SAP S/4HANA Materials Management (MM)

Strategic Approaches

Recommended strategies for indirect procurement:

• Catalog-Based Procurement: Self-service shopping for standard items
• Spend Category Management: Strategic approach by category
• Guided Buying: Steering users to preferred suppliers and items
• Process Automation: Touchless processing for low-value items
• Supplier Consolidation: Reducing supplier base for better terms
• Contract Compliance: Ensuring purchases utilize negotiated agreements

S/4HANA Enablers for Indirect Procurement

Key features in S/4HANA that enhance indirect procurement:

• Fiori-based self-service requisitioning
• Flexible approval workflows
• Mobile approval capabilities
• Enhanced contract management
• Improved service entry sheet processing
• Embedded spend analytics
• Machine learning for invoice automation

The client is the highest organizational level in SAP and represents a self-contained unit within the system:

• Each client has its own master data, transactional data, and customizing settings
• Clients are completely separate from each other (data security)
• Cross-client reporting and processes are limited
• Client-level settings affect all lower organizational levels
• Often represents a corporate group or separate legal entities

Client settings are typically set during system implementation and rarely changed afterward.

The company code is the smallest organizational unit for which a complete self-contained set of accounts can be maintained:

• Represents an independent accounting entity
• Legally required to produce financial statements (balance sheet, P&L)
• Has its own chart of accounts and fiscal year variant
• Basis for all financial reporting
• Multiple company codes can exist within a client

In Materials Management, the company code is critical for:

• Valuation of inventory
• Accounting entries for goods movements
• Vendor master data (accounting view)
• Payment terms and methods

Transaction: OX02, OX15

The plant is a key organizational unit for logistics and represents a physical location where materials are produced, stored, or distributed:

• Manufacturing facility, distribution center, warehouse, or regional office
• Manages its own inventory and material requirements planning
• Assigned to exactly one company code for valuation purposes
• Can be assigned to one or more purchasing organizations
• Serves as a default for many MM transactions

In Materials Management, plants are critical for:

• Inventory management and stock levels
• Material requirements planning (MRP)
• Material master data (plant view)
• Storage location assignment
• Goods receipt and goods issue processes

Transaction: OX10, MM01 (Plant View)

The purchasing organization is responsible for procuring materials and services at optimized prices and conditions:

• Negotiates prices, delivery terms, and conditions with vendors
• Creates and manages purchasing documents (RFQs, POs, contracts)
• Can be assigned to one company code (company-specific) or multiple company codes (cross-company)
• Can be responsible for one or multiple plants
• Handles vendor evaluation and selection

Assignment Types

Purchasing organizations can be structured in different ways:

• Centralized Purchasing: One purchasing organization for multiple plants/company codes
• Decentralized Purchasing: Each plant has its own purchasing organization
• Hybrid Approach: Centralized for strategic purchasing, decentralized for operational purchasing

Transaction: OX08, ME01

The purchasing group represents a buyer or group of buyers responsible for certain procurement activities:

• Subdivides the purchasing organization into areas of responsibility
• Often organized by material group, vendor, or product category
• Used for operational purchasing activities
• Enables analysis of buying patterns by buyer
• Basis for authorization checks in purchasing transactions

Purchasing groups are assigned in:

• Purchase requisitions
• Request for quotations
• Purchase orders
• Contracts and scheduling agreements
• Material master (purchasing view)

Transaction: OME4

The storage location is a physical area where stock is kept within a plant:

• Subdivides a plant's inventory into separate physical areas
• Used for detailed inventory management
• Always assigned to exactly one plant
• Used in goods movements and stock transfers
• Has no valuation impact (valuation occurs at plant level)

In Materials Management, storage locations are used for:

• Stock keeping and inventory reporting
• Goods receipt postings
• Goods issue processes
• Material reservations
• Physical inventory counting

Transaction: OX09

In SAP S/4HANA, Material Ledger is mandatory and automatically activated for all materials. This enables:

• Multiple currency valuation
• Parallel valuation approaches
• Actual costing capabilities
• Enhanced transparency in material values

The inventory management processes have been simplified with:

• Merged tables for material documents and accounting documents
• Elimination of summarization for material documents
• Real-time inventory valuation
• Simplified stock balance tables

Central procurement capabilities allow for:

• Centralized purchasing across multiple plants or companies
• Enhanced visibility across the entire procurement process
• Standardized procurement processes
• Improved negotiation power through consolidated volumes

S/4HANA offers enhanced analytics capabilities including:

• Real-time reporting without data replication
• Embedded operational reporting
• Predictive procurement analytics
• Supplier evaluation and performance analytics

Contracts

Long-term purchasing agreements with vendors, usually with committed values or quantities over a specified period. Contracts can be:

• Value contracts (total value commitment)
• Quantity contracts (total quantity commitment)

Transaction: ME31K, ME32K, ME33K

Scheduling Agreements

Long-term agreements with delivery schedules:

• Contain delivery schedule lines
• Commonly used for JIT (Just-in-Time) deliveries
• Can have releases (with or without JIT schedule)

Transaction: ME31L, ME32L, ME33L

Stock Material Procurement

Procurement of materials that will be held in inventory:

• Subject to inventory valuation
• Managed through material master
• Can be planned through MRP

Consumption-based Procurement

Directly expensed materials or services:

• Account assignment at requisition or PO level
• No inventory valuation
• Includes services and non-stock materials

Subcontracting

Process where components are provided to vendors for processing:

• Components are tracked at the vendor location
• Special stock types are used
• Requires separate subcontracting BOMs

Central Procurement

Enables centralized purchasing across multiple plants or companies:

• Creates transparency across the entire procurement process
• Supports hub deployment scenarios
• Enables central procurement with local execution

Machine Learning for Procurement

S/4HANA incorporates machine learning for enhanced procurement processes:

• Purchase order automation
• Contract consumption recommendations
• Supplier selection recommendations
• Anomaly detection in invoice verification

Condition types are the building blocks of pricing procedures that represent different price elements:

Condition Type Configuration

Each condition type has specific attributes that control its behavior:

• Calculation Type: Percentage, fixed amount, quantity-based, etc.
• Accrual Relevancy: Whether it affects accruals
• Tax Relevancy: Whether it's included in tax calculations
• Statistical: Informational only, doesn't affect price
• Group Condition: Bundled with other conditions
• Print Relevancy: Whether it appears on printouts

Transaction: OVK1, VOFM

Condition Tables

Condition tables define where and how condition records are stored:

• Determine which key fields are used to store condition values
• Define the criteria for searching condition records
• Control the level of detail for pricing (e.g., vendor-specific, general)
• Support different pricing scenarios (e.g., material-specific, material group)

Common Condition Tables in MM

• 231: Material + Vendor
• 232: Material Group + Vendor
• 233: Vendor
• 234: Material
• 235: Plant
• 485: Info Record

Access Sequences

Access sequences determine the order in which the system searches for condition records:

• Define a hierarchy of condition tables to be checked
• Control the prioritization of specific vs. general conditions
• Allow for fallback logic if specific conditions aren't found
• Enable flexible pricing strategies

Transaction: V/06, V/07

Structure and Function

The calculation schema defines how condition types interact to determine the final price:

• Specifies the sequence of condition types in the calculation
• Determines which conditions are added to or subtracted from the base price
• Controls subtotals and intermediate calculation steps
• Defines how condition values are rounded
• Specifies scale quantities for graduated prices

Calculation Steps

A typical calculation schema follows these general steps:

1. Determine gross price (e.g., from info record, contract)
2. Apply discounts (percentage or fixed amount)
3. Calculate subtotal (gross price - discounts)
4. Add surcharges (e.g., freight, packaging)
5. Apply tax if applicable
6. Calculate final net price

Transaction: VOFM, M/06

Condition Record Creation

Condition records store the actual values for pricing elements:

• Can be created manually or through mass maintenance
• Contain condition rates (percentage or amount)
• Have validity periods (start and end dates)
• Can include scale quantities for graduated pricing
• May be linked to specific materials, vendors, or combinations

Sources of Condition Records

Condition records can originate from various sources:

• Info Records: When created or updated
• Contracts: Prices negotiated in outline agreements
• Quotations: Prices from vendor quotes
• Manual Entry: Direct creation by purchasing agents
• Mass Updates: Batch updates for multiple conditions

Transaction: ME21N, ME31K, ME11, ME12, MR21

Enhancing Condition Records

Condition supplements provide additional information for condition records:

• Scale Values: Graduated pricing based on quantity
• Validity Periods: Date ranges when conditions apply
• Notes and Texts: Additional information about the condition
• Formulas: Calculation rules for dynamic pricing
• Rebate Agreements: Links to rebate arrangements

Scales for Graduated Pricing

Scale conditions allow for quantity-dependent pricing:

• Different prices or discounts based on ordered quantity
• Encourages larger order quantities
• Can be based on weight, volume, or other criteria
• Supports tiered pricing strategies

Transaction: ME11, ME12, ME13

Pricing Procedure Design Considerations

• Standardization: Minimize the number of pricing procedures to reduce complexity
• Transparency: Design procedures that provide clear price breakdowns
• Flexibility: Balance standardization with the flexibility needed for different purchasing scenarios
• Documentation: Maintain clear documentation of pricing logic and calculations
• Future-proofing: Consider potential business changes when designing procedures

Implementation Approach

Recommended implementation methodology:

• Document current pricing processes and requirements
• Design standardized condition types across the organization
• Create clear access sequences with logical prioritization
• Test thoroughly with all business scenarios
• Train users on maintaining and troubleshooting pricing
• Establish governance for pricing procedure changes

Maximizing Pricing Procedure Effectiveness

• Regular Review: Periodically audit pricing procedures for relevance and efficiency
• Access Control: Limit condition maintenance access to appropriate personnel
• Data Quality: Ensure accurate and up-to-date condition records
• Price Monitoring: Implement processes to monitor price variances and exceptions
• User Training: Ensure purchasing staff understand pricing mechanics
• Pricing Analysis: Regularly analyze pricing effectiveness and compliance
• Supplier Communication: Clearly communicate pricing structures to suppliers

Release Codes

Release codes identify individual release points (approvers or approval levels):

• Assigned to specific individuals or positions
• Can be sequential or parallel in the approval process
• May have different authority levels
• Can be mandatory or optional
• Form the building blocks of the release procedure

Release Groups

Release groups combine release codes into logical sets:

• Define which release codes are required for a specific scenario
• Determine the sequence of approvals
• Control parallel vs. sequential approval flows
• Can be assigned based on document characteristics

Transaction: ME54, ME55, ME57, ME59

Release Procedure Definition

A release procedure is the overall approval framework:

• Contains one or more release groups
• Defines the complete approval path for a document
• Specifies the number of release levels required
• May include classification indicators for determining which procedure applies
• Controls whether partial releases are allowed

Release Procedure Determination

The system determines which release procedure to apply based on:

• Document Type: PR, PO, RFQ, Contract, etc.
• Document Value: Total value triggers different approval levels
• Material Group: Different approvals for different categories
• Plant/Purchasing Organization: Organization-specific approval paths
• Account Assignment: Different approvals based on cost object
• Custom Classification: User-defined criteria

Transaction: SPRO (MM > Purchasing > Release Procedure)

Release Characteristics

Release characteristics are the criteria used to determine which release procedure applies:

Release Strategies

Common release strategy approaches in organizations:

• Value-based: Different approval levels based on document value
• Hierarchical: Approval flows up the organizational hierarchy
• Matrix: Combines functional and hierarchical approvals
• Dual Control: Requires approvals from both requester's department and procurement
• Category-specific: Different approvals for different material categories

Authorization Management

Release authority is controlled through user authorizations:

• Users must have proper authorization objects to release documents
• Release codes are assigned to specific users or roles
• Authority can be limited by document type, value, organization
• Substitution rules can be configured for absences
• Release authority often mirrors organizational hierarchy

Delegation and Substitution

Mechanisms for handling approver absence:

• Substitution: Temporary transfer of release authority to another user
• Delegation: Ad-hoc forwarding of specific documents for approval
• Time-based Authority: Automatic transfer of authority based on availability
• Escalation: Automatic forwarding if approval not completed within timeframe

Transaction: SU01, PFCG, ME57

Monitoring Release Status

Tools and reports for tracking the release process:

• Release monitoring reports by document type
• Documents awaiting release by approver
• Release history and audit logs
• Release time analysis
• Bottleneck identification

Release Management

Administrative functions for release processes:

• Mass release of documents (with proper authority)
• Release strategy adjustment for exceptional cases
• Release history visualization
• Release substitution management
• Release process reporting

Transaction: ME55, ME5A, ME5F, ME28

Release Strategy Design Principles

• Simplicity: Keep release procedures as simple as possible while meeting control requirements
• Risk-Based Approach: Apply more rigorous approvals to higher-risk or higher-value purchases
• Efficiency: Balance control needs with operational efficiency
• Clarity: Ensure approvers understand their responsibilities
• Consistency: Maintain consistent approval hierarchies across similar documents

Implementation Approach

Recommended implementation methodology:

• Document current approval processes and authority levels
• Identify control objectives and organizational policies
• Design standardized release procedures
• Configure release codes, groups, and procedures
• Test thoroughly with various scenarios
• Train approvers and document creators
• Monitor and refine after implementation

Maximizing Release Strategy Effectiveness

• Regular Review: Periodically audit release procedures to ensure they remain appropriate
• Performance Monitoring: Track approval times and identify bottlenecks
• Approver Education: Ensure approvers understand what they are approving and why
• Substitution Management: Maintain current substitution rules for absences
• Delegation Control: Monitor and audit delegation patterns
• Exception Handling: Define clear procedures for urgent approvals
• Documentation: Maintain clear documentation of release procedures and authorities

Quota Arrangement Elements

Key components that make up a quota arrangement:

• Material: The product for which quotas are established
• Plant: The location where the material is required
• Validity Period: Date range when the quota arrangement applies
• Vendors: Suppliers included in the arrangement
• Quota Percentages: Distribution percentages for each vendor
• Quota Quantities: Fixed quantities allocated to each vendor

Quota Types

Different approaches to defining quotas:

• Percentage-Based: Distribution based on percentage allocation (e.g., Vendor A: 60%, Vendor B: 40%)
• Quantity-Based: Fixed quantities assigned to each vendor
• Hybrid: Combination of fixed quantities and percentages
• Sequential: Vendors used in sequence until quotas are fulfilled

Transaction: MEQ1, MEQ2, MEQ3

Control Parameters

Configuration options that influence quota behavior:

• Fixed/Variable Split: Balance between fixed quantities and percentage-based allocation
• Quota Usage Tracking: How quota consumption is monitored
• Reset Period: When quota tracking is reset (monthly, quarterly, yearly)
• Rounding Rules: How to handle fractional quantities
• Override Criteria: Conditions when quotas can be bypassed

Vendor Ranking

Within a quota arrangement, vendors can be prioritized:

• Rank: Order of preference within equal quota percentages
• Fixed Quota First: Priority for vendors with fixed quantity quotas
• Performance-Based: Ranking based on vendor performance metrics
• Price Preference: Consideration of price in ranking

Transaction: MEQ1, OME6

Source Determination Sequence

The priority sequence for vendor determination:

1. Fixed vendor assignment in purchase requisition
2. Source list with fixed vendor flag
3. Quota arrangement
4. Source list without fixed vendor flag
5. Purchasing info records

Integration with MRP

How quota arrangements work with Material Requirements Planning:

• MRP can generate purchase requisitions with vendors derived from quota arrangements
• Purchase requisitions can be converted to purchase orders maintaining quota-based vendor selection
• Quota arrangements influence the planning and distribution of requirements
• MRP can consider lead times and other parameters from quota-assigned vendors

Transaction: MD01, MD03, ME58, ME59

Manual Overrides

Situations when quota-based sourcing can be bypassed:

• Urgent requirements with delivery time constraints
• Special quality or specification requirements
• Price advantages for specific orders
• Temporary supplier capacity issues
• Contract-specific requirements

Exception Handling

Processes for managing quota exceptions:

• Authorization controls for quota overrides
• Documentation of exception reasons
• Special approval workflows for exceptions
• Periodic review of exception patterns
• Quota adjustment based on recurring exceptions

Transaction: ME21N, ME51N

Quota Strategy Development

• Strategic Alignment: Ensure quota arrangements support overall procurement strategy
• Risk-Balancing: Distribute across vendors to mitigate supply risks
• Supplier Strengths: Consider vendor specialization and strengths
• Performance Incentives: Use quotas to motivate supplier performance
• Market Leverage: Maintain competitive tension while ensuring supply security

Material Selection for Quotas

Characteristics of materials well-suited for quota arrangements:

• Strategic importance to the organization
• Multiple qualified supply sources available
• Regular procurement requirements
• Standardized specifications
• Supply risk concerns
• Volume-based pricing opportunities

Maximizing Quota Arrangement Effectiveness

• Regular Review: Periodically review and adjust quotas based on performance
• Vendor Communication: Clearly communicate quota expectations to suppliers
• Balanced Metrics: Consider price, quality, delivery, and innovation in quota decisions
• Gradual Changes: Implement quota changes incrementally to allow supplier adjustment
• Exception Analysis: Regularly review quota exceptions for patterns
• Seasonal Adjustments: Adjust quotas for seasonal capacity or demand fluctuations
• Performance Feedback: Provide suppliers with feedback on quota fulfillment

One-Step Stock Transport

Direct transfer where goods issue and receipt occur in a single transaction:

• Material is directly posted from sending plant to receiving plant
• No tracking of in-transit inventory
• Simplified process for quick transfers or short distances
• Suitable for same-location transfers between plants
• No separate goods receipt required at destination

Two-Step Stock Transport

Transfer process with separate goods issue and goods receipt steps:

• Material is first issued from sending plant to in-transit stock
• Material remains in stock in transit until received at destination
• Enables tracking of materials during transportation
• Suitable for longer transit times or when tracking is essential
• Separate goods receipt required at destination plant

Transaction: ME21N, MIGO

Intra-Company Stock Transport

Transfers within the same company code:

• Simplest form of stock transport
• No change in ownership of materials
• No invoicing process required
• Valuation based on moving average price or standard price
• Primarily inventory and logistics transaction

Cross-Company Stock Transport

Transfers between plants belonging to different company codes:

• Involves change of ownership between legal entities
• Requires invoice verification process
• Creation of accounting documents across company codes
• Internal pricing considerations (transfer pricing)
• May have tax implications depending on plant locations

Transaction: ME21N with item category L, MIGO, MIRO

Batch Management

Handling batch-managed materials in stock transport orders:

• Batch information carried through from sending to receiving plant
• Option to maintain same batch number or create new batch
• Batch characteristics can be transferred or redetermined
• Batch-specific valuation considerations
• Batch where-used list tracks movements between plants

Serial Number Management

Handling serialized materials in stock transport orders:

• Serial numbers tracked throughout the transfer process
• Individual serial number assignment at goods issue
• Verification of serial numbers at goods receipt
• Complete traceability across locations

Handling Units and Packaging

Managing packaging in stock transport processes:

• Handling units can be created at sending plant
• Packaging materials can be included in the transport
• Handling unit contents verified at receiving plant
• Option to track returnable packaging

Transaction: MIGO, MSC1N, IQ01, MSC2N

Integration with MRP

How stock transport orders interact with material planning:

• MRP can generate purchase requisitions for stock transport
• Plant MRP considers receiving plant's requirements
• Transfer lead times included in planning
• Supply network planning optimizes inter-plant movements
• In-transit stock visible in material availability

Integration with SD

Optional integration with Sales and Distribution:

• Delivery documents can be created for stock transport
• Shipping processes applied to inter-plant movements
• Transportation planning and execution
• Picking and packing functionality
• Goods issue triggered by delivery processing

Integration with Financial Accounting

Financial implications of stock transport:

• Automated accounting entries for stock movements
• Valuation updates in sending and receiving plants
• Internal settlement for cross-company transfers
• Handling of transfer costs and price differences
• Tax considerations for cross-border movements

Transaction: MD01, VL01N, MIRO, OBYC

Stock Transport Order Design

• Process Selection: Choose appropriate process (one-step vs. two-step) based on distance and tracking needs
• Transfer Pricing: Establish clear transfer pricing policies for cross-company movements
• Plant Setup: Ensure proper plant configuration for smooth transfers
• Document Types: Define specific document types for stock transport orders
• Item Categories: Configure appropriate item categories for different transfer scenarios

Operational Recommendations

• Transit Monitoring: Implement processes to monitor materials in transit
• Performance Measurement: Track transfer times and compliance with schedules
• Exception Handling: Define procedures for handling discrepancies in quantity or quality
• Periodic Reconciliation: Regularly reconcile in-transit inventory
• Regular Cleanup: Process or clear aged in-transit stock

GR/IR Account

The Goods Receipt/Invoice Receipt (GR/IR) account manages timing differences between deliveries and invoices:

• Reconciliation account for goods received but not yet invoiced
• Ensures accurate period-end liability reporting
• Credited at goods receipt, debited at invoice receipt
• Helps identify missing invoices or goods receipts
• Supports GR/IR clearing processes

Three-way Matching Process

Financial validation through comparison of key documents:

• Purchase Order: Authorized commitment
• Goods Receipt: Confirmation of delivery
• Invoice Receipt: Vendor billing document
• Validates prices, quantities, and terms
• Identifies discrepancies for resolution

Transaction: MIGO, MIRO, MR11, FBRA

Material Valuation Methods

Approaches for valuing inventory in the financial accounts:

• Moving Average Price: Value adjusted with each receipt (price control V)
• Standard Price: Fixed value with variances posted separately (price control S)
• FIFO/LIFO: Value based on first-in/first-out or last-in/first-out (requires Material Ledger)
• Actual Costing: Periodic revaluation based on actual costs (requires Material Ledger)

Financial Inventory Accounts

Key accounts used for inventory valuation:

• Inventory Accounts: Balance sheet accounts for material value
• Consumption Accounts: Expense accounts for material usage
• Price Difference Accounts: Capture variances between expected and actual prices
• Revaluation Accounts: Used for adjusting inventory values
• Exchange Rate Difference Accounts: For currency-related valuation changes

Transaction: MMBE, MB5B, MR21, CKMLCP

Account Assignment Logic

How the system determines which G/L accounts to post to:

• Based on transaction type (goods receipt, issue, transfer)
• Influenced by material type and valuation class
• Considers account assignment category
• Uses valuation area (plant) specific settings
• Applies movement type specific rules

Account Determination Configuration

Key elements in account determination setup:

• Valuation Classes: Group materials with similar accounting treatment
• Movement Types: Define specific inventory transactions
• Valuation Grouping Codes: Link valuation classes to account assignments
• Transaction/Event Keys: Identify specific business events for accounting
• Account Determination Tables: Map business events to G/L accounts

Transaction: OMWB, OBYC, OMWD, OMWN

Operational and Financial Views

S/4HANA enables reporting that combines operational and financial perspectives:

• Inventory values by material, plant, and storage location
• Material consumption analysis with financial impact
• Procurement spend analysis with accounting dimensions
• GR/IR balances with aging and vendor details
• Price variance analysis with accounting implications

Embedded Analytics

Real-time analytical capabilities leveraging the Universal Journal:

• Material value analysis with various accounting dimensions
• Inventory KPIs with financial perspective
• Procurement analysis with cost center view
• Vendor performance with financial implications
• Material price trend analysis

Transaction: S_ALR_87012326, CDS Views, Fiori Apps

MM Closing Activities

Key period-end processes related to Materials Management:

• GR/IR Clearing and Reconciliation: Resolve discrepancies between goods and invoices
• Inventory Physical Count: Verify and adjust book inventory to physical count
• Material Ledger Closing: Perform actual costing runs and revaluations
• Open Purchase Order Analysis: Review status of outstanding commitments
• Accruals for Goods Received: Record liabilities for uninvoiced receipts

Simplifications in S/4HANA

S/4HANA streamlines period-end processes for MM-FI:

• Reduced reconciliation requirements due to integrated data model
• Accelerated closing processes with in-memory processing
• Streamlined actual costing with improved Material Ledger
• Real-time monitoring of closing activities
• Improved accrual calculation accuracy

Transaction: MRGN, MI31, CKMLCP, MIRO

Available-to-Promise (ATP)

Mechanism that checks material availability for sales orders:

• Confirms whether requested delivery dates can be met
• Considers current stock and future receipts and issues
• Includes planned production orders and purchase orders
• Influences both sales order processing and procurement planning
• Can trigger procurement or production through MRP

ATP Configuration and Strategies

Different approaches to availability checking:

• Daily ATP: Checks availability by date
• Individual/Collective ATP: Individual or combined requirements checking
• Product Allocation: Controls availability across sales channels
• Rules-Based ATP: Advanced checking with business rules
• Global ATP: Cross-plant availability checking

Transaction: VA01, MD04, OVZ2

Third-Party Processing (Direct Delivery)

Process where a vendor delivers directly to the customer:

• Sales order triggers purchase order to vendor
• Material ships directly from vendor to customer
• No physical handling of goods by the company
• Purchase order references sales order
• Goods receipt posted against purchase order when customer confirms receipt

Special Stock Types

Special inventory categories related to sales:

• Sales Order Stock: Materials specifically procured or produced for sales orders
• Project Stock: Materials assigned to customer projects
• Consignment Stock (Outbound): Company-owned stock at customer location
• Returnable Packaging: Tracking and managing packaging materials

Transaction: ME21N, VA01, MMBE

Sales-Driven Reservations

Process of earmarking inventory for specific sales orders:

• Created automatically from sales orders or manually
• Prevents allocated stock from being used for other purposes
• Considered in material requirements planning
• Linked to specific storage locations and batches
• Released when goods issue is posted for delivery

Reservation Management

Handling material reservations in integrated processes:

• Prioritization of reservations based on business rules
• Automatic creation during sales order processing
• Visibility of reservations in inventory management
• Impact on available stock for other sales orders
• Integration with picking and warehouse management

Transaction: MB21, MB22, MB23, VA01, VL01N

MRP for Production Components

Planning process for materials needed in manufacturing:

• Calculates component requirements based on planned production
• Considers bill of materials (BOM) and routings
• Generates purchase requisitions for externally procured components
• Creates planned orders for internally manufactured components
• Considers lead times for procurement and production

BOM Explosion in MRP

Process of calculating detailed component requirements:

• Converts finished product demand into component requirements
• Applies scrap factors and batch sizes
• Considers alternative components and BOM variants
• Handles multi-level production structures
• Integrates with procurement planning

Transaction: MD01, MD03, MD04, CS01, CS02

Production Order Component Reservation

Process of earmarking materials for specific production orders:

• Created automatically when production order is released
• Reserves specific quantities of components
• Can include specific batches or storage locations
• Considered in available stock calculations
• Used as basis for component withdrawal

Component Issue to Production

Process of providing materials to the production process:

• Goods issue against production order reservation
• Reduces inventory and increases work in process (WIP)
• Can be performed as backflushing (automatic consumption)
• Can be done via pick lists or warehouse management
• Updates material availability for other orders

Transaction: CO01, CO02, MIGO, MB1A, CO11N

Goods Receipt for Production

Process of receiving manufactured goods into inventory:

• Creates material document for finished product
• Increases inventory of manufactured material
• Relieves work in process (WIP)
• Updates production order status
• Can trigger inventory valuation updates

Handling Special Production Scenarios

Integration for specific manufacturing processes:

• Co-Products: Multiple main products from one production process
• By-Products: Secondary products from manufacturing
• Process Manufacturing: Continuous production with different yield rates
• Engineering Change Management: Handling BOM and component changes
• Rework Processing: Reintroduction of quality issues into production

Transaction: MIGO, CO15, CO02

Integration Design Principles

• Consistent Master Data: Ensure alignment between material masters, BOMs, and routings
• Streamlined Processes: Design clear workflows between procurement and production
• Clear Responsibilities: Define roles between production and procurement teams
• Integrated Planning: Synchronize production and procurement planning
• Performance Optimization: Balance detailed planning with system performance

Implementation Approach

Recommended implementation methodology:

• Document current production procurement processes
• Identify integration points and optimization opportunities
• Design standardized processes between MM and PP
• Configure master data with integration in mind
• Test end-to-end scenarios thoroughly
• Train users on cross-module processes
• Monitor and refine after implementation

Maximizing MM-PP Integration Effectiveness

• Component Availability Monitoring: Proactively manage component supply for production
• Consumption-Based Planning: Implement efficient replenishment strategies for production materials
• Just-in-Time Procurement: Synchronize component arrivals with production schedules
• Regular BOM Maintenance: Keep bills of material accurate and up-to-date
• Performance Metrics: Track key indicators like component availability and production delays
• Cross-Functional Collaboration: Foster communication between procurement and production teams
• Regular Process Review: Continuously improve the integration between MM and PP

Consignment is a procurement process where the vendor maintains ownership of materials stored at the customer's location until consumption:

• Materials are physically at your location but legally owned by the vendor
• Payment occurs only when materials are withdrawn for use (consumption)
• Reduces tied-up capital while ensuring material availability
• Special stock indicator "K" tracks consignment stock
• Consignment fill-up often managed through scheduling agreements

Consignment Process Flow

Transaction: ME31L, MIGO, MB1B, MRKO

Key Features

• Enhanced consignment settlement processes with improved automation
• Real-time visibility into consignment stock levels
• Improved integration with vendor collaboration tools
• Automated inventory level notifications
• Fiori apps for consignment management

Consignment Configuration

Key configuration elements for consignment processing:

• Material master settings (special procurement type)
• Vendor master settings (consignment indicator)
• Info record configurations
• Valuation class for consignment stock
• Consignment settlement parameters

Subcontracting is a process where components are provided to vendors who assemble or process them into a finished product:

• Components are tracked at the vendor location as special stock
• Subcontracting BOM defines component requirements
• Payment covers only the processing or assembly service
• Components retain their value while at the vendor
• Special stock indicator "O" tracks components at the subcontractor

Subcontracting Process Flow

Transaction: ME21N, ME2O, MIGO

Key Features

• Enhanced component tracking and visibility
• Simplified processing of subcontracting orders
• Improved integration with production planning
• Batch management for components
• Fiori apps for subcontracting management

Subcontracting Configuration

Key configuration elements for subcontracting:

• Material master settings (special procurement type)
• Vendor master settings
• Subcontracting BOM maintenance
• Account determination for subcontracting
• Pricing procedures for subcontracting

Stock transfers involve moving materials between plants or storage locations:

• Stock transfer order (STO) manages inter-plant transfers
• Direct stock transfers (one-step) or in-transit processing (two-step)
• Special stock indicator "E" tracks stock in transit
• Can be handled with or without delivery documents
• Transfer postings between storage locations within a plant

Stock Transfer Process Flow

Transaction: ME21N, MIGO, MB1B

Pipeline processing is a specialized form of stock transfer used primarily for continuously flowing materials:

• Commonly used for liquids, gases, or bulk materials
• Materials "in pipeline" are tracked as special stock
• Withdrawals can be posted directly from pipeline stock
• Special stock indicator "I" tracks pipeline inventory
• Often requires periodic reconciliation based on measurements

Pipeline Configuration

Key configuration elements for pipeline processing:

• Material master settings (special procurement type)
• Pipeline networks configuration
• Metering point configuration
• Account determination for pipeline stock

Third-party processing (also called direct shipment or drop shipping) involves vendors delivering goods directly to customers:

• Products never physically enter your inventory
• Reduces handling and shipping costs
• Accelerates delivery to customer
• Requires coordination between sales and purchasing
• Special item category in purchase order

Third-Party Process Flow

Transaction: VA01, ME21N, MIGO, MIRO

Key Features

• Enhanced integration between sales and purchasing processes
• Improved visibility of third-party orders
• Streamlined confirmation process
• Advanced delivery monitoring
• Fiori apps for third-party order management

Third-Party Configuration

Key configuration elements for third-party processing:

• Item category determination for sales orders
• Account assignment for third-party transactions
• Integration with delivery processing
• Pricing procedure configuration
• Output determination for third-party documents

Key Features

Distinctive aspects of direct procurement:

• High impact on product quality and customer satisfaction
• Often involves long-term supplier relationships
• Closely integrated with production planning
• Typically involves higher volumes and values
• Subject to strict quality control requirements
• Often includes schedule-driven procurement

Typical Materials

Categories commonly procured through direct procurement:

• Raw materials for production
• Components and subassemblies
• Packaging materials
• Semi-finished goods for further processing
• OEM parts for product assembly
• Chemicals and ingredients

Transaction: ME21N, ME31K, ME31L, MM01

Process Flow for Direct Procurement

Planning-Driven Procurement

How material requirements planning drives direct procurement:

• MRP evaluates demand from production plans or sales forecasts
• System considers current inventory and open orders
• Purchase requisitions generated automatically
• Source determination based on source lists or quota arrangements
• Purchase orders created with reference to requisitions
• Delivery schedules managed based on production needs

Transaction: MD01, MD04, ME59, ME21N

Strategic Approaches

Recommended strategies for direct procurement:

• Supplier Integration: Close collaboration with key suppliers
• Long-term Agreements: Framework contracts and scheduling agreements
• Quality Management: Integrated supplier quality assurance processes
• Just-in-Time: Synchronized delivery with production schedules
• Supplier Development: Investing in supplier capabilities
• Risk Management: Multiple sourcing strategies for critical materials

S/4HANA Enablers for Direct Procurement

Key features in S/4HANA that enhance direct procurement:

• Enhanced MRP Live for real-time planning
• Advanced ATP (Available-to-Promise) capabilities
• Improved scheduling agreement management
• Better integration between MM and production planning
• Real-time inventory visibility
• Embedded analytics for supply performance monitoring

Key Features

Distinctive aspects of indirect procurement:

• Wider variety of goods and services
• Often involves larger number of suppliers
• Typically more decentralized requisitioning
• Usually involves more approval steps
• Often focuses on process efficiency and cost control
• May have higher transaction volume but lower value per transaction

Typical Categories

Categories commonly procured through indirect procurement:

• Office supplies and equipment
• Maintenance, repair, and operations (MRO) items
• IT hardware, software, and services
• Professional services (consulting, legal)
• Facilities management services
• Travel and entertainment

Transaction: ME21N, ME51N, ME31K, MIRO

Process Flow for Indirect Procurement

User-Driven Procurement

Characteristics of the user-initiated procurement process:

• Requisitioning often starts with end users rather than planners
• Self-service procurement through catalogs and shopping carts
• Multi-level approval workflows based on value or category
• Account assignment at requisition creation
• Three-way matching for goods/service confirmation and invoicing
• Focus on process compliance and spend visibility

Service Procurement

Special considerations for indirect service procurement:

• Service specifications rather than material masters
• Service entry sheets to document delivery
• Acceptance processes for service completion
• Time and material or fixed-price contracts
• Performance-based acceptance criteria
• Integration with project systems for project-based services

Transaction: ME51N, ML81N, MIRO, ME58