SAP Consumer Products for Apparel & Footwear

SAP Consumer Products for Apparel & Footwear: Materials Management (MM)
Overview
AFS Materials Management (AFS MM) covers all processes necessary for material procurement, inventory management and invoice verification for the apparel and footwear industry. The AFS MM procurement cycle is shown in the following diagram.
Procurement Cycle

Fig. 14: AFS MM Procurement Cycle

The structure of materials procurement in the SAP system is of great advantage. All routine jobs ranging from purchase requisition creation to purchase order generation can take place automatically without any significant help from the purchasing department, which need only intervene in exceptions. Because purchasing, inventory management, invoice verification and other departments all have access to the same data, no additional effort is necessary for creating and processing purchase orders. All documents can be generated with reference to the data available in the system. In this way, effort and mistakes in data entry are minimized. R/3 standard MM processes and functions have been enhanced in AFS by integrating style/color/size and category definitions.

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Purchase Requisition
Purchase Requisition

The purchase requisition is a request to the purchasing department to procure a certain amount of materials or services by a particular date. Purchase requisitions are created manually by the department making the request, or generated automatically by other applications. The processing of purchase requisitions has been extended in AFS to include dimensions and categories for AFS products. You can distribute the purchase requisition quantity by percentage across dimensions. The distribution can be based on historical data or definable standard distributions. By using AFS source allocation, the most suitable vendors can be found for a requested material and assigned to the purchase requisition. Once a supply source has been be assigned, the purchase requisition can be marked for request for quotation (RFQ) processing.

Source Allocation
Source Allocation

As a result of todays trend towards globalization, the importance of procurement has increased in recent times. A module for optimum vendor selection has been developed in AFS. This is an optimized tool which you can use to evaluate the most effective channels for procurement. During a source allocation run, various suggestions for procurement are generated, proposing the most suitable vendor. This can be either an internal production site or an external vendor. The source allocation sets fixed parameters to determine the ideal vendor, and facilitates the addition of company-specific parameters by the customer. The determined vendor is then assigned to the appropriate purchase requisition. Government regulations can also play a role in the apparel and footwear industry. In AFS, the country of the customer is compared with the vendor or the country of origin. Choice of source is made honoring country restrictions. Furthermore, a customer may also refuse to accept goods produced in a certain country or from a certain vendor. For example, Customer A in Country A will not accept any products from Country B. The system also takes this into consideration. Government regulations must also be taken into consideration if the product is subject to particular quotas which control imports from a certain country. The system takes the total number of items that are to be imported within a certain period into account. If the quota for this country is reached the respective vendor will not be selected. To avoid two production sites within one company exhausting the quota at the same time, only a portion of the total quota is allocated to each site for a particular product or product group. The total quota and the portion consumed by the order are displayed in a list.

Government Regulations

Quotas

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In business practice, you may source the same product from several vendors. You agree with each vendor the quantity which he is able to supply. Vendor capacities can be determined in different ways, for example, according to vendor and material or material group. The capacity is defined as basic capacity, overload capacity and maximum capacity. If a vendor has reached the maximum capacity for a particular material or material group, the user is informed accordingly. Thus, it is possible for the user to optimize capacity distribution for internal and external production across all vendors. Further user-defined criteria for source allocation are:
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Vendor Capacity Planning

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Vendor rating: R/3 standard data for vendor rating for all materials per vendor for a particular material Factory status: User-defined partner status for a vendor Complexity factor: For product complexity during production Amortization costs for tools: For equipment supported by the company Smallest FOB (free on board): Costs excluding dispatch costs Smallest Landed Costs: Costs including dispatch costs Estimated time of arrival (ETA): Quickest possible delivery

Fig. 15: Source Allocation Vendor Capacity

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Request for Quotation (RFQ) and Quotation

Request for Quotation and Quotation

A request for quotation (RFQ) is sent to various vendors asking them to submit a quotation. The quotation contains a vendors prices and conditions for the respective materials. Data from the quotations received are maintained with the respective request for quotation. Request for quotation and quotation are therefore seen as one. In addition, request for quotation and quotation contain information at dimension and category level. AFS functionality is also available here for the automatic distribution of quantities across dimensions and categories. Prices can be defined using the SAP R/3 condition technique at SKU level. With the help of a price comparison list, a quotation comparison can be carried out at SKU level and the best quotation established.

Purchase Order
Purchase Order

Purchase orders can be generated automatically from the list of purchase requisitions to be processed by the buyer and to which source of supply has been allocated. Order quantity entry for various items in the purchase order can be created at dimension and category level. Distribution profile functionality is also available in the purchase order. If certain dimensions of a material cannot be supplied or delivered by a particular vendor, the system allows you to define a product grid with the valid dimensions for this material-vendor relationship. These are automatically taken into consideration in the purchase order.

Multi-Level Contracts
Multi-Level Contracts

Block orders are quite common in the apparel and footwear industry. These are long-term purchase agreements with external vendors who deliver materials or supply services under certain conditions. AFS can process these agreements without yet needing to define colors or sizes of raw material. Using these functions the customer can issue a purchase agreement for an undefined quantity for a future date. With the approach of the scheduled delivery date, the contract takes a more concrete form as a new scheduling agreement to the original contract. Additional information such as raw material color is determined. Exact quantities and destination are confirmed when establishing the delivery date. By using this function, your company has greater flexibility when planning the purchase of materials and can react quicker to changes in the market.

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SAP Consumer Products for Apparel & Footwear

Fig. 16: Multi-Level Contracts Logistic Background

Inventory Management
You can use the AFS inventory management system for the following functions:
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Inventory Management

Management of stock on hand based on quantity and value Planning entry and settlement of all stock movements Inventory movement processing

In the inventory management system, the exact physical stock is always displayed using real-time entry for all processes where stock has changed and the resulting inventory updated. The user can view the current stock situation of a material at any point in time. Whenever a change to the stock takes place, the data is updated immediately and is available to upstream and downstream departments. Stock value is also updated when posting a goods movement and value updates are triggered in other applications:
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G/L accounting Single items are generated for any account assignment objects involved

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The amounts posted are created automatically by the system based on data from the purchase order and material master record. Consequently, when creating a goods movement you only need to enter the quantity to be moved. Documents are created during goods movement which form the basis for the quantity and value updates, while at the same time recording the movement. All relevant functionality in inventory management such as goods receipt to purchase order, reservations, goods issue, as well as transfer posting and stock transfer, have been extended in AFS to show data at SKU level. The stock requirements list also shows all available stock at dimension and category level. All goods movement documents created by the system include information at SKU level, and the most important evaluations have been adapted and extended to include dimension and category fields.

Inventory
Inventory

When balancing stock accounts, a company must carry out a physical inventory count of warehouse stock at least once every fiscal year. Various procedures can be used. The SAP system supports the following inventory procedures:
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Periodic inventory Continuous inventory Cycle counting Inventory sampling procedure

It is possible to include freely available stock as well as stock in quality inspection, and blocked stock. Furthermore, inventory processing for warehouse stock, and special stock is supported. The inventory sampling procedure has been extended in AFS and can be carried out at dimension and category level. Information at SKU level is available in all relevant processes such as physical inventory document creation, creation of payment results in the system, and posting results.

Invoice Verification
Logistical Invoice Verification

Logistical invoice verification is part of materials management. Being at the end of the logistical chain following purchasing, inventory management and invoice verification, its function is to check invoices for accuracy regarding content, price, and calculation. When posting an invoice, all data from the invoices is stored in the system and updated in materials management and other applications real-time.

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Logistical invoice verification includes the following functions in AFS MM material management:
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To complete the procurement procedure: from purchase requisition via purchasing through to goods receipt To process invoices that did not originate in procurement (e.g. services, travel expenses, seminar costs) To process credit notes, either in the form of invoice cancellation or discount

The payment or evaluation of invoices is not part of invoice verification. This information is forwarded to the financial department. Invoice verification establishes the connection between materials management and accounting (financial accounting, asset accounting and cost accounting), and embraces the following:
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Creation of incoming invoices and credit notes Checking of invoices resulting from account movements for content, price and calculation accuracy Posting of account movements resulting from invoices Updating of certain data in the SAP system such as open items and material costs Retrospective processing of invoices that were blocked due to substantial variances in the ordering transaction

Logistical invoice verification has been extended in AFS. For invoice verification to be able to check invoices for content, price and calculation accuracy, all information has been extended to dimension and category level and is available, for example, at the time of invoice creation.

Warehouse Management
Computer support for organizing and managing warehouses has become imperative for timely, efficient processing of logistic requirements within a company. Apparel and footwear companies in particular need to be able to manage highly complex warehouse structures and a multiplicity of warehousing facilities. In AFS, the R/3 standard Warehouse Management (WM) application was enhanced by integrating style/color/size definitions into functions such as:
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Warehouse Management

Maintain Material Master: You can choose whether the warehouse management view and relevant functionality is maintained at material number level (R/3 standard) or at SKU level. This also includes general data such as volume, gross weight and capacity consumption

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Putaway Strategy/Picking Strategy: it is possible to determine strategies at SKU level (style/color/size), by which the system establishes storage bins for stock to be put away or picked. By using the additional AFS functionality, the system can make best use of the available warehouse capacity and assign optimum storage locations to the stock received. Similarly, the system allocates the optimum picking location to picked stock Storage Section Determination: you can define in which storage section each material or SKU should be stored. For example, you might store common sizes in storage section 1 and less frequent sizes in storage section 2 Storage Strategy (General): it is also possible to maintain general storage strategies (bulk storage indicator, special movement indicator and 2-step picking) at SKU level Palletization Data: palletization data is maintained at SKU level. Various quantities and pallet types can be maintained, depending on the SKU Fixed Space: Should a material be allocated to a fixed space, it is possible to assign various storage locations, quantities, control and replenishment quantities Selection Screens: you can enter the SKU as a selection criterion to display, for example, just one grid value-category per material, or warehouse internal documents, depending on the selection Inventory Count Result: it is possible to create count results down to SKU level, irrespective of whether you are dealing with a material which should be stored at that location or was found there. The count result is created for each location at SKU level

Special Business Processes

Special Business Processes

There are special types of processing in the apparel and footwear industry that are described in context below. These apparel and footwear industry specific business processes clearly illustrate the variety and flexibility of use of materials management in AFS. Consignment material is a vendors material that is stored at your own production site while still remaining the property of the vendor. Only when the material has been withdrawn or transferred to your own stock is a binding material valuation carried out using the predefined vendors price. The price can be established at SKU level. Unused material can be returned. The settlement statement is sent to the vendor, for example, each month or quarter etc.

Procurement of Consignment Material

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Fig. 17: Procurement of Consignment Material

All movements for consignment materials are allocated firmly to consignment stock at time of posting by setting the special stock indicator. Material procurement via subcontracting is processed in AFS using subcontract orders. The following functions are available:
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Subcontracting

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Order a material or service with a vendor Provide material components for production or embellishment Withdraw material provided from companys own production site stock or let a third-party vendor carry out delivery Post finished product as goods receipt Post product as consumption using goods receipt posting

Fig. 18: Subcontracting Overview

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If stock of provided material is stored at the subcontractor site, this is handled as special stock of the respective vendor because, although it is your companys property, it is not available and exists in the total stock of the production site.

Fig. 19: Subcontracting Process Flow Stock Transfer/Stock Transport Order

Stock transport orders can be used to transfer stock from one production site to another. Stock transport orders are included in material requirements planning.

Fig. 20: Stock Transfer Stock Transport Order

The receiving production site makes a request for a product using a stock transport order, while the issuing production site posts a goods issue with reference to the stock transport order. You can create the goods issue as a goods movement in inventory management or using SD delivery note processing. The withdrawn quantity is recorded as stock in transit of the receiving production site.

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The receiving production site posts a goods receipt with reference to the stock transport order. With that, the stock in transit and the open purchase order quantity are reduced. It is also possible to post the goods receipt in the receiving production site in one step. At the same time, the issuing production site posts a goods issue so there is a no stock in transit situation. Even if the respective production sites belong to different company codes, you can still create a stock transfer in the following ways:
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Stock transfer from one production site to another using a one or two-step procedure Stock transport order with or without an SD delivery note
Third-Party Order Processing

Another important business process in the apparel and footwear industry is third-party order processing, also known as direct-shipment. Here, delivery of products to the customer is not carried out by your own company. This is commissioned to an external vendor, who sends the goods directly to the customer and invoices you accordingly. From time to time and in some circumstances you may decide to handle certain items (which you would normally deliver yourself) as third-party items (e.g. when large volumes are ordered). This process is supported throughout the system at SKU level. This means that from sales order creation to the automatic generation of a purchase requisition and the conversion to a purchase order, all relevant information is available at SKU level. In addition, the entire process is fully transparent within the purchasing and sales departments, as well as the planning department (MRP).

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