SAP Procurement Process

Purchase requisition

Material requirements are determined due to consumption or material control and planning and include MRP and consumption approach in inventory management. Normal approach is inventory level analysis and usage of master data, order point and consumption based forecasting.PR can be created manually or automatically by material control and planning system.

Source determination

Purchasing capabilities of system enables potential source determination based on previous orders and long term purchasing contracts. This speeds up request for quotation process.

Vendor selection and purchase requisition

System simulates different pricing scenarios and quotations, and is able to reject  chosen quotations.

Basic Procurement

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 −

Organizations try and keep inventory levels at a minimum, due to the prices associated with high levels of inventory; at the same time, it can be detrimental to stop production due to shortage of raw materials.

Getting the minimum price for a product or service is often necessary; however it is equally important to maintain a balance between the product availability, quality, and vendor (seller) relations.


A contract is a long-term outline agreement between a vendor and an ordering party over a predefined material or service over a certain framework of time. There are two types of contracts −

Quantity Contract − In this type of contract, the overall value is specified in terms of the total quantity of material to be supplied by the vendor.

Value Contract − In this type of contract, the overall value is specified in terms of the total amount to be paid for that material to the vendor.

Scheduling Agreement

A scheduling agreement is a long-term outline agreement between the vendor and the ordering party over a predefined material or service, which are procured on predetermined dates over a framework of time. A scheduling agreement can be created in the following two ways

Creating scheduling agreement

Maintain scheduling lines for the agreement

Release strategy

The release strategy defines the approval process for purchase requisitions or external purchasing documents. The strategy specifies the release codes necessary and the sequence in which releases have to be affected. You can define a maximum of eight release codes.

The assignment of the release strategy to a requisition or a purchasing document is based on the release conditions.

The aim of the SAP purchase order release procedure is to replace the manual written authorization procedures. An electronic signature is used instead, maintaining the dual control principle. The person responsible for the processes of the requisition or other purchasing document in the system has to approve by marking an “electronic signature” which can give the document legal force for further processing.

Purchase orders

Procurement starts with creating a purchase order, i.e., a formal document given to vendors and it includes a list of goods and materials that are to be procured.

Stock Transfer Purchase Order

In stock transfer, goods are procured and supplied within a company. One plant orders the goods internally from another plant (receiving plant/issuing plant). The goods are procured with a special type of purchase order known as the stock transport order.

Subcontracting Purchase Order

In subcontracting, the vendor (the subcontractor) receives components from the ordering party with the help of which it produces a product. The product is ordered by your company through a purchase order. The components required by the vendor (seller) to manufacture the ordered products are listed in the purchase order and provided to the subcontractor.

Consignment Purchase Order

In consignment, material is available at the organization store premises; however it still belongs to the vendor (seller)/Owner of the material. If you utilize the material from the consignment stocks, then you have to pay to the vendor.

Stock Transfer Purchase Order

In stock transfer, goods are procured and supplied within a company. One plant orders the goods internally from another plant (receiving plant/issuing plant). The goods are procured with a special type of purchase order known as the stock transport order

Good receipt and inventory management

Procurement process starts with gathering requirements and ends with procuring goods from vendors. Once the goods are procured from a vendor, they need to be placed in the company’s premises in correct place so that they can be consumed when required. Inventory management deals with placing and handling the stock received from the vendors in correct place within the company’s premises.

Invoice verification

Once goods are procured from a vendor and placed in company’s premises through goods receipt, we need to pay to the vendor for the acquired goods and services. The amount to be paid along with the details of the material is provided by the vendor in the form of a document that is known as the invoice. Before paying to the vendor, we need to verify the invoice. This process of verifying the invoice before making a payment is known as invoice verification.

Inventory management

Inventory management is the process of efficiently monitoring the flow of products into and out of an existing inventory in the warehouse.

This process involves controlling the receipt of products to prevent the inventory from becoming too high where items are stored at an unnecessary cost or too low where it can cause a stock-out and production could be halted due to lack of raw materials.

In SAP, the inventory management functionality revolves around the movement of materials in and out of the storage facility and the physical count of those items at regular intervals.

Movement of Goods

There are a number of goods movements in the SAP system, and they can be either inbound from suppliers or the production department, outbound to customers, a transfer of stock from another plant within the company, or an internal movement within the same plant.

Goods Receipt: This process can be either inbound from a supplier or can be from a company’s own production process.

A goods receipt can be performed so that the materials are immediately available for use, or they can be placed in a quality inspection hold so that the quality department can perform tests on the items to ensure that they are within specifications before releasing them to stock.

Sometimes the goods can be placed in a blocked stock state where the company does not accept financial liability for the materials as they were not ordered, or incorrect. In that case, the material is not available for use.

Goods Issue: The items in the warehouse can either be used in the production process or sold to a customer. In either scenario, the items are issued to a production order or sales order which causes the stock level at the plant to be reduced.

In some instances, the material can be issued to scrap if it is deemed unusable by the quality department, past its shelf life, or damaged.

Internal Movements: Material in the plant can be moved from one storage location to another before it is used in production or delivered to a customer.

There is a goods movement so that the material is moved from the main storage area to a staging location close to where the production or delivery area is located. Sometimes the material is moved to another plant if they need the material sooner. In that instance, there is a plant to plant transfer of materials.

One other internal movement is the transfer posting, where a material is logically changed within the system. For example, a material that has been received as material requiring quality inspection can be changed to material that is available for use, by performing a transfer posting.

Physical Inventory Process 


Regardless of the physical inventory method, the process of physical inventory can be divided into three phases:

Physical Inventory Preparation

Create a physical inventory document.

Blocking Materials for Posting

Print and distribute the physical inventory document.

Physical Inventory Count

Counting stocks

Entering the result of the count on the physical inventory document printout

Physical Inventory Analysis

Entering the result of the count into the system

Initiating a recount, if necessary

Posting inventory differences

Process Flow

The physical inventory procedure is carried out in three steps:

Creating a Physical Inventory Document

Entering the Physical Inventory Count

Posting inventory differences

You can also group together individual phases and carry them out in a single step, as follows:

posting the physical inventory count without reference to a physical inventory document

In this step, the following are combined:

– A physical inventory document is created.

– The count is posted.

posting the physical inventory count and inventory differences

If a physical inventory document exists, the following are combined in this step:

– The count is posted.

– Any inventory differences are posted.

posting the physical inventory count without reference to a physical inventory document

In this step, the following are combined:

– A physical inventory document is created

– The count is posted

– Any inventory differences are posted


SAP-MM’s fully integration with Financial Accounting, Quality Management, Sales Distribution, Logistic Execution, Plant Maintenance and Project System provides subsequently default data for the purchasing documents and other following documents.

SAP-MM integration with other modules leads to reduce data entry and user errors.

Business flow integration in Material Management function facilitates purchasing process and monitoring followed documents from creating purchase requisition document till invoice verification.

Ability to post Goods receipt with reference to inbound delivery to achieve common language between procurement and warehouse departments.

Ability to manage material in GR-blocked stock, especially for foreign purchasing applying different Incoterms.

Ability to dynamically access to logistic information system.

Updating the price of materials with moving average price as price control based upon purchasing documents and MM&CO integration.

Ability to determine different release strategy for several purchasing documents based on various criteria, i.e. price, vendor, payment terms, and etc.

Ability to correct vendors’ invoice verification which leads to update material price.

Ability to carry out external service procurement, and then enter & accept services performed by service entry sheet as well as a goods receipt posting when procuring materials.

Ability to carry out Free of Charge procurement.

To control and execute efficiently Inventory Management and logistic execution and invoice verification processes.

To forecast the future month requirements applying sales and production program.

Ability to represent various reports based on its database.

To carry out report transactions rapidly and efficiently based on the structure of Logistic Information System.

To record purchasing information record as a source of information for procurement on a specific material and a vendor supplying the material.

To automatically create Purchasing Order for specific vendors based on the stock level.

To archive historical data.

To track the important processes of the Su

To support inventory management with Non Valuated Stock.

To carry out procurement procedure of materials without stock.