What Functions are Supported in the SAP ‘Material Management’ (MM)?
The MM module of SAP supports the following functions:
- MRP (Material Requirements Planning)
- Procurement
- Inventory Management
- Inventory Valuation
- Invoice Verification
What is ‘MRP’?
‘MRP (Material Requirements Planning)’ is nothing but the determination of which materials are required, when and in what quantities, based on current information and forecasts.
Explain the Basic ‘Organizational Structure’ in MM.
The major Organizational Elements of MM include:
- Purchasing Organization
- Plant
- Storage Location
The Purchasing Organization is typically attached to one Company Code. But a single Company Code can have one or more purchasing organizations. One or more Plants are attached to a purchasing organization. One or more Storage Locations are attached to a plant. One or more plants are assigned to a Company Code, but one plant is attached to only one Company Code.
Depending on how the purchasing organization has been structured, you may come across three types of structures as detailed below:
- Cross-Plant Purchasing Organization - The purchasing organization caters to more than one plant of the same Company Code.
- Plant-Specific Purchasing Organization - Each Plant has it is own purchasing organization.
- Cross-Company Code Purchasing Organization - A single purchasing organization is responsible for the procurement activities of more than one Company Code. The plants attached to this purchasing organization are also cross-Company Code. In this case, the purchasing organization is not attached to any of the Company Codes; instead, the various plants are attached to the purchasing organization. This kind of purchasing organization is known as a central purchasing organization. This kind of organizational structure is essential in the case of centralized procurement in an enterprise.
Define ‘Plant’ in SAP.
‘Plant’ in SAP can denote a manufacturing location, distribution center, or a warehouse. With unique numbers identifying each of the plants, though these are all not all necessarily financial entities, they can still be linked to a Business Area. The Plant is the place where you normally valuate the inventory in SAP. The system, however, checks for the inventory either at the Plant or Plant/Storage Location during an Order entry.
Explain the ‘Storage Location’ in SAP.
A sub-division of a plant, the ‘Storage Location,’ defines a location for materials that can be a warehouse, bin, or a storage area of raw materials/WIP/finished product. You will manage the physical inventory, material movement, picking, cycle counting, etc., at the storage-location level. In Warehouse Management, the storage location is further subdivided.
Explain the ‘Purchasing Organization’ in SAP.
This refers to the organizational structure in SAP that is responsible for procurement of materials. The ‘Purchasing Organization’ is the top-most organizational element in MM, and this can take any one of three forms such as (1) Cross-plant purchasing organizations (catering to more than one plant but within the same Company Code), (2) Plant-specific purchasing organizations (with a 1:1 relationship with the plant), and (3) Cross-company code purchasing organizations (catering to more than one Company Code). Entrusted with the activity of negotiating the price, delivery conditions, etc., of materials from vendors, the Purchasing Organization can further be subdivided into purchasing groups.
Explain the ‘Purchasing Group’ Concept in MM.
The ‘Purchasing Group’ carries out the actual activities of purchasing, and is assigned to a material in the material master. The activities of several purchasing organizations can be done by one purchasing group.
Explain the ‘Valuation Area’ Concept in MM.
The valuation of a material is done at the ‘Valuation Area,’ which can either be at the Company Code level or the Plant level. The level at which the valuation needs to happen is defined in the customizing. Note that once it is defined, you will not be able to change it later!
When the valuation is at the Company Code level, then the valuation of a material is uniform across the plants attached to that Company Code. On the other hand, if the valuation is at the plant level, then the value of the material is plantspecific and will vary from one plant to another. If you are using PP (Production Planning)/MRP in your company, then the valuation has to be at the plant level.
What is a ‘Factory Calendar’?
A ‘Factory Calendar’ is a calendar that is country-specific with a list of public holidays (maintained via the Holiday Calendar) and working days, which are Client-independent. The factory calendar helps in controlling goods issues/receipts. Each plant is assigned a factory calendar, and the calendar must be activated (through ‘CTS functionality’) before using it.
Explain How SD and MM are Connected in SAP.
The goods/services from a plant can be sold by one or more sales organizations. It is also possible that single sales organizations sells goods/services for several plants. When the sales organizations sells for more than one plant belonging to one or more Company Codes, then this is called inter-company sales, and will require you to make some special configurations in the system. A sales organization, attached to a Company Code, is further divided into distribution channels and divisions in SD. A division typically represents a product line, and is assigned to a material in the material master.
Outline the Functions Supported by ‘Material Master.’
The ‘Material Master’ is the central master record catering to various business functions in Logistics. The data stored in this master support a variety of business functions and operations such as:
- Production Planning
- MRP
- Procurement
- Invoice Verification
- Inventory Management
- Product Costing
- Sales and Distribution
- Quality Management
The data is stored, within a material master, at different organizational levels. The general data is valid for all the Company Codes at the Client level. The purchasing information is valid at the plant level. The sales information is valid at the sales organization/distribution channel. Lastly, when Warehouse Management is activated, the data is maintained at the warehouse number/storage type level.
Explain Why a ‘Material Master’ is Divided into ‘Views.’
Since the information in a material master needs to be maintained by a number of users across several modules, SAP has structured the master into a number of Views for facilitating easier access and updating of data. The views include:
- Basic Data
- Classification
- Sales
- Purchasing
- Purchase Order text
- Accounting
- Foreign Trade
- Work Scheduling
- Forecasting
- Storage
- Costing
- Plant/Storage Location stock
- MRP
What Information is Available in the ‘Accounting View’ of a ‘Material Master’?
The most important information maintained in the ‘Accounting View’ of a material master is the valuation class, which needs to be assigned to individual materials. The valuation class, in turn, helps in determining the relevant GL accounts for posting valuation-relevant transactions such as GR, GI, etc.
You will maintain the price control indicator in the accounting view, which enables determining how the stock of a material is to be valued (at Standard price (S) or Moving average price (V)).
Why do You Need ‘Material Types’ in MM?
One way to group materials is by ‘Material Type’ (the other being by Industry Sector’). This grouping helps determine what information or data is to be made available at the material master level for a particular material.
The material type (for example, FERT, HAWA, HALB, ROH, and so on) is used to control:
- Which Views can be maintained on the master record
- Which Fields are mandatory, optional, or for ‘display only’ in the material master
- What kind of Procurement is allowed for that material (internal or external or both)
- How to Number (Internal/External) and what Number Range is allowed
- Whether Quantity and/or Value updating should be done in a particular Valuation Area
- Which GL Accounts will be posted to (via the Valuation Class) during goods movement
- The default Item Category Group (S&D)
- The default Price Control Indicator (S or V) and
- Whether the default Price Control Indicator is changeable during material master maintenance
Explain the ‘Price Control Indicator.’
The ‘Price Control Indicator’ is used by SAP to determine how a material will be valuated, by default. The indicator can be set to:
- Standard Price (S) or
- Moving Average Price (V)
When you set the indicator to ‘S,’ the system carries out all the inventory postings at the standard price. The variances due to a different price of a material in goods movement or invoice receipts if any, are all posted to price difference accounts. As a result, the standard price remains the same, unless it is changed intentionally by manual processing. This will be necessary only when the difference between the standard and moving average prices becomes very large. (While updating the price difference accounts, however, the system also updates the moving average price with these variances, so that you get a chance to adjust the standard price should the difference between the standard and moving average prices becomes very substantial.)
On the other hand, when you set the indicator to ‘V’ then all the goods receipts (GR) will be at the GR value. The system will then adjust the price in the material master by the GR price. However, if there is a difference between the moving average price of the material and the goods movement/invoice receipt, then the price difference is moved to the stock account, and the price of the material in the material master is adjusted accordingly.
Explain ‘Prices Maintenance’ for Materials Transferred from ‘Legacy’ to SAP.
Before you transfer the initial inventory from a legacy system to SAP, you need to create the relevant master data for the materials.
If you are planning to maintain a standard price for the materials, then you will create the material masters with ‘S’ as the price control indictor in SAP. With this control, when you enter the material inventory, the system valuates this stock with the standard price defined. In this case, you enter a new price and the system posts the price difference (between the standard price and the new price you entered) to a price difference account.
Similarly, if you are planning to maintain a moving average price for materials, then you will create the material masters with ‘V’ as the Price Control Indictor in SAP. With this control, when you enter the material inventory, the system valuates this stock with the moving average price defined. In this case, you enter a new price and the system adjusts the moving average price accordingly. If you enter only the quantity, and not any new price, the system continues to valuate the stock at the original moving average price, and the price of the material does not change.
What is the ‘Material Status’?
The ‘Material Status’ is a 2-digit code enabling you to control the usability of material for various MM and PP applications. This status key also controls warehouse management, transfers order instructions, quality inspection instructions, decides how the system behaves when a product cost estimate is created, and so on.
The material status can be maintained as (1) Plant-specific material status, (2) Cross-plant material status, and (3) Distribution material status.
What is the ‘EAN’?
The ‘EAN (International Article Number),’ equivalent to the UPC (Universal Product Code) of the United States, is an international standard number for identifying a material, which SAP allows you to assign (done in the ‘Eng./Design or Units of Measure’ screen) to the materials. The EAN is normally assigned to the manufacturer of a material. Made up of a prefix (to identify the country or company from where the material originates), article number, and a check digit (ensures correctness of an EAN number so that no incorrect entries are scanned or entered into the system).
What are Some of the ‘Partner Functions’ of a ‘Vendor’?
Through the definition of ‘Partner Functions’ in the Vendor Master, SAP helps to designate vendors for different roles. The partner role is designated by a 2-digit code.
- VN Vendor
- PI Invoice Presented by
- OA Ordering Address
- GS Goods Supplier
- AZ Payment Recipient
A partner schema (also known as a partner procedure) is assigned to a vendor account group. The procedure specifies which partner roles are ‘allowed’/‘mandatory’/‘can be changed’ for a vendor master with that account group. You may assign three different partner schemas to an account group, one for each level of purchasing data, i.e., one at the purchase organization level, one at the VSR level, and one at the plant level. This enables maintaining different partners at different organizational levels.
What is a ‘Batch’ in the Context of ‘Batch Management’?
Representing a quantity of material with a homogenous set of properties/characteristics produced during a particular cycle of manufacturing, a ‘Batch’ is a subset of inventory quantity, which cannot be reproduced again with the same properties. A batch is linked to the classification system, and you can use it only when the classification system has been set up properly for batch management.
A batch is unique for a single material, and is unique at the Client level as well. That is, you will be able to use a batch number only once in the Client regardless of the plant and material. The batch will be known only in the plant where it was created. The batch numbers can either be manually assigned or system generated.
What are the Possible Values for ‘Procurement Types’?
The possible values for ‘Procurement Types’ are:
- No procurement
- External procurement
- In-house production
- Both procurement types
What are the ‘prerequisites’ for an ‘MRP Run’?
The following are the ‘prerequisites’ for an MRP Run:
- MRP activated
- Valid MRP data for the material
- Valid MRP type
- Valid material status
What is an ‘MRP Area’?
An ‘MRP Area’ is not an organizational structure, but a unit for which you can carry out Consumption-based MRP. The MRP area is used to carry out MRP for the components provided to a sub-contractor. There are three types of MRP areas that you will come across:
- MRP Area for Storage Locations
- MRP Area for Subcontracting Vendor Stock
- MRP Area for the Plant
What is an ‘MRP List’?
An ‘MRP List’ displays the results of the last ‘planning run.’ Using a ‘collective display’ format, you will be able to display planning details for a number of materials for a given set of ‘selection parameters.’
Explain the ‘Re-Order Point’ Procedure.
The ‘Re-Order Point’ is the level of inventory that triggers material procurement. Once the inventory falls below this level, you need to create the order proposal either manually or automatically by the system.
In the case of the manual re-order point procedure, you will define the reorder point and the safety stock in the material master. On the other hand, in the automatic re-order point procedure, the system will calculate the re-order point and the safety stock based on the next period’s consumption pattern.
Explain the ‘Inventory Management’ Submodule.
The ‘Inventory Management’ submodule deals with the GR/GI of materials from/into the inventory. It also manages the transfer of materials from one storage location to another. As an important element of MM, this module is integrated with SD, PP, QM, and PM modules.
What is ‘Goods Movement’?
‘Goods Movement’ represents an event causing a change in the stock, with the change being value or status, stock type, or quantity. It also represents the physical movement of stock from one location to another. Goods movement is classified into:
- Receipt of goods/services
- Issue of materials
- Stock transfers
What Happens During a ‘Goods Issue’?
The ‘Goods Issue (GI)’ results in a reduction in the stock quantity/value. The GI can be Planned (via sales order, production order, return delivery, delivery for internal, use etc.) or Unplanned (drawing a stock for a sample, scrapping, etc.).
The GI results in:
- Creation of a Material/Accounting document
- Update of Reservation for the issue (if any)
- Update of GL accounts
- Update of ‘points of consumption’ if applicable (cost center, project, etc.)
- Update of Stock quantity
Explain ‘Stock Transfers.’
The physical movement of stock between locations is called a ‘Stock Transfer,’ which can be within a plant or between plants. Stock transfers can be carried out either in a single step or in two steps. The stock transfer may be from:
- Company to Company
- Plant to Plant
- Storage Location to Storage Location
If there is a logical change in the stock type/status, then this kind of ‘transfer’ is called a ‘transfer posting.’ The transfer posting may be from:
- Product to Product
- Quality Inspection to Unrestricted Use
- Consignment Store to Storage Location
What is a ‘Stock Type’?
Used in the determination of available stock of a material, the ‘Stock Type’ is the sub-division of inventory at a storage location based on the use of that inventory. In SAP, there are many kinds of stock types:
- Unrestricted (use) stock (the physical stock that is always available at a plant/storage location)
- Restricted (use) stock
- Quality inspection stock (not counted for unrestricted use and may be made available for MRP)
- Stock-in transfer
- Blocked stock (not to be counted as unrestricted stock and is not available for MRP)
Besides all of the above, which are all known as valuated stocks, you will also come across one more type called ‘GR blocked stock,’ which is a non-valuated stock.
The GR-blocked stock denotes all the stock accepted ‘conditionally’ from the vendors. This stock is not considered available for ‘unrestricted use.’ You will use the Movement Type 103 for the GR-blocked stock and Movement Type 101 is used for a normal GR.
Explain ‘Return Delivery.’
You will use ‘Return Delivery’ when you return goods to the supplier (vendor) for reasons such as damaged packaging, etc. Note that the ‘reason for return’ is mandatory as this will help you, later on, to analyze problems with a vendor. The system uses the Movement Type 122, and will create a return delivery slip, which will accompany the goods being returned.
If the ‘return’ is from a ‘GR-blocked stock,’ you need to use a different Movement Type: 104.
What are All the Various Types of ‘Physical Inventory’?
The following are the different types of ‘Physical Inventory’ in SAP MM:
- Periodic inventory (All the stocks are physically counted on a ‘key date’ (balance sheet date), and all the stock movements are blocked during physical counting)
- Cycle counting (Physical counting is done at periodical intervals)
- Sampling (Randomly selected stocks are counted physically, and the system uses this information to ‘estimate’ stock value on a given date)
- Continuous (Stocks are tracked continuously throughout the fiscal year, with physical stock taking once a year, at least!)
What is a ‘Material Ledger’?
A ‘Material Ledger’ is nothing but a tool for inventory accounting that provides new methods for ‘price control’ for ‘material valuation’ (you can store the material inventory values in more than one currency). It makes it possible to keep the ‘material price’ constant over a period of time (say, over the life of a production order). The moving average price field is used to store a ‘periodic price.’ This periodic price stays constant and is the price used for valuation until you close the material ledger. At closing, the periodic price is updated based on the actual value of invoice receipts received for that material during the period.
Explain ‘Split Valuation.’ Why is it Necessary?
‘Split Valuation’ allows substocks of the same material to be managed in different stock accounts. This allows substocks to be valuated separately, and every transaction is carried out at the substock level. So, when processing a transaction, it is necessary to mention the substock.
The ‘split valuation’ is necessary if the material has:
- Different Origins
- Various Levels of Quality
- Various Statuses
It is also required in situations where you need to make a distinction between ‘in-house produced materials’ and ‘materials procured externally,’ or if there is a distinction between ‘different deliveries.’
Explain the Basic Steps in ‘Configuring Split Valuation.’
The five basic steps for ‘Configuring Split Valuation’ are:
- Activate ‘Split Valuation’
- Define ‘Global Valuation Types’. For each Valuation type’ you need to specify: (a) whether ‘external’ purchase orders are allowed, (b) whether production orders are allowed, and (c) the account category reference.
- Define ‘Global Valuation Categories’. For each valuation category specify: (a) default ‘valuation type’ to be used when purchase orders are created and whether this default can be changed, (b) default valuation type to be used when production orders are created and whether this default can be changed, and (c) whether a ‘valuation record’ should be created automatically when a GR is posted for a valuation type for which no record yet exists.
- Allocate ‘Valuation Types’ to the ‘Valuation Categories’
- Define which of the ‘Global Categories/Types’ apply to which ‘Valuation Areas’
Outline ‘Stock Valuation Methods’ for Material Revaluation.
There are three methods with which you can revaluate your stock for Balance Sheet purposes. Irrespective of the method you select, you will be able to valuate your stock either at the Company Code level or at the Valuation Area level:
- LIFO (Last-In-First-Out): This method is based on the assumption that the materials received last were the ones issued/consumed first. The valuation is based on the initial receipt.
- FIFO (First-In-First-Out): Here the assumption is that the materials received first are the ones consumed/issued first. So, the valuation is based on the most recent receipt. The FIFO method can also be used in conjunction with the lowest value method. By this you can determine whether the system should make a comparison between the FIFO determined price and the lowest value price. You can also determine whether the FIFO price should be updated in the material master record.
- Lowest Value Method: Here, the stocks are valued at their original price or the current market price whichever is lower. This method is suitable when the inventory needs to be valued to take into account material obsolescence, physical deterioration, or changes in price levels.
How Does ‘Automatic Account Assignment’ Work in MM?
- ‘GL accounts’ are assigned to ‘Transaction Keys’ (BSX, WRX, PRD, UMG, GBB, etc.).
- Transaction Keys identify which GL Accounts are to be debited or credited.
- Transaction Keys are assigned to ‘Value Strings’ (for example, WA01).
- ‘Movement Types’ (for example, 901) are associated with a ‘Value String.’
Explain ‘Automatic Account Assignment’ Configuration in MM.
There are four steps required to complete the ‘Automatic Account Assignment’ configuration settings for MM:
- Finalize the ‘valuation level.’
- Activate the ‘valuation grouping code’ option. (For this you need to group valuation areas using valuation grouping codes.)
- Maintain ‘valuation classes’ and ‘account category references’ and their linkage to ‘material types.’
- Maintain the ‘GL accounts’ for each combination of Chart of accounts, valuation grouping code, valuation class, and transaction key.
You may use the ‘automatic account determination wizard’ to complete the configuration settings, as the wizard guides you step-by-step.
Explain the ‘Transaction Keys’ in MM.
Also known as ‘process keys,’ the ‘Transaction Keys’ are pre-defined in the system to enable transaction postings in Inventory Management and Accounting (Invoice Verification). For each of the movement types in MM, there is a value string that stores these possible transactions.
The pre-defined transaction keys are:
- BSX (used in Inventory Postings)
- WRX (used in GR/IR Clearing Postings)
- PRD (used to post Cost/Price differences)
- UMB (used to post Revenue/Expenses from revaluation)
- GBB (used in offsetting entries in Stock postings)
BSX, WRX, and PRD are examples of transaction keys that are relevant for a GR with reference to a purchase order for a material with standard price control. The transaction key UMB is used when the standard price has changed and the movement is posted to a previous period. Likewise, GBB is used to identify the GL account to post to as the offsetting entry to the stock account (when not referencing a purchase order) such as miscellaneous goods receipts, goods issues for sales orders with no account assignment, and scrapping.
How Does the System Determine the Correct ‘GL a/c’ for a Posting?
Imagine that you are posting a goods movement.
- Since the goods movement is from a plant, and the plant is assigned to a Company Code, the goods movement identifies the relevant Company Code.
- As the Company Code has already been assigned to the Chart of Accounts, the system is able to identify the GL accounts.
- The plant also determines the valuation area (and the optional ‘valuation grouping code’).
- Since each movement type is assigned to a ‘value string’ which in turn is identified with a transaction key, the goods movement determines the correct transaction key.
- Since each of the transaction keys is associated with the relevant GL accounts, through the value string, the movement type now identifies the relevant GL Account, and the transaction is posted.
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