SAP MM

OVERVIEW OF MM AND IT’S

PROCESS
What is SAP MM?
• SAP MM is a part of logistics division that helps to
manage the procurement activity of an organization.
• It is the backbone of Logistics area which incorporates
modules like Sales and Distribution, Production Planning,
Plant Maintenance, Project Systems & Warehouse
Management.
P2P PROCESS OVERVIEW:-
• The procurement process starts from purchase
requisition and ends with payment to the vendor.
• It is a 3-way matching rule (PO-GR-IV). We will
understand the master data activities like a material
master, purchase Info record, source list, and
transaction activities like Purchase Requisition, Purchase
Order, Goods Receipt, and Invoice Posting.
Pictorial Representation of
P2P
Requirement Identification
& PR
• In the p2p cycle is requirement identification. That happens
whenever a shortage of raw materials, services, or other parts is
needed to continue the operation.

• The production department communicates with the stores’

department for the needed materials. If it is in stock, there is no
need to raise the requisition.

• However, if the stock is unavailable, the person responsible for this

in the store’s department will create a purchase request internally
and send it to the purchasing department.

• The person responsible will submit the purchase request to the

purchasing manager. Here accounts department does not come
into the picture
Authorizing the PR
• The purchasing manager evaluates the purchase
requisition and negotiates with different vendors. Here
the purchase requisition can either be approved or
rejected.
Shortlisting the Vendors
• Depending on the type of request, the procurement
department will shortlist either a new list of vendors or
the procurement department may directly approach the
existing vendor for the material.
Taking Quotations from
Vendors
• Here the buyer sends RFP(Request for Proposals) to all
the shortlisted vendors to explain the requirements. The
vendors are then asked to give their quotations.
Vendor Selection
• The RFP response is evaluated, and the vendors
negotiate terms and quotations.

• The agreement will be signed for the vendor whose

quotation and the buyer accepts terms are shortlisted.
Creation of Purchase
Order
• Once the purchase requisition is approved, the
purchasing department finalizes the vendor depending
on the importance and cost of the material or service
and raises the purchase order.

• Finally, the purchase order will be created, and the

purchase manager will approve the PO and send it to
the vendor with details like material description, price,
quantity, payment terms, etc.
Shipment Notice
• Once the agreement is signed, and the PO is confirmed,
the vendor sends the shipment notification to the buyer.
Notice informing about the goods or services that they
are providing.

• At this point, we are halfway through the procure-to-pay

cycle. The shipment notice includes all the details, like a
description of the goods and the shipment date.
Goods Receipt
• The company receives the goods from the supplier. The materials or
services obtained are inspected to check the quality and quantity of
the materials. Goods receipt will be raised against the PO.

• The delivery team compares the PO with the shipment notice to

validate if the two match. If they match, the company issues the
goods receipt to the vendor.

• However, if there are discrepancies, the company can contact the

vendor and ask for a refund or replacement.

• In this stage, the system generates two reports. One is the material
document in MM, and another is the accounting document in FI.
Recording the Invoice
• After receiving the receipt from the company, the
supplier sends them the invoice for payment. The
invoice will have all payment details related to the
goods delivered.
Three-way Match
• Once the company receives the invoice, the 3-way
check will happen automatically by the standard
system. Here invoices will be verified with goods receipt
and purchase order for quantity and price.
Making Payment to the
Supplier
• Suppose the accounting department finds a match
between the price, quantity, and terms and conditions
within documents, it will pay the vendor (vendor
payment) as per the agreed terms depending on the
invoice due date.
Financial Reporting
• Once the vendor receives the payment, the complete
process is documented, and accounting reports are
created in FI.
Advantages of P2P
SAP MM ORGANIZATINAL
STRUCTURE
• Client:-
• The client is the highest hierarchical level in the SAP system.
• It is an Independent legal and organizational unit of the
system. A client generally is an entire corporate
group(example:- Nestle).
• Company Code:-
• Company code is SAP is the organizational unit which is the
created in Finance (FI) module and the same is linked with
Materials Management module. Strictly speaking it does not
belong to SAP MM organizational structure. Company code
represents an independent company. Company which is a legal
entity and statutory requirement is to maintain a separate
balance sheet. Profit and loss statement are created and
maintained at the company code level. (example:- Electrical,
Chemicals)
• Plant:-
• In Materials Management (MM) module, a plant is referred to as a
facility where the material stock is kept, stored and inventory is
maintained. It is also an operational facility within a company code
(e.g., a production facility, regional or branch office). As an
organizational unit within logistics, the plant subdivides an
enterprise from the viewpoints of production, procurement,
maintenance, and materials planning.
• One Plant can be assigned to only one company code.
• Storage Location:-
• Storage Location is an organizational unit in logistics which is
assigned to a plant where the stock is kept and inventory is
managed. Storage Location can be characterized and vary based on
their properties like Raw Material Storage Location, Finished Goods
Storage Location, Spares Storage Location, Returns Sales Storage
Location, Temperature Controlled Storage Location.
• Purchasing Organization:-
• A purchasing organization is responsible for all purchasing activities within a
company and is responsible for handling procurement activities and
documentation such as RFQ, contracts, purchase orders, etc. In simple words,
a Purchasing Organization is an organizational unit in SAP Materials
Management which is responsible for purchasing and carries out procurement
activities on behalf of the company.
• Purchasing Group:-
• A Purchasing Group represents an individual or a group of individuals, not
necessarily in procurement department, who are responsible of carrying out
purchasing activities. This is usually used for reporting purposes, as well as
approval procedure (release strategy) for Purchase Requisitions (PR), Requests
for Quotation (RFQs), Purchase Orders (PO), Contracts, etc. You can describe a
Purchasing Group as a group of purchasers responsible within a purchase
organization to procure a specific type of material and/or service. (example:-
Procuring Specific Raw materials)
• There is no need to assign a Purchase Group to Purchase Organization. If we
assign a PG to PO they cannot raise PO independently and they can raise PO
only to Purchase Organization.
Master data in SAP MM
• What is Master Data?
• Master data refers to the fundamental, unchanging
information about various entities within a business
process. In the context of SAP S/4HANA MM, master data
includes essential details about materials, suppliers,
customers, and other relevant entities.
• Types of Master Data in MM:
• Material Master Data: The material master record
contains comprehensive information about the materials
a company uses in its operations. It encompasses
details such as material type, description, unit of
measure, valuation data, procurement information, and
classification data
• Vendor Master Data: Vendor master data contains information
about suppliers or vendors that a company engages with. This
data includes vendor contact details, payment terms, delivery
terms, and purchasing conditions
• Customer Master Data: While customer master data is more
closely associated with the Sales and Distribution (SD) module, it
also plays a role in MM processes. It includes details about
customers, such as contact information, credit terms, and billing
preferences.
• Source List: The source list identifies approved suppliers for
specific materials. It is a subset of the vendor master data and
specifies which vendors are authorized to supply certain materials.
• Material Valuation Data: Material valuation data determines how
materials are valued for accounting purposes. It includes
information related to valuation classes, valuation categories, and
valuation methods.
Material Master
• The Material Master contains all data required to define
and manage material. It integrates data from
engineering, manufacturing, sales and distribution,
purchasing, accounting, and other departments.
• The material master is used as a source of data for
purchase order processing throughout the procurement
cycle.