SAP Logistics is an enterprise software application that helps automate supply chain operations related to logistics. Logistics refers to the process of getting a product or service to its desired location upon request. There are many tasks that are involved in this process including transportation, purchasing, warehousing, and others. If all these tasks work efficiently, the product or service gets to its desired destination on time and at the lowest possible cost.
Integration of SAP modules in Logistics
1. MM – Material Management
The SAP purchasing processes allow the purchasing department to use the best practices that are found in world-class purchasing organizations.
Purchasing Best Practices
In the procurement of materials and services, the purchasing department does more than just process orders. The modern purchasing department manages a process that ensures the items the company purchases are of the highest quality, at the lowest cost, delivered in a timely manner. The following subsections describe the best practices used in world-class purchasing department.
The following are the best purchasing practices that should be observed during purchasing processes:
a. Information Gathering
When a new product has been developed, design engineers often require materials or services to be procured that may be new to the company. The purchasing department is responsible for searching for suppliers who can satisfy the requirements. Purchasing departments start with their current vendors who offer the best discounts to ensure that the new material or service is procured at the best possible price.
b. Request for Quotation
If the material can’t be procured from contracted vendors, or the price and quality aren’t acceptable, the purchasing department advertises or sends potential vendors a request for quotation (RFQ), request for proposals (RFP), request for information (RFI), or request for tender (RFT). The purchasing department evaluates any reply based on a set of defined criteria to obtain the best product at the best price.
c. Background Review
If a company has used a vendor before, the company will have information about that vendor within he system. SAP software has a vendor evaluation function that uses objective and subjective analysis to help in the evaluation of vendors. If the vendor hasn’t been used before, the purchasing department requires references for the material or service quality. The purchasing department also investigates installation, maintenance, and warranty information. If the material is to be used in the production process, the quality department may examine samples and undertake trials of the material.
The purchasing department is also responsible for entering into negotiations with potential vendors. The agreement isn’t just about price and discounts but also availability lead times and quality. The negotiation of the terms of an agreement can be prolonged, but the purchasing department must be fully aware of upcoming sales orders and production lead times.
e. Contract Monitoring
After the contract is signed, the purchasing department monitors the performance of the vendor based on the terms of the contract. The purchasing department evaluates on-time delivery, checking that the correct quantity arrived, ensuring that the quality of the material was per the contract, and verifying that the invoicing was sent correctly with the correct price, delivery charge, and appropriate discounts.
f. Contract Renewal After a specific time, determined by the contract, the purchasing department enters into contract renewal negotiations with the vendor. The vendor’s performance with the material and other materials it supplies will be considered and evaluated.
Monitoring the vendor’s performance allows the purchasing department to enter into negotiations with leverage that can produce a better price for the material in subsequent contracts. If the purchasing department or the production department doesn’t want to renew the contract for the material or service, the purchasing department is required to start a new RFQ process to find a new vendor for the material.
The following are the activities during the procurement process or Material Management:
1. Purchase Requisition
The purchase requisition is the procedure by which users can request the purchase of materials or services that require processing by the purchasing department. Companies can allow certain authorized users to enter purchase requisitions directly into the SAP system, but in situations involving a particular dollar value or type of goods and services, the company may request another method of informing the purchasing department of the purchasing requisition, such as fax or email. The purchase requisition includes the quantity, cost center, and purchasing group responsible for the purchase. The purchasing group monitors new requisitions and processes those for which they are responsible.
Placing requisition via Internet
A growing number of companies have implemented a web-based frontend to purchase requisitioning over their company intranets, and authorized users can go to a URL and enter the material or services they need instead of having direct access to the SAP system. Some companies have purchased Internet requisition software, whereas others have built their own applications in-house. The benefi t of this type of application is that it can allow any employee to create a requisition without having to sign on to the SAP system or be an SAP user. This can be beneficial because it requires less administration work for your SAP security staff. The user can add a vendor, items, and quantities, and, if the application accesses a vendor catalog, a price can beshown.
After the purchase requisition has been created, it can be converted to a purchase order (PO) or can be used as the basis for an RFQ if the material or service isn’t currently purchased by the company.
2. Request for Quotation (RFQ)
When the purchasing department receives and reviews purchase requisitions , there may be a material or service that requires the purchasing department to offer an RFQ .
Many scenarios require the purchasing department to produce an RFQ: › Material or service has not previously been purchased by the company. › Previously used material or service has no valid vendor. › Material or service requires a new vendor because the previous vendor’s contract was not renewed. › Material or service requires a new vendor to be found due to new government regulations or laws. ? Material or service requires a new vendor to be found due to logistical issues.
The purchasing department either publishes an RFQ from which vendors then send a quotation, or the purchasing department specifi cally sends the RFQ to a number of vendors that have been preselected. These vendors currently have a contract with the company, have been identifi ed by the person who entered the requisition, or have been identifi ed by the purchasing department after investigation.
The RFQ can contain as little or as much information as the purchasing department deems necessary for a competitive bid situation. If the material or service is low cost and has little strategic impact, then the RFQ will be relatively simple. However, if the item or service is of high value, it may not be a question of just cost but other factors that determine which vendor offers the most competitive bid. In complex RFQs, the purchasing department may require vendors to supply information on quantity discounts and rebates, detailed quality specifications, delivery and lead time requirements, period of warranty, detailed drawings, and so on. The RFQ shows the required material, quantity, delivery date, and the deadline date for a response.
The vendor sends a quotation to the purchasing department via email, EDI, fax, or mail. Each vendor’s quotation is evaluated by the purchasing department to ensure that it abides by the stipulations of the RFQ that was sent out. If the vendor failed to reply in the format required, this may disqualify the vendor’s bid. The purchasing department may enter into negotiations with one or more vendors before making a decision on a primary and secondary vendor. After a final decision is made, the details of the contract are entered into the SAP application, so that the information is available when a PO is created.
4. Purchase Order
A purchase order (PO) is a commercial document issued by a purchasing department to the vendor. The PO specifies the material or service required, the quantities, and the negotiated price that the vendor and purchasing department have agreed upon. You can create a PO from a purchase requisition that has been entered into the SAP system. It can be created as a direct result of a quotation from a vendor replying to an RFQ. In addition, you can enter a PO directly into SAP without a requisition. Your company policies on procurement determine the purchasing processes allowed.
5. Accounts Payable / goods receipts
Accounts payable can be defined as the money that your company owes to vendors for materials or services purchased on credit. The items appear on your company’s balance sheet as a current liability. When accounts payable are paid off, it represents a negative cash flow for the company.
6. Invoice Verification
Invoice verification is part of the accounts payment process where vendors are paid for materials or services that they have provided. The verification of the invoice is important to both the vendor and the purchaser because it ensures that the quantities and the pricing are correct and that neither party has made an error. The standard method of invoice verification is the three-way match.