certain quantity of the items over a certain period of time.
Also, the contract can be a value contract where instead of a quantity; the contact is for a total amount of goods purchased over a certain period.
- Scheduling Agreement - This agreement with the vendor means that there will be a contract to supply a the items at scheduled intervals over a period of time.
SAP's Purchasing function was designed so that its users can help their organizations provide their customers the orders those customers want, when those customers want those orders - and accomplish that by spending as little on inventory as possible.
This SAP Purchasing article has been updated by Gary Marion, Logistics and Supply Chain Expert.