MM Overview

 SAP MM definition:

SAP MM (Material Management) is one of the important modules in SAP ERP software and MM
application module supports the procurement and inventory functions occurring in day-to-day business
operations.
MM module contains many aspects such as purchasing, goods receiving, material storage, consumption-
based planning, and inventory. SAP MM module is fully integrated with other modules in the SAP R/3
System such as Finance (FI), Controlling (CO), Sales and Distribution (SD), Quality Management (QM),
Plant Maintenance (PM), Production Planning (PP), and Warehouse Management(WM).
It supports all phases of materials management materials planning and control, purchasing, goods
receiving, inventory management, and invoice verification.

 Procurement in Materials Management

Process Flow
The typical procurement cycle for a service or material consists of the following phases:

1. Determination of Requirements

Materials requirements are identified either in the user departments or via materials planning and
control. (This can cover both MRP proper and the demand-based approach to inventory control.
The regular checking of stock levels of materials defined by master records, use of the order-
point method, and forecasting on the basis of past usage are important aspects of the latter.)
You can enter purchase requisitions yourself, or they can be generated automatically by the
materials planning and control system.
2. Source Determination

The Purchasing component helps you identify potential sources of supply based on past orders
and existing longer-term purchase agreements. This speeds the process of creating requests for
quotation (RFQs), which can be sent to vendors electronically via SAP EDI, if desired.

3. Vendor Selection and Comparison of Quotations

The system is capable of simulating pricing scenarios, allowing you to compare a number of
different quotations. Rejection letters can be sent automatically.

4. Purchase Order Processing

The Purchasing system adopts information from the requisition and the quotation to help you
create a purchase order. As with purchase requisitions, you can generate Pos yourself or have
the system generate them automatically. Vendor scheduling agreements and contracts (in the
SAP System, types of longer-term purchase agreement) are also supported.

5. Purchase Order Follow-Up

The system checks the reminder periods you have specified and - if necessary - automatically
prints reminders or expediters at the predefined intervals. It also provides you with an up-to-date
status of all purchase requisitions, quotations, and purchase orders.

6. Goods Receiving and Inventory Management

Goods receiving personnel can confirm the receipt of goods simply by entering the Po number.
By specifying permissible tolerances, buyers can limit over- and under deliveries of ordered
goods.

7. Invoice Verification

The system supports the checking and matching of invoices. The accounts payable clerk is
notified of quantity and price variances because the system has access to PO and goods receipt
data. This speeds the process of auditing and clearing invoices for payment.

 Transaction code:

ME51N – Create Requisition.

ME21N – Create PO.

MIGO - Goods Receipt.

MIRO – Invoice.

F110 – Payment Run.

  Organizational Structure:

The structure of an enterprise is represented in the SAP System by the following organizational
levels:

 Client
 Company code
 Plant:
 Purchasing organizations
 Purchasing groups
 Storage Location

Client: A grouping or combination of legal, organizational, business and/or administrative units with a
common purpose.
Example: a corporate group.

SPRO Path: SPRO IMG -> Enterprise Structure -> Definition -> Financial Accounting -> Define Company
(OBY6).

Company code: This level represents an independent accounting unit within a client. Each company
code has its own balance sheet and its own profit and loss statement.
Example: member of a corporate group.

SPRO Path: SPRO IMG -> Enterprise Structure -> Definition -> Financial Accounting -> Edit, Copy, Delete,
Check Company Code.
Plant: Operational unit within a company code.
Example: Production facility, branch office.

SPRO Path: SPRO -> Enterprise Structure -> Definition -> Logistics - General -> Define, copy, delete,
check plant.

Purchasing organization: An organizational unit responsible for procuring materials or services for one
or more plants and for negotiating general conditions of purchase with vendors. The purchasing
organization assumes legal responsibility for all external purchase transactions.

SPRO Path: SPRO IMG -> Enterprise structure -> definition -> material management -> maintain purchase
organization (OX08).

Purchasing group: The purchasing organization is further subdivided into purchasing groups (buyer
groups), which are responsible for day-to-day buying activities.
A purchasing group can also act for several purchasing organizations.

SPRO Path: Materials Management -> Purchasing -> Create Purchasing Groups (OME4)

Storage Location: An organizational unit allowing the differentiation of material stocks within a plant. All
data referring to a particular storage location is stored at storage location level. This applies mainly to
storage location stocks.

SPRO Path: SPRO IMG -> Enterprise Structure -> Definition -> Material Management -> maintain storage location
(OX09).

Assignment:

 SPRO > IMG > Enterprise Structure > Assignment > Financial Accounting > Assign Company
Code to Company

 SPRO > IMG > Enterprise Structure > Assignment > Controlling> Assign Company Code to
Controlling area

 SPRO > IMG > Enterprise Structure > Assignment > logistics General > Assign Plant to
Company Code

 SPRO > IMG > Enterprise Structure > Assignment > Materials Mgmt > Assign P.Org to Co. Code

 SPRO > IMG > Enterprise Structure > Assignment > Materials Mgmt > Assign P.Org to Plant

 SPRO > IMG > Enterprise Structure > Assignment > Materials Mgmt > Assign Standard P.Org to
Plant

 SPRO > IMG > Enterprise Structure > Assignment > Materials Mgmt > Assign P.Org to
Reference P.Org.
  Reference Purchasing Organization:

Refence purchase organization is nothing but additional functionality where you give one purchase

organization as a reference to another purchase organization:

The conditions of a reference purchasing organization to be used by other purchasing organizations for
the purpose of price determination.

This functionality enables the purchasing staff of your enterprise to work with conditions and contract
release orders on a cross-purchasing-organization basis.

This is done by assigning the desired purchasing organizations to a reference purchasing organization in
SPRO

Enterprise Structure >> Assignment >> MM >> Assign purch. Organization to reference purch.
Organization

Using this you can setup the following scenarios:

1. The conditions of a reference purchasing organization to be used by other purchasing organizations for
the purpose of price determination

2. Several purchasing organizations to access the contracts of a certain reference purchasing

organization

The reference purchase organization is not assigned to any company codes. The contracts/agreement
made by Reference purchasing organization may be used/referred by local purchasing organization. Such
contracts can be used across company codes.

Working with a reference purchasing organization saves time and effort in maintaining data because
purchasing organization data, vendor master records, and purchasing info records only have to be
created by the reference purchasing organization. Other purchasing organizations that are linked to the
latter via Customizing can use this data without having to maintain data themselves.

Different type of purchase organization:

1. Plant specific Pur org - responsible for procuring material for just one Plant

2. Company code specific Pur org- responsible for Procuring material for several Plants in a company
code.

3. Cross company code specific Pur org - responsible for purchasing in multiple plants belong to different
company code.

Master Data In SAP MM:

 Material Master Data

 Vendor Master Data
 Purchase Info Record
 Source List
 Quota arrangement
Transactional Data in SAP MM

 Purchase Requisition
 RFQ/Quotation
 PO/Contract/Scheduling agreement
 Pricing
 Release Strategy

Inventory management

 Goods Receipt
 Goods Issue
 Stock Transfer
 Physical Inventory

 Types of Procurement

a) Procurement for Stock

b) Procurement for Consumption
c) External Procurement
d) Internal Procurement

Procurement for Stock: A stock material is a material that is kept in stock. Such materials are placed in
storage following a goods receipt
When goods are received by or issued from stores or the warehouse, the stock on hand is increased or
reduced by the amount of the quantity received or issued.
When you order a material for stock, the system does not require an account assignment.
This is because the posting to the appropriate stock and consumption accounts occurs automatically after
each goods movement (for example, after a material is received by the stores or issued from stores).
Furthermore, the value and the quantity of the stocked material are updated in the material master record.
To order a material for stock, the material must have a master record

Procurement for Consumption: When you procure for direct consumption, you specify the consumption
purpose by entering an account assignment (for example, a cost center).On goods receipt, the material or
service counts as having been consumed.
If a material is procured for direct consumption, the consumption accounts in Financial Accounting are
posted when the goods receipt is entered. The total quantity and value of existing stocks of the material
are not affected.

Material Account Assignment

For each item of a purchasing document, you specify whether procurement is for stock or for direct
consumption
In a purchasing document, you can enter items with or without account assignments.
If you order stock materials, the ordered material must have a material master record. If you order
consumable materials, the ordered material may have a material master record.
Account assignments are possible for the following purchasing documents:
  Purchase requisitions
 Purchase orders
 Outline agreements

External Procurement: There are 3 basic forms of external procurement generally supported by the
Purchasing component of IT systems.
Forms of Procurement
Before ordering a material or service from a vendor, you must decide which purchasing instrument you
wish to employ
. This section describes the three basic forms of external procurement supported by the MM Purchasing
component:

 One-time purchase orders

 Longer-term contracts with the subsequent issue of release orders
 Longer-term scheduling agreements and delivery schedules

One-Time Purchase Order

You use one-time orders for materials or services that you order irregularly.
You can reference a purchase requisition, RFQ, or another PO when creating a one-time order.

The vendor’s current conditions for the material are adopted from the purchasing information record when
the new PO is created.

Contract and Release Orders

For materials that are ordered regularly and in sufficient quantity, you can negotiate longer-term pricing
and conditions with the vendor and record them in a contract. In the contract, you specify its validity
period and the total target quantity or total total value covered.
When creating a contract, you can reference an RFQ or another contract.The contract requisition
(representing a request to set up a longer-term contract) can also simplify the data entry process by
serving as a reference document.
When you create the associated release orders, information is adopted from the contract.
Individual deliveries are affected on the basis of the release orders, which specify the exact order quantity
and the delivery date.

Scheduling Agreement
If a material is ordered on a regular basis and is to be delivered according to an exact time schedule, then
you set up a scheduling agreement.
This method of procurement is typically used when Just-in-Time deliveries are required from the vendor
(for example, in the automobile industry).

As in the case of the contract, the material and the basic conditions are specified in the scheduling
agreement. Once you have set up the agreement, you can create delivery schedules with individual
schedule lines specifying exact quantities, delivery dates, and times extending over a certain period into
the future.
Internal Procurement: Procurement of goods/services within the same organization. Producing internally
or purchasing material from another plant in one organization.

Key Activities:
 Creating a stock transport order in the receiving entity
 Generating a delivery document in the delivering entity
 Picking the material in the delivering entity
 Posting an issuing document in delivering entity
 Posting a receipt document in receiving entity

 Moving Average Price and Standard Price:

The price control procedure set in the material master record determines the value used to valuate the
goods receipt of a material. Material valuation can be carried out according to the standard price (S price)
or the moving average price (V price).

Standard price: (Price Control S)

The system carries out all stock postings at a price defined in the material master. Variances in price are
posted to price difference accounts. Overall you can say Standard Price is calculated without taking into
consideration of GR/IR.
Semi-finished and finished goods for Standard price procedure. Standard price are used for in house
production.

Moving Average Price: (Price Control V)

The system valuates goods receipts with the purchase order price and goods issues with the current
moving average price. The system automatically calculates the latter upon every goods movement by
dividing the total value by the total stock quantity (Total Value/Total quantity). Differences in price
between the purchase order price and the invoice are posted directly to the relevant stock account if there
is sufficient stock coverage.

The system automatically calculates the moving average price taking into consideration of GR/IR:
Moving average price = total stock value / total stock quantity.

Moving average price (price control “V”) is used for raw material. As moving average price used in case of
external procurement

 Split valuation:

The split valuation process allows you to divide material stock in small parts, so that each part
can be valuated in different ways. This method is employed when you need to sort the materials
according to various parameters.
  Characteristics of Split Valuation:

a) Material subjected to split valuation is managed with several buckets of stocks falling into
different valuation types.
b) Depending on the valuation type of material and category of split valuation, the stock
buckets are created by system.
c) When the stock buckets are created for different valuation types, the total valuated stock
also gets calculated simultaneously.
d) Each valuation category belongs to different valuation types.

 Split Valuation concept:

Split Valuation for material is declared at material master level using two important fields at accounting-1
and accounting-2 level views:

1. Valuation category
2. Valuation type

 Valuation Category:

The valuation category specifies what the criterion of dividing and splitting stocks into different buckets.

In standard SAP, following are the valuation category provided.

Procurement type: The stock is divided up based on whether the material is manufactured in-house or
procured externally.

Origin of Material: The stock is divided up according to place from where it was originated

 Valuation Type:

The valuation type signifies the distinct characteristics of valuation category. For example if valuation
category is “Origin of Material” then different countries from which material is originated becomes the
valuation type which further represents buckets of stocks created based on origin of material.

IMG Menu Path: - SPRO > SAP Reference IMG > Material Management > Valuation and Account
Assignment > SplitValuation > Configure split valuation

T Code: OMWC
 Important Tcodes IN SAP MM:

MM01 - Create Material

MM02 - Change Material
MM03 - Display Material
MM50 - List Extendable Materials
MMBE - Stock Overview
ME51N - Create Purchase Requisition
ME52N - Change Purchase Requisition
ME53N - Display Purchase Requisition
ME54 - Release Purchase Requisition
ME55 - Collective Release of Purchase Reqs.
ME56 - Assign Source to Purch. Requisition
ME57 - Assign and Process Requisitions
ME58 - Ordering: Assigned Requisitions
ME59 - Automatic Generation of POs
ME21N – Create Purchase Order
ME22N – Change Purchase Order
ME23N – Display Purchase Order
ME01 - Maintain Source List                  
ME03 - Display Source List                   
ME04 - Changes to Source List                              
ME05 - Generate Source List                

 Important Tables in SAP MM:

 PO transactions will be stored in

EKKO - Header information

EKPO  - Item
EKET - Delivery schedule
EKKN  - account assignment
 
 Goods Receipt
 
MSEG - Document segment Material
MKPF - Header
MVER  - Material consumption
EKBE - Purchase document history
 
 Invoice Receipt
 
RBKP - Document Header: Invoice Receipt
RBCO - Item
RBTX - Taxes
RBWS/ RBWT - Withholding tax data.
 MM Master Tables

MAKT - Material Descriptions                          

MARA - General Material Data                         
MARD - Storage Location Data for Material
MARC - Plant Data for Material
EINA - Purchasing Info Record- General Data              
T024 - Purchasing Groups
EINA - Purchasing Info Record- Purchasing Organization Data      
T156 - Movement Type  

 Vendor Master Table

LFA1      - Vendor Master (General section)

LFB1      - Vendor Master (Company Code)