MM Integration with SD-PM-PS-FI-WM-QM modules

Material Management (MM) module is one of the core modules of SAP ERP (formerly known as SAP R/3). MM is highly integrated with other modules such as FICO (Financial Accounting & Controlling), Sales & Distribution (SD), Production Planning (PP), Plant Maintenance (PM), Project System (PS), Warehouse Management (WM), Quality Management (QM), etc. The main areas covered by MM are: Enterprise structure Master Data (vendor and material) Purchasing /procurement Materials planning (MRP and CBP) Inventory Management and Physical Inventory Management Material valuation and Account determination Invoice verification

The sales order (SO) or demand forecast of a finished product from SD module can be considered as a requirement in SAP MM. I have explained the SD business processes at previous article.

If the finished product is available, then it can be delivered to the customer by converting SO to outbound delivery, then perform Goods Issue (GI) transaction based on outbound delivery in inventory management. If the finished product is not available, this requirement can trigger materials planning process in MM. Materials planning in SAP can automatically create procurement proposals, such as planned order. Planned order can be converted into:

Purchase Requisition (PR), if the finished product is procured externally. Production order in PP, if the finished product is produced internally. The production order will be considered as dependent requirement for their components or raw materials. SAP will determine these dependent requirements by using the information from Bill of Materials (BOM) of finished product. These dependent requirements will also trigger materials planning for the components that will create planned order of the components.

In addition, materials planning can also create purchase requisition directly as a procurement proposal (no planned order). The maintenance order (from PM) or network activity (from PS) can also create:

PR of material/service that is procured externally, or Reservation of the stock material. If the stock of material is available then the reservation item can be issued with GI transaction in Inventory Management. If its not available, the reservation (which can be considered as requirement) can be processed by materials planning to create procurement proposals, such as planned order that can be converted to PR or production order.

The PR will be processed by purchasing/procurement department with MM module to be a purchase order (PO). Based on the PO, the vendor will deliver the material/service. Then it will be received in Inventory Management with Goods Receipt (GR) transaction.

If the material received is finished product, we can deliver it to the customer by converting SO to outbound delivery, then perform GI transaction in inventory management. If the material is component or raw material, we can use it in production order to produce the finished product with GI to production order transaction. When the finished product has been produced, we can perform the GR to production order transaction in inventory management. Then, we can deliver it to the customer by converting SO to outbound delivery, and then perform GI transaction in inventory management.

The vendor that delivered the material/service based on PO, will send their invoice to the responsible person in the company. Then, he/she will perform the Invoice Receipt (IR) transaction in MM. Based on the IR transaction; the finance department will process the payment in FI module.

The GR, GI, and other transactions in Inventory Management can be linked in details to the WM module. In WM module, we can maintain material stock at a level that more detail (which is storage bin) than MM module (which is storage location). We can store the same materials at several storage bins in a storage location. With QM, we can copy quality master data, such as certificate required, of a material that ordered in a PO, so the vendor will provide it. When we post GR transaction, we can post it to quality inspection stock. We can give a score/quality level to the material that delivered by vendor. The GR and GI transactions in inventory management also trigger the accounting journals in FI module that in a real-time basis update the company financial reports such as Balance Sheet and Profit & Loss Statement. The budgeting in PS can also be linked to the PR and PO in MM to keep that the total value (price) in PR and PO does not exceed the budget. SAP MM Process Flow The typical procurement cycle for a service or material consists of the following phases: 1. Determination of Requirements Materials requirements are identified either in the user departments or via materials planning and control. (This can cover both MRP proper and the demand-based approach to inventory control. The regular checking of stock levels of materials defined by master records, use of the order-point method, and forecasting on the basis of past usage are important aspects of the latter.) You can enter purchase requisitions yourself, or they can be generated automatically by the materials planning and control system. 2. Source Determination The Purchasing component helps you identify potential sources of supply based on past orders and existing longer-term purchase agreements. This speeds the process of creating requests for quotation (RFQs), which can be sent to vendors electronically via SAP EDI, if desired. 3. Vendor Selection and Comparison of Quotations The system is capable of simulating pricing scenarios, allowing you to compare a number of different quotations. Rejection letters can be sent automatically. 4. Purchase Order Processing The Purchasing system adopts information from the requisition and the quotation to help you create a purchase order. As with purchase requisitions, you can generate Pos yourself or have the system generate them automatically. Vendor scheduling agreements and contracts (in the SAP System, types of longer-term purchase agreement) are also supported. 5. Purchase Order Follow-Up The system checks the reminder periods you have specified and - if necessary - automatically prints

reminders or expediters at the predefined intervals. It also provides you with an up-to-date status of all purchase requisitions, quotations, and purchase orders. 6. Goods Receiving and Inventory Management Goods Receiving personnel can confirm the receipt of goods simply by entering the Po number. By specifying permissible tolerances, buyers can limit over- and under deliveries of ordered goods. 7. Invoice Verification The system supports the checking and matching of invoices. The accounts payable clerk is notified of quantity and price variances because the system has access to PO and goods receipt data. This speeds the process of auditing and clearing invoices for payment SAP SD business process In the previous article we have explained about the relationship between SAP SD module with SAP FICO, MM, PP, and WM modules. In this article we will explain more about the general business processes covered by SD and other related modules, which are:

Pre-sales activities When a client (existing customer or new customer) asks or requests information (can be through a phone call, an email, or a Request For Quotation (RFQ) document) about the products or services he needs, the sales personnel can input that request into SAP SD module by creating an Inquiry document.

In SD module, an Inquiry is an internal document that records the information about request from prospective customer for internal use only. In an inquiry, we record some information such as: which customer that request information, what products or services customer needs, how many products or services customer needs, etc. By creating inquiry, we can reduce the sales opportunity lost, especially when we need some extra time or procedures before we can reply the customer request. If we can immediately reply the customer request (if we have a standard products or services that the price and other condition are fixed), we dont need the inquiry document, we can just create a Quotation document to reply the customers request. But if we cant, we should create an Inquiry document, so when we have determined the price and other condition to be offered to the customer, we can create a Quotation document that refers to the inquiry document. We can create Inquiry with VA11 t-code. In SD module, a Quotation is a document that legally attached for us who issued it, that contains information about the offering to the customer, such as: which customer that been offered, what and how many products or services that been offered to the customer, how much the price of the

products or services, when the delivery date of the products or services, how the term of payment that been offered to the customer, the validity date of the offering, etc. A Quotation can be created by referring to the Inquiry document (if any) or not, depends on the business scenario defined. We can create Quotation with VA21 t-code. From the above explanation, it is clear what the differences between Inquiry and Quotation in SD module are. Both of them are SD document in pre-sales activities. Sales Order processing After we send the quotation to the customers, they will do their own purchasing procedure to determine from where they will purchase the products or services. If needed, they may negotiate with us about our quotation in terms of price, terms of payment, delivery date, or something else. We may send an updated quotation based on the negotiation. If they decide to purchase the material or service from us, they will send us a Purchase Order (PO). Then we create a Sales Order (SO) that refers to the Quotation sent to the customers before. We can put the customers PO number in our SO. Depends on business scenario and configuration, in SAP R/3 system we can also create an SO without referring to a Quotation. For example if we have a products or services catalog that can be used by customers as reference for their PO. An SO must contain the information of: Customer Materials or services sold to the customer Quantity of materials or services Pricing condition of materials or services Delivery dates Shipping processing, such as the incoterms, etc. Billing processing, such as terms of payment, etc. We can create Sales Order with VA01 t-code.

Inventory Sourcing To fulfill the products requirement from an SO at the required date, we can obtain them by one of these options:
o o o

Taking from Available stock at warehouse, if needed triggering a stock transfer between warehouses. Triggering a production order to produce the products in-house. Triggering a purchasing order to purchase the products from vendor (in case of third-party business transaction).

There is no sales document in these activities. They are done on other modules such as Production Planning (PP) and Material Management (MM).

Shipping Once the products are available at warehouse, the sales personnel can start shipping activities by creating an outbound delivery document (Delivery Order/DO). A DO can be created by referring to an SO. A DO will trigger warehouse personnel to prepare the products. We can create Delivery Order with VL01N t-code. If we use Warehouse Management (WM) module, a DO can trigger a Transfer Order. When the products are ready to be sent, the warehouse personnel posts the Goods Issue (GI) transaction that refers to the DO. The GI transaction will reduce the inventory level of products. We can post the Goods Issue that refers to a DO with VL02N t-code. Then the warehouse personnel sends the products to the customer by transportation mode that has been determined in SO document.

Billing The customer will receive the products at the delivery date promised in SO document. The finance department will generate a billing document and send an invoice form to the customer. The invoice will request the customer to pay the products we have sent at the price condition and terms of payment we have agreed in SO document. We can create Billing document with VF01 t-code.