Different Procurement Methods in SAP MM

Types Of Procurement In Sap Mm

Every company purchases goods and services to meet its operational requirements. The act of acquiring materials and securing services from suppliers or distributors is known as procurement. Procurement must be carried out efficiently, ensuring that the right quantity of materials is ordered at the appropriate time and value. This process can be further categorized into various components.

Different types of procurement in SAP MM include basic procurement and special procurement.

Types of Procurement in SAP MM

Basic procurement is a process of acquiring goods or services in the right quantity, at the right price, and at the right time. However it is critical to maintain a right balance between quantity, price, and time. Consider the following example −

Companies strive to maintain low inventory levels in order to avoid the costs associated with excess stock. However, it is crucial to ensure a steady supply of raw materials to prevent production disruptions. While obtaining the best possible price for products or services is important, it is equally vital to strike a balance between product availability, quality, and maintaining positive relationships with vendors.

Procurement Lifecycle

Procurement in contemporary companies typically involves a series of sequential procedures, as outlined below.

Requirement and Information Gathering

The procurement process begins by collecting details about a product and the amount needed. Subsequently, it becomes essential to search for suppliers who can meet the specified requirements of goods and services.

Supplier Contact

After identifying the supplier, it is important to assess the quality of the product or service and determine if any additional services such as installation, warranty, or maintenance are required. It may also be necessary to obtain samples for a thorough examination of their quality.

Negotiation

Negotiations are conducted with suppliers to discuss aspects like product/service price, availability, and delivery schedule. Once finalized, a legally binding contract is signed between the supplier and the ordering party. This contract contains essential details such as material price, quantity, delivery date, etc.

Different Procurement Methods in SAP MM

The material that has been requested is sent to the person or organization who placed the order, and the supplier receives payment for it. Sometimes, additional services like training or installation of the product may be provided as well.

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Once the products or services are utilized, an assessment is conducted to evaluate their performance. If any additional service support is needed, it is thoroughly examined.

Contract Renewal

After the utilization of products or services, or when a contract nears its end and requires renewal, or if there is a need to reorder the same product or service, an evaluation of vendors and service providers takes place. In case of reordering, the company assesses whether to continue with the existing supplier or explore new options.

Different types of procurement in SAP material master

In the context of transferring materials from one plant to another, a special procurement type is utilized to gather the quantity structure from the supplying plant. This is particularly useful when the receiving plant does not maintain its own quantity structure for that specific material.

– Special procurement type is employed in scenarios involving material transfer between plants.

– It allows for collection of the quantity structure from the supplying plant.

– The receiving plant does not need to maintain its own quantity structure for that material.

Basic Procurement Activities

The flow of fundamental procurement activities is depicted in the accompanying diagram.

Below, we provide a concise overview of the various procurement activities.

Different Types of Procurement in SAP MM

Different types of procurement in SAP MM include procurement for stock and consumption, as well as external and internal procurement.

Types of Procurement in SAP MM: Stock vs Consumption

The subsequent points highlight the contrast between Procurement for Stock and Consumption.

Types of Procurement in SAP MM can be categorized into two categories. The first category is procurement for stock, which involves materials that are kept in stock and their quantity fluctuates based on the amount received or issued. In order to order such materials, they must have a master record within the system.

The second category is procurement for direct consumption, where materials are consumed as soon as they are received. For this type of procurement, the user needs to specify the purpose of consumption. Similar to procurement for stock, these materials may also require a master record within the system before they can be ordered.

External vs Internal Procurement

The subsequent aspects highlight the contrast between External and Internal Procurement.

Internal Procurement refers to the practice of acquiring materials and services within a single company that owns multiple separate businesses or companies. In such cases, each business maintains its own accounting system with individual Balance Sheets and Profit & Loss Statements. This ensures that any transactions between these entities are properly recorded.

Understanding the Distinction between Internal and External Procurement in SAP MM

Secondly, organizations should consider factors such as cost-effectiveness and quality when deciding between internal and external procurement options. While internal production might offer greater control over quality standards, it could also result in higher costs due to investment in infrastructure or specialized equipment.

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Lastly, organizations should assess their overall strategy and long-term goals before making decisions about procurement methods. They need to determine if outsourcing certain functions aligns with their core competencies while allowing them flexibility in adapting quickly to changing market demands.

Special Procurement

Special stocks refer to stocks that are managed differently because they do not belong to the company. These stocks are stored at specific locations. Special procurement and special stock types can be categorized into different groups.

Consignment Stocks

Consignment stocks refer to materials that are physically present at our store location but are owned by the vendor (seller) of the material. When you use these materials from consignment stocks, payment needs to be made to the vendor.

Third-party Processing

In pipeline management, there is no need for the company to place orders or store the materials. These materials can be accessed through a pipeline (like oil or water) or another type of cable (such as electricity) whenever they are needed. The company settles the consumption of these materials with the vendor on a regular basis.

Returnable Transport Stock

The subcontractor receives components from the ordering party to produce a product. Your company places an order for the product through a purchase order. The required components for manufacturing the ordered product are specified in the purchase order and given to the seller (vendor).

Stock Transfer via Stock Transport Order in SAP MM

Goods are acquired and delivered within a company. A plant internally requests goods from another plant (the receiving or issuing plant). The procurement of these goods is done through a specific type of purchase order known as a stock transport order. With this order, it becomes possible to manage and track the transfer of goods effectively.

What are the five categories of procurement?

Administrative support, travel arrangements, professional services, insurance, and information technology are some of the different types of procurement in SAP MM. These categories encompass various aspects of purchasing goods and services within an organization.

Travel procurement focuses on managing travel-related expenses like booking flights, accommodations, transportation services, and handling visa requirements. It aims to streamline the process of arranging business trips for employees while ensuring cost-effectiveness and compliance with company policies.

Professional services procurement deals with engaging external experts or consultants to provide specialized knowledge or assistance in specific areas. This can include hiring legal advisors, marketing agencies, or IT consultants who possess expertise not readily available within the organization. The goal is to leverage external skills to enhance operational efficiency or address complex business challenges.

Insurance procurement involves obtaining suitable insurance coverage for various risks faced by an organization. This includes insuring assets against damage or loss due to unforeseen events like fire or theft. Additionally, it may involve securing liability insurance to protect against potential lawsuits arising from accidents or negligence.

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What are the primary categories of procurement?

In SAP MM, there are four types of procurement:

1. Direct Procurement: This type involves the acquisition of goods or materials that are directly used in the production process. It includes raw materials, components, and other items necessary for manufacturing.

2. Indirect Procurement: Indirect procurement refers to the purchase of goods or services that are not directly involved in the production process but support business operations. Examples include office supplies, maintenance services, and IT equipment.

3. Goods Procurement: Goods procurement focuses on acquiring physical products or tangible assets required by an organization. It encompasses both direct and indirect procurement of various goods such as machinery, vehicles, furniture, etc.

4. Services Procurement: Services procurement involves obtaining non-tangible offerings from external service providers to fulfill specific business needs. This can include hiring contractors for construction projects, outsourcing IT services, consulting services, and more.

These different types of procurement help organizations effectively manage their purchasing processes based on their specific requirements and objectives within SAP MM system implementation in India

What are the examples of the 3 types of procurement?

There are three primary categories of procurement activities in SAP MM: direct procurement, indirect procurement, and services procurement. Each type serves a specific purpose within the overall supply chain management process.

Services procurement involves acquiring external services required by an organization to carry out specific tasks or projects. This includes hiring contractors or consultants who possess specialized skills needed for certain projects such as software development or legal advice. Services procurements typically involve negotiating contracts with service providers based on agreed-upon terms and conditions.

Understanding SAP procurement

Procurement plays a crucial role in ensuring the smooth and profitable operation of a business by acquiring the necessary goods and services. It encompasses various processes that can be categorized into two main types: services procurement and goods procurement.

On the other hand, goods procurement refers to acquiring physical products required for day-to-day operations or production purposes. This includes raw materials, finished goods for resale, office supplies, machinery equipment, etc. Goods procurement involves activities like vendor selection based on quality and price considerations, placing purchase orders with suppliers or manufacturers, tracking shipments until they reach their destination safely.

Both types of procurements are vital components in SAP MM (Materials Management), an integrated module within SAP ERP system designed specifically for managing all aspects related to materials acquisition and inventory management. The SAP MM module provides functionalities to streamline both services and goods procurements efficiently.

The 7 Phases of Procurement

Stage One: Need Identification.Stage Two: Pre- Solicitation.Stage Three: Solicitation Preparation.Stage Four: Solicitation Process.Stage Five: Evaluation Process.Stage Six: Award Process.Stage Seven: Contract Process.