Understanding Purchase Order in SAP

What Is Purchase Order In Sap

A purchase order is a crucial document in the SAP system that facilitates the procurement process. It serves as an official request from a buyer to a vendor, specifying the details of goods or services required for purchase. The purchase order contains essential information such as item descriptions, quantities, prices, delivery dates, and payment terms. In SAP, this document plays a vital role in ensuring smooth communication between buyers and vendors while streamlining the purchasing workflow. Understanding how purchase orders work in SAP is essential for effectively managing procurement activities within an organization.


Understanding Purchase Orders in SAP

A purchase order in SAP is a contractual agreement that establishes obligations for both the supplier and purchaser. It ensures that the supplier will provide the specified materials or services, while the purchaser agrees to make payment upon receipt of these materials or services.

In SAP, there are various types of purchase orders available, including the standard purchase order, stock transport order (STO), consignment purchase order, and subcontracting purchase order.

What is the purpose of a purchase order?

A purchase order is a document created by an organization to officially request goods or services from its suppliers. This document holds legal significance as it establishes a binding agreement between the buyer and supplier. When placing an order, it is important for organizations to carefully draft the purchase order, ensuring that all necessary details such as quantity, price, and delivery terms are accurately included.

To ensure smooth transactions and avoid any misunderstandings or disputes, it is crucial for organizations to pay attention to certain practical aspects when dealing with purchase orders. Firstly, they should clearly communicate their requirements regarding quantity, quality standards, specifications, and any other relevant details related to the goods or services being ordered.

Secondly, organizations must establish effective communication channels with their suppliers throughout the procurement process. Regular updates on order status and timely responses to queries help maintain transparency and build trust between both parties involved.

Lastly but importantly, organizations should keep proper records of all purchase orders issued along with supporting documents such as quotations received from suppliers. These records serve as evidence in case any discrepancies arise during invoicing or delivery processes.

What is a Standard Purchase Order in SAP?

The standard purchase order in SAP does not include any specific types of purchasing, such as subcontracting or consignment purchasing. In these cases, the purchaser is not charged until they actually withdraw the materials for consumption.

What is the Definition of Document Types for Standard Purchase Orders in SAP?

Purchase Orders are categorized as different types of documents within the SAP system.

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For our car business, we will use standard document type “NB” for standard purchase orders

To access the settings for purchase orders in SAP, go to SPRO and navigate through Materials Management, Purchasing, Purchase Order, and Define Document Types for Purchase Orders.

Select “NB” and click on “Allowed Item Categories”

2.2 Item Category in SAP: Explained

The item category determines the way in which the acquisition of a material or service item is managed.

As an illustration, the item category plays a role in determining the field options and whether there will be a goods receipt or invoice receipt.

There are various types of item categories in SAP, including standard, consignment, subcontracting, third-party, stock transfer, service, material unknown, material group and text.

The item category labeled as “Standard” in SAP necessitates both goods receipts and invoice receipts.

-> In “Consignment” item category, invoice receipts are not allowed.

-> For item category “Subcontracting”, components to be provided are presented on a screen.

We have selected three item categories which are allowed with our standard purchase order document type “NB”

Note : Item Categories can not be configured. These are maintained by SAP, therefore we cannot change them. However, we can change the “External Representation” of PO item categories in IMG.

What Is SAP Purchase Order?

Please ensure to review the detailed configuration of inbound delivery types by clicking HERE. ELR – Inbound Delivery Intra: Improved Store Returns

Inbound Delivery Intra. Enhanced Store Returns will be created of delivery type “ELR”

What is the meaning of Purchase Order in SAP?

Inbound Delivery cross. Enhanced Store Returns will be created of delivery type “ECR”

What is Purchase Order in SAP?

This type of delivery is utilized when receiving valued stock in transit. It employs an item category that corresponds to movement type 109.

Creating a Standard Purchase Order in SAP

Please click HERE to check the step by step BP vendor creation in detail

What Is PO Line Item in SAP?

The following are the primary fields for entering information in a purchase order line item: Item Category (left blank for standard PO), Material (66), Plant (PA10), Storage Location (PP1A, automatically populated from the Material Master), Purchase Order Quantity (1 PC), and Price ($14/PC, obtained from the info record).

To view a detailed guide on how to create materials step by step, kindly click HERE.

What Does PO Line Item Details Mean in SAP?

There are multiple tabs that provide various information for each line item in a purchase order.

We have the option to choose the specific line item from a drop-down menu in order to view its details, as illustrated in the screenshot below. “Material Data” Tab

In this section, data regarding the weight and volume of materials is transferred from the material master records.

The SAP system calculates the total weight and volume of a purchase order by multiplying the weight and volume specified in the material master with the quantity mentioned in the PO. “Delivery Schedule” Tab

In this section, the system displays the delivery date and relevant details. In the case of STO, this section presents information about schedule line types along with the committed quantity based on availability checks. “Delivery” Tab

In this tab, the system displays additional details regarding delivery such as the tolerance for under-delivery or over-delivery, reminders, and more. This information is derived from the purchasing value key.

The tab provides crucial details that are explained below, presenting significant information.

a) Stoke type

The goods will be receipt in “Unrestricted” or “QI” or “Blocked stock” as per the selection here.

The selection of Stock Type can be done manually or, if set up, it is derived from the QM view of the material master.

What is Goods Receipt Indicator in SAP?

This flag determines whether the receipt of goods is anticipated or not.

The GR Indicator is automatically set to active when considering the Item Category and Account Assignment Category.

If the item category does not have an account assignment category, the GR indicator is automatically included.

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For Account Assigned Purchase Orders, the default settings are determined by the configuration of the Account Assignment Category.

What Is Non-Valuated Goods Receipt in SAP?

Indicates that the valuation of the goods receipt for this item will not be done at GR. If chosen, the valuation for this item will occur during invoicing.

This is derived from the setup of the account assignment category.

d) Delivery Completed” Indicator

If this option is chosen, it indicates that the system does not anticipate any additional deliveries for this item, meaning that the item is considered closed. “Invoice” Tab

This flag determines whether an invoice receipt is anticipated for the item in the purchase order.

If the Invoice receipt indicator is not selected, then the goods must be provided without any cost.

Explain the External Representation of Item Categories in the Control invoice receipt section using different wording.

In the case of a purchase order with an account assignment, the information will be derived from the category assigned to the account.

What Is Final Invoice Indicator in SAP?

This signifies that the most recent invoice from a vendor has been received for an item, and no additional invoices are anticipated.

What is the GR-Based Invoice Verification Indicator in SAP?

This indicator determines whether the verification of an invoice or purchase order item is based on the receipt of goods.

If the checkbox is checked, it signifies that an invoice for the order item can be created by referring to a Goods Receipt (GR) document or by entering a delivery number during GR.

Enabling the GR-Based Invoice Verification Indicator results in the creation of individual invoice items for each goods receipt.

This involves verifying the price and formal accuracy of the invoice at the individual item level.

What Does Tax Code Mean in SAP?

In SAP, a tax code specific to each country is indicated, which helps in storing the tax rate and performing calculations. This applies to India as well.

The tax code in the purchase order tab is determined automatically based on the configuration settings. Likewise, the system also calculates the tax amount automatically.

Please refer to the following article for a comprehensive guide on MM input tax in SAP.

Configuring the tax settings in SAP S4 HANA MM can be done easily by following seven simple steps. By implementing these steps, users can ensure that the tax calculations and reporting are accurate and compliant with Indian taxation laws. “Conditions” Tab

Please click HERE to see PO Price components in details “Delivery Address” Tab

In this section, the delivery address is typically taken from the plant configuration and displayed.

Picture : “Delivery Address” Tab Please note highlighted “Supplier” with “SC Supp” fields in the above screenshot, which can eliminate one step from the subcontracting purchasing cycle.

If we select this indicator and input subcontracting supplier , then system directly provide the purchased materials to the subcontractor , which can be seen as special stock “O” in the stock reports of the plant.

Instead of using MIGO, we need to generate an inbound delivery for the goods receipt process.

What is the Expected Error and Resolution in Creating a Purchase Order?

In order to proceed with the purchase, we need to generate an inbound delivery and complete the goods receipt accordingly.

What is the creation process for inbound delivery in SAP?

Snapshot: Commencing the process of IBD formation

Snapshot: Generating the subsequent screen for IBD

Please note Item category is determined as “YELN” in the above inbound delivery.

-> Please click HERE to check “Receiving Point” determination configuration in Inbound Delivery

-> Please click HERE to check Item category “YELN” determination in Inbound Delivery

What Is Purchase Order in SAP

Clicking twice on the inbound delivery will navigate you to the display of the inbound delivery VL33N in SAP.

What is the Inbound Delivery Put-away Step in SAP?

The process of receiving goods through inbound delivery involves two steps. The first step is to store the goods, and the second step is to acknowledge receipt of the goods.

To initiate the process, open VL32N and enter the delivery number. Press the enter key to proceed.

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Kindly ensure that you store the complete quantity of the delivery in order to proceed with the goods receipt.

If there is a smaller quantity available for put-away than the delivery quantity, then adjust the delivery quantity to match the available quantity.

What is Inbound Delivery GR in SAP?

As soon as inbound delivery put-away quantity is entered , put-away status is changed from “A-For put-away” to “C-Compl. put away”

Now press on “Post Goods Receipt”. Goods Receipt is completed

Upon completion of the goods receipt process, the inventory is updated and financial postings are automatically made to the appropriate accounts. For a comprehensive understanding of all the implications associated with goods receipt, please refer to the following post.

Ultimate guide to configure S4 HANA MM-FI Integration

What is Invoice Verification in SAP?

After PO & Good receipt, the next step in P2P cycle is invoice verification

As the purchase order has been marked with the invoice receipt indicator, it indicates that an invoice is required for this particular item in the purchase order.

Kindly refer to the following post for details on how to set up and test invoice verification.

Configuring logistics invoice verification in SAP S4 HANA involves setting up the necessary parameters and configurations to ensure accurate processing of invoices. This process enables businesses to verify and reconcile invoices with purchase orders, ensuring proper payment for goods and services received. By configuring logistics invoice verification in SAP S4 HANA, organizations can streamline their accounts payable processes and improve financial accuracy.

The number of PO types in SAP

In the SAP system, there are four different types of Purchase Orders: Subcontracting Purchase Order, Consignment Purchase Order, Stock Transfer Purchase Order, and Service Purchase Order. Each type serves a specific purpose in managing procurement processes.

A Stock Transfer Purchase Order is created when there is a need to transfer stock from one plant or storage location within an organization to another. This type of purchase order ensures proper tracking and documentation during internal stock transfers.

Lastly, a Service Purchase Order is generated for procuring services rather than physical goods. It specifies details like service description, duration, rates, and any other terms agreed upon between the buyer and service provider.

These different types of purchase orders help streamline procurement processes in organizations using SAP systems by providing clear guidelines for various scenarios involving material outsourcing, consignment arrangements, internal stock transfers, and service procurement.

Creating a Purchase Order in SAP

To create a purchase order in SAP, follow these steps:

1. Go to the SAP menu and select Logistics Materials Management Purchasing Purchase Order Create Vendor/Supplying Plant Known. This will open the Create Purchase Order screen.

2. Fill in all the required data in their respective fields on the screen.

3. Double-check the entered data for accuracy and completeness.

4. Choose the option to save the purchase order.

Understanding the SAP PO structure

In the SAP system, a purchase order (PO) is a document that represents an agreement between a buyer and a seller for the procurement of goods or services. It serves as an official request to the supplier to deliver specific items at agreed-upon prices and terms.

To put it simply, a purchase order in SAP is like a formal contract between a buyer and seller. It outlines what products or services are being purchased, their quantities, prices, and other important details. The PO structure helps keep track of all activities associated with each item on the purchase order so that users can easily access historical information whenever needed.

– A purchase order is an agreement between buyer and seller.

– The PO structure in SAP displays all related business transactions.

– It helps track activities and provides easy access to historical data for each item on the PO.

Who requires a purchase order?

Purchase orders are usually used by small businesses who are ordering goods in large quantities. For example, a pet shop may need to buy several types of dog food from a supplier, and order many bags of each type of food.