SOURCE TO PAY
Procurement SAP Best Practice Scope Items
Identifying the Areas in Procurement
There are two possible systems that can be used in procurement. Originally, the entire
procurement process took place in the SAP S/4HANA module Materials Management (MM).
SAP Ariba Overview
Now, in addition to using the SAP S/4HANA core to run the source-to-pay process, SAP also
offers the SAP Ariba Procurement solution as well. Penelope has collected some information
for you, to learn more about the portfolio of the SAP Ariba cloud solution.
Cloud solutions of SAP Ariba are
1.Financial Supply Chain
2.Procurement
3.Supply Chain
4.Strategic Sourcing Solutions
5.Supplier Management
Buying Process Using SAP Ariba Buying and Invoicing
As we have two solutions for procurement, the challenge is to find the best way to process
your procurement requirements. As one option you could integrate the entire portfolio and
use SAP ARIBA and the SAP S/4HANA ERP solution.
FIG : AribaBuyingProcess
Explaining the Requisitioning Process
→We will now focus on the first business process step in source-to-pay: manage purchase
requisitions.
→As part of the integration test, you have a look at the required master data in procurement.
The first documents will be created manually in Procurement to initiate the source-to-pay
process.
Supplier Master Data Record
In the same way that you used an FI supplier in the record-to-report process, it is now
necessary to extend that Business Partner so they can be used in the source-to-pay process.
SUPPLIER FI CUSTOMER FI VENDOR
Product or Material Master
Before our Bike Company can procure the materials needed to produce a new e-bike, we must
first create a product master record (sometimes referred to as a material master record). The
product master data record is the most centralized object in the ERP environment. Because it
is used by all departments, each department must create the necessary data.
Because we need to buy the new material in advance for the development and the prototyping,
the Procurement department starts creating a new product master record.
The product master is organized by departments. Views are allocated to each department (data
tabs – grouping of fields) that contain the information necessary for the department. Because
the development of a new product starts in the Engineering department, they are responsible
for maintaining the basic data.
The Purchasing department is then the first one involved in the process of sourcing and they
need to maintain data as well. As the new material will be managed in stock, besides the storage
data, accounting data is necessary as the materials will be managed in valuated stock.
From this perspective the following departments need to maintain data:
• Engineering / Construction
• Purchasing
• Storage
• Finance
Because there are different types of products, it is possible to differentiate the usage (which
departments can maintain a product) of the product.
The following are examples for the material type:
• FERT for a finished product
• RAW for a raw material
• SEMI for a semi-finished product
You must also specify an industry sector, which determines the fields necessary.
A product master record is created (or maintained) for every enterprise structure needed by the
department. Depending on the departments (and therefore the views), the product master needs
to be maintained with a reference to the client – engineering data, with reference for plant –
purchasing data, with reference for plant / storage location from the storage views.
Because the Bike Company produces products and uses production planning, the valuation
level plant has been set up. Therefore, the financial views are created at the level of the plant.
Manage Purchase Requisition Business Process
FIG : WHERE TO PURCHASE
Let’s summarize:
As you just learned the item Category is used to define the business process used in
purchasing.
The following item categories are available:
• Normal
• Consignment
• Stock Transfer
• Subcontracting
• Service
The account assignment category is used when ordering products directly for an accounting
object. Possible accounting object are:
• Cost Center
• Asset
• WBS element
• Order (enterprise asset management, production order and others…)
FIG : Stock_Material.
Follow-On Process Steps of the Purchase Requisition
Now that we have manually created a purchase requisition to procure the materials needed to
produce the new e-bike, we will have a look at the possible following on processes:
1. Convert the purchase requisition into a purchase order. For this, you need to know
where to buy the product and you need to enter the price manually.
2. Use the purchase requisition to create several requests for quotation to be sent to
several suppliers. You will receive some quotations, including the conditions for the
delivery. This could be processed directly in the S/4HANA system. Based on the quotes,
you have the option to create purchasing info records or a contract with a preferred
supplier. You can then create a follow-on purchase order.
3. Transfer the purchase requisition to SAP Ariba and process the request for quotation
(RFQ) and quote in SAP Ariba.
Purchasing Info Record
A purchasing info record is a master data record that is used for the sourcing process. It
combines the product and the supplier and is created with a reference to a purchasing
organization. Optionally, it can also be maintained at the level of the plant. In addition to the
purchasing info record we can maintain conditions. Conditions are possible pricing elements
that could be valid for the purchasing process. For example, the price of the product, rebates
or fright costs that apply.
The conditions are stored in separate master data records.
FIG : Purchasing Info Record
SAP Ariba Alternative
As an alternative, you can use the SAP Ariba solution to process some procurement steps or
the entire procurement process.
As already seen in the process flow in lesson 2, we can create purchase requisitions in SAP
Ariba. For this, we use catalogs from the SAP Guided Buying for SAP S/4HANA buying and
create shopping carts. The created request would be forwarded to an approver (if necessary)
and then be used as input to create a purchase order.
Describing Contract Management
Overview of Contract Management
Contract management is the structured process of creating, executing, monitoring, and
renewing contracts to ensure compliance, minimize risk, and maximize value for all parties
involved.
It governs how legally binding agreements are handled—from initial drafting to final close-
out—and is essential for maintaining operational efficiency and financial performance.
How to Create Quantity Contract
To buy the new product, we will create a quantity contract with special conditions. Because
we have received a quotation from our preferred supplier, we will use that quotation to create
a quantity contract for the Bike Computer.
A contract has a validity period and contains the individual items. As we have agreed on
special pricing conditions, we maintain these in the contract
Managing Purchase Orders
The next business process step to be covered is Operational Procurement.
Purchase Order Overview
Having managed individual requirements with – purchase requisitions – and established a
long-term relation with our supplier by using a quantity contract, we now focus on the
creation of purchase orders.
References
→You can minimize data entry time by creating purchase order items with reference to an
existing purchase order,purchase requisition,quotation ,or contract
Default Values
→You can enter a purchase order without referring to existing documents in the system.When
you enter the purchase order data,the system suggests default values.There are for example
the ordering address of the plant.
Supplier
→If the source of supply is a plant belonging to your company, you carry out a stock transport
order. If you order from an external supplier, you create a standard purchase order
Master Records
→If a product master exists,the material short text, the purchase order unit of measure, and
the material group are transferred automatically. If a purchasing info record already exists in
the system, a price can be proposed for the purchase order
Automatic Creation of Purchase Orders
It is also possible to automate the creation of purchase orders.
For example, if we don’t need any approval when ordering our production materials and we
already know our preferred supplier.
Imagine that we order our production materials and don't need any approval and we know our
preferred supplier already. In that case we should generate the POs automatically.
A purchase requisition item with an assigned source contains all the information (for
example, supplier and price) required for the system to convert it into a purchase order.
FIG: Automatic_Pos
To automatically convert a purchase requisition into a purchase order, the following apply:
• The Automatic Purchase Order indicator must be set in the material master record
(purchasing data).
• The Automatic Purchase Order indicator must be set in the supplier master record
(purchasing data).
• A valid source of supply must be assigned to the purchase requisition item.
• No additional entries (such as the tax code for automatic goods receipt settlement) are
required during conversion.
Managing Goods Movements
We will now move on to the business process step Receiving.
Having created the purchase orders, we now need to consider how we manage our inventory.
In general, we need to differentiate in between inventory management in MM and warehouse
management in EWM.
Inventory Management Tasks
Inventory Management in the area of logistics, covers the following tasks:
• Management of material stocks on a quantity and value basis
• Planning, entry, and documentation of material movements
• Carrying out the physical inventory
Material Stock Management on a Quantity and Value Basis
1.Managing Stocks by Quantity
Inventory management maps the physical stock in real time by recording all stock-changing
transactions and the resulting stock updates. An overview of the current stock situation of a
material is always available. For example, you can differentiate between the following:
• Stock quantities in unrestricted-use stock
• Stock quantities in quality inspection
• Stock quantities already ordered but not yet received
• Stock quantities that are in the warehouse, but that are already reserved by the system
for production or for a customer
The storage location is the organizational level on which the material's stocks are managed by
quantity. Exceptions are some special stocks that are only managed at plant level (for
example, customer consignment stock). Inventory management can also manage many of its
own and external special types of stock, such as consignment stocks, separately from the
normal stock.
2.Managing Stocks by Value
In addition to managing stocks by quantity, stock is also managed by value. With each goods
movement, the system automatically updates the following data:
• Stock quantities and stock values for inventory management
• G/L accounts for financial accounting by means of automatic account determination
• Account assignments for cost accounting (provided the internal accounting is active)
The valuation area is the organizational level at which material’s stock value is
managed.Because we will also use the production part of SAP S/4HANA, our valuation level
is at the plant level.
3.Planning, Entry, and Documentation of Goods Movements
In inventory management, a distinction is made between the different types of goods
movements:
• Goods receipt (GR) - A goods receipt is a goods movement that is posted with the
goods received from external vendors and production. A goods receipt leads to an
increase in warehouse stock.
• Goods Issue (GI) - A goods issue is a goods movement in which a material
withdrawal, material consumption, or goods shipment is posted to a customer. A
goods issue leads to a decrease in warehouse stock.
• Stock transfer - A stock transfer is a goods movement in which materials are removed
from a particular storage location and placed into another storage location. Stock
transfers can take place both within the same plant and between two plants.
• Transfer posting - Transfer posting is a category of goods movement that is higher
than stock transfer. It changes the stock identification or qualification of a material,
regardless of whether the posting is linked to a physical movement. Examples of
transfer postings include the release of the stock for quality inspection, the transfer
posting from material to material, and the transfer of consignment material to own
stock.
FIG: GOODS MOVEMENTS
Integration to Finance
While posting the goods receipt for our purchase order, we create a material document and a
financial document. FI documents consist of individual line items, as you already learned.
Here we receive two-line items:
Post Stock Material
As we post a valuated GR for our PO, for the stock material we post a stock account (balance
sheet account) and the GR/IR account. The GR/IR account ensures that the Goods Receipt
corresponds to the Invoice Receipt.
FI Posting:
• Debit Stock Account
• Credit GR/IR Account
Product Valuation
Explaining Warehouse Processing
We will now continue with warehouse processing which is part of the business process step
receiving.
Warehouse Management Overview
Who Needs a Warehouse Management System?
Now that we’ve had a look at the goods movement postings in inventory management we need
to understand some basics about extended warehouse management and how it differs from
inventory management.
Depending on the number, variety, and diversity of the products you purchase, sell, or produce,
you may have different storage requirements.
For example:
• A mining company that digs ore and sends it directly to a refining factory does not need
to store the ore. That company does not need a warehouse.
• A factory that refines ore to produce steel needs a simple warehouse to hold the steel
until it is sold to a customer.
• A distributor receiving thousands of products from many manufacturers and
distributing those products to hundreds of customers needs a complex warehouse. That
warehouse needs to facilitate the following tasks, among others:
o Track the product received
o Determine the location to store the incoming product
o Track current stock levels for each product
o Before distributing that product, determine the location to retrieve the product
from
o Track distributed product
Warehouse Management System Functions
A Warehouse Management System enables you to achieve the following:
• Track the amount of a particular good or material that is stored in a warehouse.
• Track the location of every storage bin that holds a particular good or material.
• Control and records all movements of goods and materials in the warehouse.
A Warehouse Management System can also increase warehouse efficiency. It can provide tools
to monitor warehouse activities and to plan resource requirements, such as warehouse staff or
equipment resources.
Large warehouses, with many storage bins and many different goods and materials, need a
Warehouse Management System to be efficient and satisfy customers' needs. They use a
Warehouse Management System to perform the following:
• Control the put away of goods and materials that come into the warehouse. The
Warehouse Management System determines an available and suitable storage bin in
which to store the goods or materials.
• Control the picking of goods and materials to leave the warehouse, for example to fulfill
an order. The Warehouse Management System determines a stocked and suitable
storage bin from which to pick the material.
Complex Warehouses
In more complex warehouses, additional functionality can be provided to manage other
information or services related to goods and materials, for example:
• Serial number
• Batch number
• Minimum shelf life
• Vendor-managed-inventory (VMI)
• Yard Management
• Value-added service (VAS)
Examples of warehouses with this level of complexity include distribution centers or logistics
service providers. Warehouses become more complex as they become responsible for value-
added services (VAS) tasks, such as packaging.
If you just need to know how much stock you have, you don’t need a Warehouse
Management System. But if you need to track more information about the stock, for example,
the location, than you need a Warehouse Management System.
Organizational units for extended warehouse management System
Because we need to differentiate between inbound processing and outbound processing,
let’s briefly consider the possibility of using EWM in our environment.
While looking at inbound processing, we need to differentiate goods receipt for purchase
orders or goods receipt for production orders. For both processes, we can include the
integration to embedded EWM.
Managing Invoices
The next business process step in procurement is invoice managemnt
Invoice Verification Environment
Having processed the goods received for our purchase orders, we need to understand the need
for invoice verification and the process to follow. As our company receives invoices from
several vendors, we will have a look at how we can process invoices from multiple suppliers
in MM.
Usually, the process Invoice posting takes place in Finance. Logistics Invoice Verification is
part of SAP S/4HANA Sourcing and Procurement. Logistics Invoice Verification checks
incoming invoices for accuracy with regards to content, price, and accounting. The check
occurs at the end of the logistics chain that comprises purchasing, inventory management,
and invoice verification
The main task of Logistics Invoice Verification is to complete the procedure of materials
procurement by posting the supplier invoice and passing on the invoice information to
Financial Accounting (FI) and subsequent applications.
Logistics Invoice Verification is not an isolated component in the SAP system. It operates in
conjunction with the purchasing and inventory management components and accesses data
located in these application areas.
You can post an incoming invoice with reference to a PO, a GR, or a service entry. The
system suggests the invoice items according to the reference entered, and the corresponding
account postings are carried out automatically.
For each incoming invoice, Logistics Invoice Verification creates an MM invoice document
and an FI accounting document (also known as an invoice document). These accounting
documents record the updates in Materials Management and Financial Accounting.
Invoice Receipt
Posting an invoice has the following effects in the system:
• The amounts of the individual items are posted to the appropriate accounts.
• An MM invoice document and an FI document are created
• The PO history is updated
• If necessary, the material master is updated
As we have heard already in the goods movement postings there is an impact of the price
control to the accounting postings.
Managing Payments
The next business process step is invoice management, which is part of the FI area in SAP
S/4HANA.
Having received and posted the invoices in Logistics Invoice Management, the suppliers need
to be paid. The payment is not part of the MM department. The payments are managed by the
financial department. We will sort the open items by supplier and have a look at how we can
manage the payments.
Payment Management
➔Automatic Payment Program
SAP S/4HANA streamlines the invoice-to-pay process by offering an automated program that
selects open vendor invoices due for payment. This program can be scheduled periodically and
considers factors like payment due dates, cash discounts, and invoice details. A one-time
configuration helps define the payment method and bank to be used. Filters such as vendor ID,
company code, and payment type allow targeted selection of invoices. Once selected, the
system calculates payment amounts, factoring in applicable discounts. It then posts the
payment documents to both the vendor subledger and the general ledger, mirroring manual
payment postings. Finally, the system generates the appropriate payment medium—either an
electronic file for bank processing or a file for printing physical checks—which can be
executed manually or automatically.
➔Automatic Payment Program Run
In SAP S/4HANA, the payment processing program follows a structured workflow to ensure
accurate and efficient execution of vendor payments. Each payment run is uniquely identified
by its run date and ID. Users begin by entering key parameters such as the selection criteria for
open items, the payment method, payment date, relevant company codes, and the schedule for
the next run. These inputs are essential for identifying invoices that require payment. Once the
parameters are saved, users can optionally generate a payment proposal, which processes the
invoices based on the defined criteria and allows for review before final execution. This review
step enables users to exclude specific invoices or override payment blocks, and it also
highlights any invoices that cannot be processed due to document issues. Proposals can be
deleted and re-run multiple times for refinement. After finalizing the proposal, the payment run
is executed, which processes payments in the subledger, clears open items, and posts the
necessary entries to the general ledger. Finally, the system can automatically generate a
payment medium—such as an electronic data exchange file, a data medium exchange file, or a
check print file—to facilitate the physical execution of payments
