Used to assign costs directly to a department or functional area.
Required fields: GL Account, Cost Center
Example: Office supplies for HR department
Akila Wedasinghe
SAP S4 HANA MM
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Indirect Procurement Process in SAP
A comprehensive guide to understanding and implementing indirect procurement
What is Indirect Procurement?
Direct vs. Indirect Procurement
Procurement processes are broadly classified into two categories:
| Direct Procurement | Indirect Procurement |
|---|---|
| Materials directly used in production | Materials & services not directly used in production |
| Raw materials, components | Office supplies, equipment, services |
| MRP driven (auto PR generation) | Manual requisition creation |
| Usually stock items | Can be stock, non-stock, or non-valuated |
Examples of Indirect Materials
- ✏️ Office stationery (pens, papers, notebooks)
- 🖨️ Printer cartridges and maintenance
- 🪑 Furniture and fixtures
- ⚙️ Maintenance, repair, and operations (MRO) items
- 🧰 Spare parts (not for production)
- 🧹 Cleaning supplies
- 🖥️ IT equipment and services
- ⚖️ Professional services
Key Point: Indirect procurement typically comprises 80% of all purchasing transactions but only 20% of the total spend value. However, these items are crucial for day-to-day operations.
Indirect Procurement Approaches
There are two main approaches to indirect procurement in SAP:
With Material Code
Without Material Code (Text Item)
Procurement with Material Code
Advantages
- Better tracking and reporting
- Standard pricing control
- Easier inventory management
- Better master data control
- Purchase Info Records can be utilized
Disadvantages
- Requires material master creation
- Can slow down procurement process
- Requires more master data maintenance
- Can be overkill for one-time items
When to use: When tracking is important, items are purchased frequently, or when inventory management is required.
Procurement without Material Code (Text Item)
Advantages
- Faster procurement process
- No material master creation needed
- More flexibility for one-time purchases
- Reduced master data maintenance
- Good for infrequently purchased items
Disadvantages
- Limited reporting capabilities
- No standard price controls
- No inventory management
- Less standardization
- Potential for inconsistencies
Important: When using text-based purchasing, ensure proper approval workflows and controls are in place since there's more flexibility in what can be purchased.
Do you need to track inventory/stock?
Yes → Use material code with appropriate material type
No → Do you purchase this item frequently?
Yes → Consider using material code for better reporting
No → Use text-based procurement for simplicity
Material Types for Indirect Procurement
Standard Stock (FERT)
Used for valuable items where both quantity and value are tracked.
Quantity Update: Yes Value Update: YesNon-Stock Material (NLAG)
For items where no stock is kept. Expense is posted directly at GR.
Quantity Update: No Value Update: NoNon-Valuated Material (UNBW)
For tracking quantities only, without value. Expense posted at GR.
Quantity Update: Yes Value Update: No
Note: Material type controls what views will be available in material master and how the system processes inventory and accounting entries.
Account Assignment Categories
Account assignment categories determine how costs are allocated and which fields are required during procurement.
Used for purchases related to fixed assets.
Required fields: GL Account, Asset Number
Example: Furniture, computers, equipment
Used to assign costs to projects in PS module.
Required fields: GL Account, Project
Example: Materials specific to a project
Used in make-to-order scenarios to assign costs to a specific customer order.
Required fields: GL Account, Sales Order, Sales Order Item
Example: Customer-specific materials or services
Used to assign costs to specific elements within a project structure.
Required fields: GL Account, WBS Element
Example: Materials for a specific phase of a project
Key Point: Account assignment category is mandatory for all indirect procurement, whether using material code or text item. It determines which accounting object receives the cost.
Complete Indirect Procurement Process
Purchase Requisition
Manual creation (ME51N)
Purchase Order
Created from PR (ME21N)
Goods Receipt
Receiving materials (MIGO)
Invoice Verification
Supplier invoice (MIRO)
Detailed Process Steps
1
Purchase Requisition (PR) Creation
A department identifies a need for indirect materials or services:
- Transaction: ME51N
- Enter description (if text item) or material code
- Specify quantity and delivery date
- Select account assignment category (e.g., K for cost center)
- Enter cost center and GL account (or use material group to determine GL)
- Enter valuation price
- Save to create PR
PR Number: 67XXXXXXX
↓
2
Approval Process
The PR may go through an approval workflow:
- Classical release strategy or
- Flexible Fiori workflow
- Authorization checks based on values, document types, etc.
↓
3
Purchase Order (PO) Creation
Purchasing department creates PO based on approved PR:
- Transaction: ME21N
- Select vendor/supplier
- Reference PR(s) - can combine multiple PRs
- Verify/adjust pricing, delivery dates
- Save to create PO
PO Number: 45XXXXXXX
↓
4
Goods Receipt (GR)
When materials are received:
- Transaction: MIGO
- Reference the PO number
- Enter received quantity
- Post the document
Accounting impact: Depends on material type:
- Non-stock: Direct consumption to cost center
- Non-valuated: Quantity update without value, expense to cost center
- Regular stock: Inventory update with value
Material Document: 5XXXXXXXX
↓
5
Invoice Verification
When supplier invoice is received:
- Transaction: MIRO
- Reference the PO number
- Enter invoice amount, tax codes
- System performs 3-way match (PO, GR, Invoice)
- Post the document
Accounting Document: 19XXXXXXXX
Advanced Indirect Procurement Concepts
You can distribute costs from a single PO line item to multiple cost centers/accounts:
- In ME21N, select "Multiple Account Assignment" in the Account Assignment tab
- Distribution can be by quantity, percentage, or amount
- Useful when a purchase benefits multiple departments
- Example: Office supplies split between HR (60%) and Finance (40%)
Accounting impact: At GR, system creates separate accounting entries for each cost center/account.
You can combine multiple PRs for the same material into a single PO line item:
- Drag multiple PRs into ME21N bucket
- First PR becomes the line item, additional PRs appear in delivery schedule
- Quantities are summed automatically
- Reduces number of line items on PO
- Consolidates purchasing for better pricing
Limitation: Can only combine PRs with same material, plant, unit of measure
Framework agreements for regular, low-value purchases:
- Create using item category "enhanced limits" in PR
- Set overall limit (budget) and validity period
- No need to create GR - direct invoice against PO
- Account assignments defined at invoice level
- Simplifies procurement for routine purchases
Best for: Office supplies, cleaning supplies, low-value consumables, standard services
Trade-off: Less control (no GR) for simplified processing
Configuration Considerations
Key configuration elements that control indirect procurement:
Document Types
Controls document behavior and numbering
Examples: NB (Standard PO), FO (Framework Order)
Path: SPRO > Materials Management > Purchasing > Document Types
Item Categories
Controls process behavior at item level
Examples: Standard, Enhanced Limits, Service
Cannot be customized - use standard SAP item categories
Account Assignment Categories
Controls cost allocation and required fields
Examples: K (Cost Center), A (Asset), P (Project)
Path: SPRO > Materials Management > Purchasing > Account Assignment
Material Type Configuration
Controls material behavior and available views
Examples: NLAG (Non-stock), UNBW (Non-valuated)
Path: SPRO > Materials Management > Basic Settings > Material Types
Important: Coordinate with Finance (FI) team when configuring account assignment categories and automatic account determination.
Best Practices for Indirect Procurement
1
Segment Your Materials
Categorize indirect materials based on value and frequency of purchase:
- High-value items → Full process with material code
- Medium-value, frequent items → Non-stock/Non-valuated
- Low-value, routine items → Blanket POs
2
Balance Control vs. Efficiency
Apply controls proportional to risk and value:
- High-value → Multi-level approvals, 3-way matching
- Low-value → Simplified process, higher tolerances
3
Consider Total Process Cost
Remember that process cost can exceed material cost for low-value items:
- Avoid creating material codes for one-time purchases
- Use blanket POs for routine supplies
- Consider procurement cards for very low-value items
4
Implement Strong Approval Workflows
Especially important for text-based purchasing:
- Implement flexible Fiori workflows
- Use value-based approval routing
- Consider department-specific approval paths
5
Leverage Fiori for Self-Service
Use Fiori apps for end-user self-service procurement:
- My Purchase Requisitions
- Self-Service Procurement
- Pre-define values like GL accounts by user/department