Special Procurement

Akila Wedasinghe

SAP S4 HANA MM

S4 HANA MM

Info Record, Source List and Quota

March 2, 2025

S4 HANA MM

Split Valuation

March 3, 2025

SAP Special Procurement Processes

A comprehensive visual guide to understand SAP's special procurement processes

Blanket Purchase Orders (Framework Order)

What is a Blanket Purchase Order?

A blanket purchase order (BPO) or framework order simplifies the procurement of Class C materials - low value, non-essential items. Instead of creating individual POs for each procurement, a single BPO with a specified monetary limit is created.

EXAMPLE

Real-World Scenario:

Office supplies like pens, paper, coffee cups, and printer cartridges are ideal candidates for blanket POs as they are low value, non-essential items that are regularly ordered in small quantities.

Key Characteristics

Used for Class C Materials (low value, non-essential items)
Single PO covers multiple deliveries over a period
Monetary limit instead of specific quantities
No goods receipt transaction required
Simplified invoice management
Reduces administrative effort

Process Flow

1 Step 1

Create a framework order with document type FO

2 Step 2

Set item category to B (Limit)

3 Step 3

Define validity period (start/end date)

4 Step 4

Specify overall limit amount (budget)

5 Step 5

Vendor delivers goods as needed

6 Step 6

Receive and process vendor invoice

Why Use Blanket POs?

Blanket POs significantly reduce administrative workload. Instead of creating multiple purchase orders for regularly ordered, low-value items, you can create a single blanket PO with a specified spending limit.

This eliminates the repetitive process of creating individual POs and simplifies procurement for non-critical materials.

Important SAP Fields

Document Type: FO (Framework Order)
Item Category: B (Limit)
Account Assignment: Required (usually Cost Center)
Material Group: Required for reporting
Overall Limit: Maximum spending amount

Limitations

Not suitable for high-value or essential materials
Cannot track individual item stock
Limited reporting capabilities
No quality inspection possible

Practical Example

A coffee shop chain needs to procure various low-value consumables across multiple locations:

1 Create a framework order (document type FO) for regularly needed coffee shop supplies (stirrers, cups, napkins)
2 Set item category as B (Limit) and specify a budget of $20,000 as the overall limit
3 Define validity for two months, allocating this budget to cover all shops' needs during this period
4 Assign to the Admin department's cost center to allocate expenses appropriately
5 Shop managers call the vendor as needed to order supplies without creating new POs each time
6 The vendor delivers supplies directly to the shops without requiring goods receipt in SAP
7 When invoices arrive, they're processed in MIRO against the blanket PO, reducing the total limit balance until it's exhausted or expires

Important Note

When the cumulative value of invoices reaches the overall limit, the blanket PO is exhausted and no more invoices can be processed against it. A new blanket PO must be created to continue ordering.

Consignment

What is Consignment?

In consignment, vendors supply materials that are stored at the buyer's location, but the vendor retains ownership until the buyer consumes them. The buyer only pays for materials when they are consumed.

EXAMPLE

Real-World Scenario:

A steel factory might have coal or iron ore delivered to its site by a mining company. The steel factory only pays for the coal or iron ore as it consumes it in production.

Key Characteristics

Materials physically at buyer's location but owned by vendor
Ownership transfers only upon consumption
Payment occurs when materials are consumed
Special stock is tracked separately from own inventory
No accounting document at goods receipt
Settlement through MRKO transaction (not MIRO)

Process Flow

1 Step 1

Create purchase order with item category K

2 Step 2

Create info record with consignment category

3 Step 3

Receive goods from vendor into consignment stock

4 Step 4

Consume material from consignment stock

5 Step 5

Settle payment for consumed materials

Benefits of Consignment

Improved cash flow (pay only when consumed)
Reduced storage costs (risk remains with vendor)
Material always available on site
Lower inventory carrying costs

Important SAP Fields

Item Category: K (Consignment)
Special Stock: K
Movement Type for Receipt: 101
Movement Type for Consumption: 201/K, 261/K, 281/K
Partner: Vendor number during consumption

Stock Display

Consignment stock appears as "Vendor Consignment" in stock display (transaction MB52). It's not included in your own unrestricted stock value but is shown as a separate line item.

Double-clicking on consignment stock will show a breakdown by vendor.

Practical Example

A coffee shop needs a constant supply of coffee beans but wants to optimize cash flow:

1 Create a purchasing info record between the coffee shop and a coffee bean supplier with "Consignment" category in ME11
2 Create a purchase order with item category K for 500 pounds of coffee beans using transaction ME21N
3 Receive the 500 pounds of coffee beans into consignment stock using MIGO with movement type 101
4 View stock levels in MB52 to verify the beans appear as "Vendor Consignment" stock (quantity visible but not valued)
5 When production needs coffee beans, consume 100 pounds from consignment using MIGO with movement type 201/K
6 At consumption, ownership transfers from vendor to coffee shop, and an accounting document is created
7 At month end, settle all consumed materials through MRKO transaction, generating payment for only what was used

Comparing Standard PO vs. Consignment

Process	Standard PO	Consignment
Goods Receipt	Creates accounting document (Inventory ↑, A/P ↑)	No accounting document (just quantity change)
Stock Ownership	Buyer owns stock after goods receipt	Vendor owns stock until consumption
Payment Trigger	Invoice (MIRO)	Consumption (MRKO)
Stock Display	Unrestricted stock	Special stock (Vendor Consignment)
PO Monitoring	Update PO history	No update to PO history

Important Note

The goods receipt (step 3) does NOT generate an accounting document because ownership of the materials hasn't changed yet. Only when the materials are consumed (step 4) does an accounting document get created.

Subcontracting

What is Subcontracting?

Subcontracting is the practice of employing a firm or person outside one's company to do work as part of a larger project or task. It involves assigning or outsourcing part of the obligations and tasks under a contract to another party.

In a subcontracting process, the primary company provides raw materials to a vendor or third-party company. The third-party then processes these materials and returns them as semi-finished or finished products to the primary company.

EXAMPLE

Real-World Scenario:

A company provides 1kg of metal sheet to a third-party vendor. The vendor processes this metal sheet and converts it into a metal box, which is then returned to the primary company.

Key Characteristics

Raw materials are provided by the buyer to the vendor
Vendor processes these raw materials and returns finished/semi-finished products
Ownership of raw materials always remains with the buyer
Only the processing cost is paid to the vendor, not the material cost
Components (raw materials) must be defined in BOM or PO
Special stock is tracked for materials provided to vendor

Process Flow

1 Step 1

Create material master data (raw & finished)

2 Step 2

Maintain purchasing info record with Subcontracting category

3 Step 3

Create purchase order with item category L

4 Step 4

Define components (raw materials) to be provided

5 Step 5

Check raw material stock

6 Step 6

Transfer raw materials to vendor

7 Step 7

Receive finished product from vendor

8 Step 8

Process vendor invoice

Important SAP Fields

Info Category: Subcontracting in info record (ME11)
Item Category: L (Subcontracting) in purchase order
Components Tab: For defining raw materials in PO
Movement Type 541: For transferring materials to vendor
Movement Type 543: Background movement during goods receipt

Stock Management

When raw materials are transferred to the vendor (MVT 541), they appear in stock overview (MMBE) as "Stock Provided to Vendor."

During goods receipt of the finished product, a background movement (543) automatically reduces the vendor's stock of raw materials.

Use MMBE transaction to check stock status throughout the process.

Accounting Entries

The following accounting entries occur during goods receipt of the finished product:

BSX (Debit): Stock account at assembly

WRX (Credit): GR/IR clearing account

BSV (Credit): Change in subcontract

FRE (Debit): Subcontracting charges

BSX (Credit): Stock account of components

GBB (Debit): Consumption of components

Note: If standard price is used, PRD (price difference account) may also be involved.

Important Tips

When creating the purchasing info record, always use the finished product (not the raw material) with the vendor
When creating a purchase order, always use the finished product and define components separately
To check accounting entries, view the financial documents in the GR document by going to "Doc Info" tab → "Financial Documents" → "Accounting Documents"
During goods receipt (101), a background movement (543) automatically occurs to reduce the components provided to vendor

Practical Example

A company needs metal boxes but outsources the manufacturing. The process in SAP:

1 Create material masters for both the metal sheet (raw material) and metal box (finished product)
2 Create a purchasing info record for the metal box with the vendor, selecting "Subcontracting" as the info category
3 Create a purchase order for metal boxes with item category L, specifying metal sheets as components
4 Check if sufficient metal sheets are in stock using MMBE
5 Transfer metal sheets to the vendor using movement type 541
6 When the vendor delivers the finished metal boxes, perform goods receipt (movement type 101)
7 Process the invoice for the vendor's processing charges (not the material cost)
8 Check the accounting entries to verify proper handling of both materials and processing charges

Non-Stock Materials

What are Non-Stock Materials?

Non-stock materials are items that are consumed directly upon receipt and are not managed in inventory. While physically stored in a warehouse, these items are considered "consumed" from an accounting perspective as soon as they are received.

EXAMPLE

Real-World Scenario:

Coffee stirrers, stationary supplies, or maintenance supplies that are low-value and don't need inventory tracking.

Key Characteristics

Material type NLAG (non-stock)
Considered consumed immediately upon receipt
Requires account assignment (e.g., cost center)
Not tracked in inventory
Cost is assigned directly to consuming department
Used for low-value, non-essential items

Process Flow

1 Step 1

Create material with type NLAG

2 Step 2

Create purchase order for non-stock material

3 Step 3

Specify account assignment (e.g., cost center)

4 Step 4

Receive goods against purchase order

5 Step 5

Process vendor invoice

Why Use Non-Stock Materials?

Simplifies inventory management
Direct cost allocation to departments
No need to track stock levels
Reduced administrative effort
Appropriate for low-value consumables

Important SAP Fields

Material Type: NLAG
Account Assignment: K (Cost Center)
Cost Center: Department consuming the material
Storage Location: Not required

Accounting Impact

When non-stock materials are received, the expense is posted directly to the cost center. There is no inventory asset created.

Accounting entry:
DR: Expense (Cost Center)
CR: Accounts Payable

Practical Example

A coffee shop chain needs to manage various office and café supplies efficiently:

1 Create a material master for coffee stirrers with material type NLAG using transaction MM01
2 Create a cost center (KS01) for each department that will consume these materials (Admin, Marketing, Operations)
3 Create a purchase order for 1,000 stirrers in ME21N, setting account assignment category to K (Cost Center)
4 For shared supplies like printer paper, use "distribute by percentage" in the account assignment tab to allocate costs (Admin: 20%, Marketing: 80%)
5 Receive the goods using MIGO with reference to the purchase order
6 Upon goods receipt, the costs are automatically charged to the assigned cost centers without creating inventory assets
7 Process vendor invoice using MIRO to complete the procurement cycle

Comparing Stock vs. Non-Stock Materials

Process	Stock Materials	Non-Stock Materials
Material Type	ROH, FERT, HALB, etc.	NLAG
Account Assignment	Not required in PO	Required in PO (usually cost center)
Accounting at GR	DR: Inventory Asset CR: GR/IR	DR: Expense Account CR: GR/IR
Inventory Management	Tracked in stock	Not tracked in stock
Physical Storage	In warehouse	In warehouse (but "deemed consumed")

Cost Distribution

For shared non-stock materials (used by multiple departments), you can distribute costs by percentage across different cost centers using the "Distribute by Percentage" option in the account assignment tab.

Service Procurement

What is Service Procurement?

Service procurement involves purchasing services instead of physical goods. Services can't be stored as inventory and often can't be fully defined at the time of ordering. Service procurement requires a different approach than material procurement.

EXAMPLE

Real-World Scenario:

Electrical services, HVAC maintenance, plumbing repairs, consulting services, and cleaning services.

Key Characteristics

Services instead of physical goods
Uses service master instead of material master
Item category D in purchase order
Service entry sheet instead of goods receipt
Services require approval/acceptance
Limits can be set for unplanned services

Process Flow

1 Step 1

Create service master

2 Step 2

Create purchase order with item category D

3 Step 3

Set limit for unplanned services

4 Step 4

Create service entry sheet

5 Step 5

Accept/approve service entry sheet

6 Step 6

Process vendor invoice

Special Features

Planned vs. Unplanned Services: Services known at PO creation (planned) vs. services identified during execution (unplanned)
Service Limits: Overall budget that can be used for various services
Service Price Maintenance: Through service conditions

Important SAP Fields

Item Category: D (Service)
Account Assignment: Required (usually Cost Center)
Service Tab: For planned services
Limits Tab: For setting overall service budget

Service Price Maintenance

Service prices can be maintained in three ways:

Base price for the service
Price by vendor
Price by vendor and plant combination

Practical Example

A coffee shop needs to repair a broken pump in its espresso machine:

1 Create service masters for the different electrical services (basic diagnosis, advanced repair, cleaning) using AC03
2 Maintain service prices: basic electrical service at $10/hour, advanced repair at $20/hour, and cleaning at $10/hour
3 Create a purchase order for "Pump Repair" with item category D (service) and Admin department as the cost center
4 Add basic electrical service (1 hour) as a planned service in the Services tab and set a limit of $100 for possible additional services
5 When the technician comes and performs work, create a service entry sheet (ML81N) referencing the PO
6 Add both the planned basic electrical service (1 hour) and unplanned advanced repair (1 hour) and cleaning (1 hour) that were required
7 A manager verifies the work was done properly, accepts the service entry sheet, and the vendor's invoice is processed through MIRO

Comparing Material vs. Service Procurement

Process	Material Procurement	Service Procurement
Master Data	Material Master	Service Master
Item Category	Standard or blank	D (Service)
Receipt Process	Goods Receipt (MIGO)	Service Entry Sheet (ML81N)
Approval Required	No	Yes
Unplanned Items	Not possible during GR	Possible in service entry sheet

Important Note

Unlike material procurement where goods receipt is automatic, service procurement requires formal acceptance by an authorized person. This is because services are intangible and need verification of completion.

Pipeline Process

What is Pipeline Procurement?

Pipeline procurement is used for materials that enter the production process directly from a pipeline or cable and are consumed immediately. These materials are never stored in inventory and are consumed directly as needed.

EXAMPLE

Real-World Scenario:

Oil, gas, electricity, or other fluids/resources delivered through pipes or cables.

Key Characteristics

Material type PIPE
No purchase order required
Direct consumption without goods receipt
Not stored in any storage location
Consumption recorded directly
Settlement through MRKO (similar to consignment)

Process Flow

1 Step 1

Create material with type PIPE

2 Step 2

Create purchasing info record with pipeline category

3 Step 3

Record consumption of pipeline material

4 Step 4

Settle payment for consumed materials

Special Features

No purchase order is created
Consumption is recorded directly
Special stock indicator "P" in consumption
Various consumption types available (cost center, order, network, etc.)

Important SAP Fields

Material Type: PIPE
Info Category: Pipeline
Movement Types: 201P, 261P, 281P, 291P
Special Stock Indicator: P

Common Errors

Missing tax code in purchasing info record
Missing condition type in MR1M (uses KONS condition type)
Incorrect special stock indicator
Wrong material type

Practical Example

A factory needs to track electricity usage supplied directly to its production:

1 Create a material with material type PIPE for electricity using transaction MM01
2 Ensure the material has a base unit of measure of "KWH" (kilowatt-hours)
3 Create a purchasing info record in ME11, specifying the electricity provider as vendor and selecting Pipeline as the info category
4 Set up the appropriate pricing and make sure a tax code is maintained to avoid settlement errors
5 When the factory consumes electricity, record consumption in MIGO with movement type 201P and special stock indicator P
6 Specify the cost center or production order that is consuming the electricity by selecting the appropriate account assignment
7 At month-end, use transaction MRKO to settle all consumptions, generating an invoice for the electricity used without ever creating a purchase order

Comparing Consignment vs. Pipeline

Aspect	Consignment	Pipeline
Material Type	Any (ROH, FERT, etc.)	PIPE only
Purchase Order	Required (Item Category K)	Not required
Goods Receipt	Required (MVT 101)	Not applicable
Storage	In warehouse as special stock	Never stored
Settlement	Through MRKO	Through MRKO

Important Note

Pipeline procurement is similar to consignment in terms of settlement (MRKO), but differs in that there is no goods receipt step. Materials are consumed directly from the pipeline without storing in inventory.