Welcome to the tutorial about SAP Free Goods functionality.

It is part of our SAP SD training

course. You will learn about implementation of free goods functionality in SAP ERP and see
how it works in sales orders.

Giveaways, buy two get one free and other types of free goods are a common practice in the
business these days. Swift, cut throat competition and narrow margins force businesses to offer
something extra apart from the value proposition and unique selling proposition which the brand
offers. Giving away bulk deals to customers help the businesses to capitalize on their volumes.

SAP offers free goods functionality to meet the requirement of modern day business. This is the
standard feature which SAP Sales & Distribution offers. We shall be looking at SAP Free Goods
functionality both from frontend and backend configuration perspective.

SAP Free Goods

Free Goods functionality in SAP Sales & Distribution is based on the condition records.
Condition record is maintained in the system with the validity dates. If SAP Free Goods
condition records falls within the validity period at the time of an order entry, then a rule of SAP
Free Goods is activated and offered to the customer in the sales order. Hence, master records for
free goods should be created in the master data which is a prerequisite.

SAP Free Goods functionality works as a Bill of Materials (BoM) structure meaning when you
enter a material in the sales order and if the material, customer or other combination in which the
condition record is maintained falls true, the system proposes the free goods quantity based on
the rule defined in the condition record. The system makes an additional line item with item
category ‘TANN’ with the free goods quantity.

These free goods are free of charge and nothing is charged from the customer. Hence, customer
enjoys 100% discount on the free goods. Based on the country’s taxation structure and
commercial laws, company’s may charge taxes, surcharges, duties or levies from the customer,
only if either the customer or material or both are liable for taxes. In this case, the customer shall
only pay for the tax, surcharge, duties or levies applicable on the free goods and the rest will be
his discount 100% applied on the base, trade or retail price.

The system re-runs the free goods condition record in the sales order if the quantities in the main
item change or if the pricing date changes. The system then deletes the sub-item(s) and re-creates
them. Any manual changes to the free goods quantity are lost.

Types of SAP Free Goods

The following are the types of free goods which SAP Sales & Distribution offers in the standard.
SAP Free Goods – Exclusive

In SAP Free Goods Exclusive functionality, free goods are offered to the customer which is in
addition to what the customer has ordered. For example, the customer places an order for 10
pieces, the business offers 2 free goods or bonus quantities in addition to what the customer has
asked for.

Exclusive free goods can be or a different material or SKU. Meaning, if the customer orders for
material ‘A’, exclusive free goods can either be material ‘A’ or material ‘B’.

SAP Free Goods – Inclusive

In SAP Free Goods Inclusive functionality, free goods are offered to the customer which is
included in the quantity what customer has ordered. For example, the customer places an order
for 10 pieces, 2 pieces are made part of the free goods or bonus quantities in within what the
customer has asked for.

Inclusive free goods involve the same material or SKU and it must be same. Meaning, if the
customer orders for material ‘A’, inclusive free goods can only involve material ‘A’.

Configuring SAP Free Goods

To configure free goods at the backend in the SAP system, you need to type SPRO in the
transaction bar. Then, navigate to the following menu path:

SPRO > Sales and Distribution > Basic Functions > Free Goods

SAP Free Goods – Accessing Backend

If you have a requirement which the standard functionality doesn’t fulfill, you can create your
own free goods determination criteria using the conditioning technique. In this tutorial, we shall
opt for the standard Free Goods Determination Technique which is condition type NA00 and
procedure NA0001.

SPRO > Sales and Distribution > Basic Functions > Free Goods > Condition Technique for
Free Goods > Activate Free Goods Determination

Press button to continue. There is a prerequisite to mention the Sales Area, Customer Pricing
Procedure and Document Pricing Procedure to identify that a particular combination is valid or
relevant for Free Goods Determination.

SAP Free Goods – Activation of Free Goods

SAP Free Goods – Activation of Free Goods (Example)
Here we have identified a particular Sales Area, Document and Customer Pricing Procedures
which are relevant for SAP Free Goods Determination functionality.

There are further prerequisites for SAP Free Goods to work. We need to maintain settings for
item category.

SPRO > Sales and Distribution > Basic Functions > Free Goods > Control Free Goods Pricing
> Control Pricing for Free Goods Item Category

Press Button to continue.

SAP Free Goods – Control of Free Goods Pricing Item Category

In the above screenshot, the highlighted Item Categories TAN and TANN are standard item
categories for standard pricing and free goods. TAN is assigned ‘X’ which is standard pricing
and TANN which is a free goods pricing category is assigned ‘B’ which is pricing for free goods
with 100% discount.

SPRO > Sales and Distribution > Basic Functions > Free Goods > Control Free Goods Pricing
> Maintain Condition Type for 100% Discount
Press button to continue.

SAP Free Goods – Control of Free Goods Condition Type

Condition type R100 is the standard condition type for free goods. You can create a customized
one starting from either ‘Y’ or ‘Z’, as per SAP standard practice for customization, depending on
your requirements. The free goods condition type should be placed in the pricing procedure.

SPRO > Sales and Distribution > Basic Functions > Free Goods > Control Free Goods Pricing
> Maintain Pricing Procedure for Pricing

Press button to continue.

SAP Free Goods – Maintain Pricing Procedures for Pricing

Maintain Free Good Condition Type Pricing Procedure for Pricing

You can see the free goods 100% discount condition type embedded in the required pricing
procedure. Please don’t forget to mention routine ’55 – Free Goods’ in the requirement field
which actually activates the free goods functionality on the sales order and routine ’28 – 100%
Discount’ in the alternative formula for condition base value.

SAP Free Goods Condition Records

Enter VBN1 in transaction command field for creating a free goods master record or navigate as
shown on the screenshot below.
SAP Free Goods Conditions Transaction

SAP Free Goods Conditions – Initial Screen

Enter Condition Type NA00 for free goods master record. Press Enter or button to
continue.
SAP Free Goods Master Record – Select Key Combination
Select the relevant combination where you want to maintain the free goods determination. These
combinations can be customized in the backend. Press Enter or button to continue.

Inclusive Free Goods – Master Record

Enter the Sales Organization, Distribution Channel, Customer number, validity dates and enter
the list of materials offered as free goods for this customer.
Inclusive Free Goods – Master Record (Example)
Here, we have entered a material which we have chosen for our free goods inclusive scenario.
Minimum quantity should be 10, it specifies whether free goods applies for the inclusive free
goods scenario against which 1 quantity shall be given as a free good with calculation rule 01.

Once you are done, press button or CTRL+S to save the assignment and continue.

Calculation Rule in SAP Free Goods Determination

Free Goods Calculation Rule

SAP Sales & Distribution offers three standard calculation rules for calculating free goods
determination. When you specify or choose a particular rule, the system determines how to
proceed further at the time of sales order execution.
Inclusive SAP Free Goods in Sales Order
Let’s see a demonstration how free goods functionality works in a sales order.

Free Goods – Create Sales Order – VA01

Once we have entered 5 quantity, press Enter or button to continue. The system prompts
that the minimum threshold of free goods quantities has not reached.
Minimum Quantity has not been Reached
Now, let’s enter the minimum free goods quantity of 10 and see the system’s response.

Press Enter or button to continue with execution of free goods.

SAP Free Goods in a Sales Order

Since the minimum level of free goods has been reached, the system has created another line
automatically. Order quantity entered was 10 ST and the system, based on the free goods master
record, has changed the quantity of main item ‘TAN’ from 9 ST from 10 ST and has created a
new line item ‘TANN’ with the free goods quantity.

Double click a line item and go to the conditions tab or select the relevant line item and press
condition items button to view the pricing behavior.

Free Goods – Create Sales Order – VA01 – Pricing Conditions of Main Item

Use the buttons to move between line items.

Free Goods – Create Sales Order – VA01 – Pricing Conditions of Sub or Free Goods Item
You can see that the free goods condition type is activated which has reduced the base price by
100%. Price of 1 ST is 100 EUR. Price of 10 x 100 makes 1000 EUR. Since one item is
discounted, the total price of sales order is 900 EUR.
Total Price of the Sales Order

Exclusive Free Goods in Sales Order

Let’s see a demonstration how exclusive free goods functionality works in a sales order.

SAP Free Goods – Condition Record

On the next screen, press either button or Shift+F6 to proceed and maintain the
exclusive free goods condition record.
Exclusive Free Goods – Condition Record
Enter the Sales Organization, Distribution Channel, Customer number, validity dates and enter
the list of materials relevant as free goods for this customer.

Exclusive Free Goods – Condition Record (Example)

Here we have entered a material which we have chosen for our free goods exclusive scenario.
The minimum quantity should be 10, it specifies that free goods applies for the exclusive free
goods scenario against which 2 pieces shall be given as free goods. Once you are done

press button or CTRL+S to save the condition record and continue.

Next, let’s create a sales order to test our exclusive free goods condition record.
SAP Free Goods – Create Sales Order – VA01

Once we have entered 5 quantity, press Enter or button to continue. The system prompts
that the minimum free goods quantity has not been reached.

Minimum Quantity for Exclusive Free Goods hasn’t been Reached

Now let’s enter the minimum free goods quantity of 10 and see the system’s response.

Main Item (10 ST) and Free Goods Item (2 ST)

Since the minimum level of free goods has been reached, the system has created another line
automatically. Order quantity entered was 10 ST and based on the free goods condition record,
the main item’s quantities remains unchanged for item category ‘TAN’ but the system has
created a new line item (2 ST) with item category ‘TANN’ for the free goods material.

Double click a line item and go to the conditions tab or select the relevant line item and press
condition items button to view the pricing behavior.
Free Goods – Create Sales Order – VA01 – Pricing Conditions of Sub or Free Goods Item
You can see that the free goods condition type is activated which has reduced the base price by
100%. The price of 1 ST is 100 EUR. The price of 10 X 100 makes 1000 EUR. Since this is an
exclusive SAP free goods scenario, the total price of the sales order remains 1000 EUR.

Total Price of Sales Order (Exclusive SAP Free Goods Scenario)

SAP Sales to Employees Process
The SAP sales to employees process is similar to the conventional SAP SD order to
cash cycle, with a few variations. For one, the sales to employees process does not
require availability check as the customers/employees are only able to purchase goods
on hand. Also, delivery and picking are not relevant to such type of sales as the selling
is done onsite and the picking is done by the customer/employee when they select the
goods. Further, rather than a customer placing an order with a sales operator, the sales
clerk at the checkout kiosk creates the sales order directly to replenish the goods that
the customer/employee has just purchased.

To facilitate the SAP sales to employees process, first the AR clerk creates a generic
customer under either a specifically-created account group or as a one-time customer.
Next, the sales order is created by the sales clerk to trigger the sales process. As a
result, a delivery document is created automatically. A goods issue can either be done
manually each time goods are moved from the warehouse to the shop or at the end of
the day via a scheduled job. Finally, billing occurs based on the sales order quantity.
The accounting entry will hit a cash-related general ledger account and there shall be
no receivables in this process.

Configure SAP Sales to Employees Process

To configure the SAP sales to employees process, there are a couple steps:

1. Set up a specific sales document type where delivery is created immediately

2. Define a delivery item category as not relevant for picking

To set up a new sales document type, use the customizing path below in transaction
code SPRO:

Sales and Distribution – Sales – Sales Documents – Sales Document Header – Define
Sales Document Types

Click the New Entries button to create a new sales document type or
repurpose an existing one. The key configuration relevant to the sales to employees
process is found in the Shipping section. Enter X – Create deliver immediately, if
quantity confirmed for today. This setting triggers the automatic creation of the
delivery document as soon as a sales order is saved.
Configure Sales Order Type
To define an item category, use the customizing path below in transaction code SPRO:

Logistics Execution – Shipping – Picking – Define Relevant Item Categories

Click the Position button to search for the relevant item category.
Remove the Relevant for picking tickbox as shown below:

Change Item Category

Hit Enter then Save to save the definition.

Execute SAP Sales to Employees Process

Now we shall walk through a scenario of the entire SAP sales to employee process to
illustrate the functionality. The steps of the process are listed below:

1. Create customer master

2. Maintain discount pricing condition record
3. Create output condition record
4. Process sales order
5. Check output
6. Post goods issue
7. Issue billing output

Note: In advance of creating the sales order, you should assign an incompletion
procedure to your sales order type to control the required fields.

Create Customer Master

First we create a customer master record with an appropriate account group.

Logistics > Sales and Distribution > Master Data > Business Partner > Customer >
Menu path
Complete

Transaction
XD01 – Complete
code

In the initial screen of transaction code XD01, select either the specifically created
account group or use a one-time customer account group. If you have a template
customer master, enter that customer information in the Reference area. In our
example below, we have selected the CDP: One-time customers account group and
used a reference customer to create customer number 111 – Sales To Employee:
Create Customer Master

Hit Save to create the customer.

Sales to Employee Customer Created

Maintain Discount Pricing Condition Record

Next we maintain the pricing relevant to employees in the pricing condition master
record.

Logistics > Sales and Distribution > Master Data > Conditions > Select Using Con
Menu path
Type > Create
 Transaction
VK11 – Create
code

On the initial screen of transaction code VK11 enter the standard customer discount
condition type K007.

Create Condition Record Initial Screen

Hit Enter to continue. Select the radial button next to the key combination that relates to
the way you want to maintain the condition record. These combinations are
customizable. In our example, we only have the option of Customer with Release
Status as shown below:
Select Key Combination for Condition Record
Press Enter to create the discount condition record. Enter the following information:

1. Sales organization
2. Distribution channel
3. Sales to employee customer created previously as line item
4. Discount percentage for sales to employees
5. Validity dates for customer discount

Create Customer Discount Pricing Condition

Hit Save . The pricing condition will be saved with a confirmation

message:
Create Output Condition Record

Then we create the output for the cash sales invoice.

Menu path Logistics > Sales and Distribution > Master Data > Output > Sales Document > C

Transaction code VV11 – Create

On the initial screen of transaction code V11 enter the standard cash sales invoice
condition type RD03.

Create Output Condition Initial Screen

Hit Enter to continue. Select the radial button next to the key combination that relates to
the way you want to maintain the output condition record. These combinations are
customizable. In our example, we only have the option of Order Type as shown below:
Select Key Combination
Press Enter to create the output condition record. Enter the following information:

1. Sales document type you configured for sales to employees

2. Partner function PY – Payer
3. Output medium 01 – Printout
4. Timing of 04 – Send immediately (when saving the application)

Create Output Condition

Then, select the line and press the Communication button for further
maintenance. Enter the local printer LP01 as the output device, 1 as the number of
messages and select the Print immediately and Release after output tickboxes as
shown below:

Maintain Print Output Settings

Hit Save . The output condition will be saved with a confirmation

message:

Process Sales Order

Now, it’s time to create the sales order using the sales document type you created for
sales to employees. This will occur when the sales clerk in the employee shop needs to
replenish goods from the warehouse. To create a sales order, execute transaction
code VA01. On the initial screen, enter the sale to employee order type. In our example,
we use ZSTE as demonstrated below:
Create Sales Order Initial Screen
Press Enter to create the sales order. Enter the Sold-To Party as the sales to
employees customer created in the first step, customer 111 in our case:

Enter Sales to Employee Customer

If you created this customer using the one-time customer account group, press Enter to
fill in the customer details.
One-Time Customer Detail Screen
Press Enter to fill in the remainder of the sales order details. Be sure to use the item
category you defined as not relevant to picking in the configuration activity. Hit Enter to
trigger the defined incompletion procedure.

Create Sales Order

Double click a line item to see the item data. Select the Conditions tab to view the
pricing behavior. You can see the discount pricing condition K007 you created in the
second step is active. Check the calculation of the discount. In our case, the price of our
one unit is 50 EUR, with a discount of 20%, making the net price of the sales order 40
EUR, as you can see below:

Sales Order Pricing Conditions

Having confirmed that our pricing is correct, we can now post the sales order.

Hit Save . The sales order will be created with a confirmation message stating that
the delivery was automatically created (thanks to our sales order type configuration).
Note down the delivery document number, in our case 80018002 as shown below:
Sales Order and Automatic Delivery Creation Message

Check Output

Now let’s double-check that the output was processed successfully. Pull up the sales
order in change mode via transaction code VA02. From the toolbar
select Extras > Output > Header > Edit as demonstrated below:
Check Sales Order Output
A green status indicator shows that the output has been executed successfully.

Delivery Output Status

Post Goods Issue

Since the delivery is automatically created and picking is not relevant, the next step is to
post the goods issue. This will occur when the ordered goods are transferred from the
warehouse to the shop and can be executed via transaction code VL02N. In the initial
screen, enter the delivery number produced when creating the sales order, in our
case 80018002:
Post Goods Issue Initial Screen
Press Enter to continue to select the goods for issue. The materials and quantities are
defaulted from the sales order. Adjust them as necessary to represent what is being
replenished to the employee store.

Overview of Ordered Items

Click the Picking tab. Notice that the Picked Quantity field is greyed out the sales
order was not relevant for picking.
Picking Not Relevant
Press the Post Goods Issue button to save the movement. The
delivery document will be updated with a confirmation message as shown below:
Confirmation of Goods Issue

Issue Billing Output

Finally, the billing can be executed for the sale of the ordered product. This occurs when
the customer/employee pays the clerk for the goods in the employee shop. Execute
billing via transaction code VF01. Enter the sales order number and press Enter to
create the billing document.
Create Billing Document Initial Screen

The goods issued in the last step will be displayed. Hit Save to post the billing
document, print the invoice for the employee, and post the accounting document.
Create Billing Document

SAP Delivery Block Functionality

In this tutorial, we will discuss the first check described above, the delivery block. SAP
delivery block functionality can either be applied manually on a sales order at the time of
creation or can be configured to be applied by default according to the sales document
type. It can be applied either at the header or line item level. Let’s see how this is
configured in the following section.

SAP Delivery Block Configuration

To configure SAP delivery block functionality, you must update the sales document type
settings. Use the customizing path below in transaction code SPRO:

Sales and Distribution > Sales > Sales Documents > Sales Document Header > Define
Sales Document Types
Click the Position button to search for the relevant sales
document type. Double-click the row to update the settings. For our example below, we
will update sales order type ZDEM:

Select Sales Document Type

Scroll down to the Shipping section of the sales order type maintenance screen. Place
your cursor in the Delivery block field as highlighted below:
Delivery Block in Shipping Settings

Select the Search button to view the list of possible entries. These are the standard
delivery block reasons.

Delivery Block Reasons List

Let’s apply a delivery block from the standard list, then see the impact on sales order
processing. We have selected delivery block 07 – Change in quantity as shown below:
Delivery Block Field Updated

Hit Save to save the definition.

Execute SAP Delivery Block Functionality

To demonstrate SAP delivery block functionality we will first create a sales order, then
attempt to create a delivery against it. Then we will remove the delivery block and re-
attempt to post the delivery document.

Create Sales Order

To create a sales order, execute transaction code VA01. On the initial screen, enter the
order type you just configured with delivery block functionality. In our example, we
use ZDEM as demonstrated below:
Create Sales Order Initial Screen
Press Enter to proceed to the sales order. You can see the Delivery block field is
already populated with the configured delivery block reason, based on the chosen sales
order type:

Delivery Block Populated Automatically

Enter remaining sales order data and hit Enter to validate.

Create Sales Order Overview Screen

Hit Save to post the sales order. The sales order will be created with a confirmation
message as shown below:
Sales Order Created
Note down the sales order number.

Create Delivery

Now let’s try to create the delivery document against the delivery blocked sales order.
Execute transaction code VL01N to create the delivery. Enter the shipping point and the
number of the sales order you just created.
Create Delivery Initial Screen
Press Enter to proceed to delivery document creation. Straightaway, the system
displays an error message that the sales order is blocked for delivery, along with the
reason for blocking.

Delivery Block Message

Remove Delivery Block

Now let’s further demonstrate the SAP delivery block functionality by removing the
delivery block from the sales order. Execute transaction code VA02 to change the sales
order. In the initial screen, enter the sales order number with the delivery block which
you previously created.
Change Sales Order Initial Screen
Press Enter to enter the sales order in change mode. Place your cursor in the Delivery
block field and scroll down to select the blank delivery block reason, as highlighted
below:
Update Delivery Block to Blank Reason

Hit Save to save the sales order. The sales order will be updated with a

confirmation message:

Re-Attempt Delivery Document Creation

Now that the delivery block is removed from our sales order, let’s try to create the
delivery document again. Execute transaction code VL01N to create the delivery. Again,
enter the shipping point and the sales order number in the initial screen.
Create Delivery Initial Screen
Hit Enter to proceed to delivery document creation. This time the document overview is
displayed with delivery information pre-populated from the sales order.

Delivery Document Overview Screen

Hit Save to post the delivery document. The delivery is created successfully with a
confirmation message:

The SAP Sales & Distribution module allows a company to record sales of services in
the system. Services may be offered alone, as an add-on to a product, or as an after-
sale service package. The method for recording the service is known as the SAP
service order process. In this tutorial, we offer a deep dive in the recording and
managing of this process.

To illustrate service orders, we will walk through the full order to cash cycle as it relates
to the SAP service order process. This includes the following steps:

1. Create Service Material Master

2. Create Service Price Condition
3. Process Sales Order
4. Execute Billing

Create Service Material Master

For our example, let’s imagine that we are going to offer a repair service to a customer
for a previously purchased product. To initiate the SAP service order process, we must
first create a service material master record which is not relevant for delivery. Sale of
services will, by nature, not require delivery as services are intangible.

Logistics > Sales and Distribution > Master Data > Products > Material > Other M
Menu path
Create

Transaction
MM01 – Create
code

In the initial screen of transaction code MM01, select a service-related industry sector
and material type. In our example, we selected the industry sector 3 – Service
Provider and the material type DIEN – Service, as shown below:
Create Material Initial Screen
Press Enter and select the relevant views for this material.
Select Material Views
Press Enter again and enter the appropriate organizational levels for this material.

Enter Material Organizational Levels

Press Enter once more to proceed with creating the material master record. Enter the
required master data fields, taking care to include the following information:

1. Description of the service

2. Base unit of measure as Hours or other service-relevant unit on the Basic
data 1, Sales: sales org. 1, and Sales: General/Plant tabs
3. Item category group as LEIS – Service or delivery on the Basic data
1 and Sales: sales org. 2 tabs

Enter Material Data

Once all data is entered, hit Enter then Save . The material will be saved with a

confirmation message:

Create Service Price Condition

Next we maintain the pricing relevant to the service in the pricing condition master
record.

Logistics > Sales and Distribution > Master Data > Conditions > Select Using Con
Menu path
Type > Create

Transaction
VK11 – Create
code

On the initial screen of transaction code VK11 enter the standard price condition type
PR00. Hit Enter to continue. Select the radial button next to the key combination that
relates to the way you want to maintain the condition record. These combinations are
customizable. In our example, we have selected Customer/material with release
status as shown below:

Create Condition Initial Screen

Press Enter to create the service condition record. Enter the following information:
 1. Sales organization
2. Distribution channel
3. Customer
4. Service material created previously as line item
5. Hourly rate or rate per service unit
6. Validity dates for price of service

Create Service Pricing Condition

Hit Save . The pricing condition will be saved with a confirmation

message:

Process Sales Order

Now you are ready to post the sales order as the next step in the SAP service order
process. Execute transaction code VA01. On the initial screen, enter your chosen order
type. In our example, we use ZDEM as demonstrated below:
Create Sales Order Initial Screen
Press Enter to create the sales order. Enter sales order credentials with the service
material you created in the first step. Take note of the item category. This field is
populated as a result of the sales document type and item category group combination.
This particular combination is configured to produce the item category TAD –
Service as shown below. This item category is not relevant for delivery, as we shall see
in the next step.
Create Sales Order

Hit Save to post the sales order. The sales order will be saved with a confirmation
message:

Attempt Delivery Creation

Since the sales order contains a service material which is intangible in nature and can
be billed directly, let’s see what happens when we try to create a delivery document
against this sales order. Execute transaction code VL01N to create the delivery. Enter
the shipping point and the number of the sales order you just created.
Create Delivery Initial Screen
Press Enter to proceed to delivery document creation. The system displays an error
message that the sales order has no items relevant for delivery, as displayed below:

Not Relevant for Delivery Message

Executing Billing
Finally, billing can be executed for the sale of services. Execute transaction
code VF01 to create the billing document. Enter the sales order number and
press Enter to create the billing document.

Create Billing Document Initial Screen

The services and quantities from the sales order will be displayed.
Create Billing Document

Hit Save to post the billing document, print the output, and post the accounting
document. The billing document is saved with a confirmation

message:

Let’s look at the newly created billing and accounting documents. You can see the
linkage between the sales order, billing document and accounting document as shown
below:
Sales Document Flow
Double click on the accounting document line to see the details of the financial posting.
The billing has effectively debited the customer and credited sales revenues, as
demonstrated below:

Accounting Document for Sale of Services

—

Production Strategies
Companies involved in the production of goods mainly follow one of the following two
production strategies:
 • Make to Stock – The product is mass produced and fast moving in nature,
such as consumer products, pharmaceuticals, household items, etc.
• Make to Order – The product is not manufactured in advance, but produced
once the customer order is received, as with high-end cars, motorcycles,
textile products etc.

Make to Stock Production Strategy

Consumers use and buy make to stock products regularly, thus they are necessities
rather than luxury items. Companies create demand for these goods through
advertising, promotions, activations etc. and continue to produce based on demand,
market trend, and forecast figures. Companies keep safety stock levels of finished
goods in their stock in case of high demand due to seasonal changes or festive events.

The production process begins once the forecast is finalized. Material requirements
planning (MRP) is executed and requirements are generated for the manufacture of the
finished goods. The required raw materials are requested from the respective
departments. For raw materials not produced in-house, purchase requisitions are
generated, along with the required date of delivery, and sent to the procurement
department.

Make to Order Production Strategy

Make to order products are specialized products which may be costly or highly
customized, such that the manufacturer should not freeze capital by making and storing
the goods in advance of the customer’s order.

In the make to order production process, a sales order initiates the demand for
production. The production department creates a bill of material to produce the required
quantity and runs MRP. Requirements for components manufactured in-house are sent
to the respective department and if any component needs to be purchased, a purchase
requisition is raised and sent to the procurement department. Once the make to order
production process is completed, finished good are transferred to a storage location as
“special stock”. Finally, the finished goods are delivered and invoicing is carried out.

There are two scenarios in the make to order strategy which may be elected:

• Offer a set of products with different varieties and flexible features. The
various configurations have fixed rates and the product is only manufactured
once the order is received from the customer. For example, a car
manufacturing company offers different variations of a particular model with
different engines and other specifications at certain prices. If the customer
 wishes to add or change certain features, the options can be included with the
fixed price for each. The company will only manufacture the car when the
order is received from the customer.
• Manufacture certain goods customized to specific customer requirements. For
example, imagine a hotel company ordering towels for each of their properties.
The customer may require white towels with their brand embossed or
embroidered in a specific color or size. The company producing the towels
does not provide a rack rate with fixed prices in this scenario, but instead will
quote the customer based on their specifications and desired quantity for the
finished goods.

SAP Make to Order Process

Now we shall demonstrate the steps in the SAP make to order process. We will walk
through the following steps in the below sections:

1. Update Material Master

2. Create Quotation
3. Create Sales Order
4. Check Production Order
5. Execute Delivery
6. Generate Billing

Update Material Master

To initiate the SAP make to order process, first create a material master for finished
goods or update an existing one with the appropriate item category group. We will
demonstrate the simpler approach. Execute transaction code MM02 to change an
existing material master.

In the initial screen, enter the material number you want to update and hit Enter. Then,
select the Sales: Sales Org. Data 2 view, as shown below:
Change Material Master Initial Screen
Press Enter and enter the organizational level data in the pop-up screen.
Enter Organizational Level Data
Hit Enter again to update the material master. Update the item category group to 0001
– Make-to-Order as shown below:
Update Material Master

Create Quotation

In the scenario described earlier where a customer requires a completely customized

order for embroidered towels, the customer submits their requirements to the company,
then the company must generate a quotation. In the SAP make to order process, create
a quotation using transaction code VA21. In the initial screen, enter a quotation type
and hit Enter to enter the quote information.
Create Quotation Initial Screen
Enter the following information:

1. Code of the customer that requested the product

2. Validity dates for the quotation
3. Finished goods material number from the last step
4. Order quantity
Create Quotation
To update the pricing for the custom order, highlight the relevant line item and press the
item conditions button .

Select Product for Pricing

Click the Conditions tab to see the price for the item. Update as necessary to
correspond with the required customizations.

Update Pricing

Hit Enter then Save . The quotation will be saved with a confirmation
message:

Note down the quotation number.

Create Sales Order

Once the customer places the order based on the quotation, create the sales order with
reference to the quotation created in the last step. Execute transaction code VA01 and
enter the relevant sales order type in the initial screen.
Create Sales Order Initial Screen

Hit the Create with Reference button to continue. In the pop-up

window, click the Quotation tab and enter the quotation number created in the last

step. Hit the Copy button to copy quotation information to the sales order.
Enter Quotation Number
Sales order components are copied from the quotation. Take note of the item category.
This field is populated as a result of the sales document type and item category group
combination. This particular combination is configured to produce the item
category TAK – Make-to-order Prod. as shown below:
Quotation Information Copied
To check the pricing or make updates for customer changes, highlight the relevant line
item and press the item conditions button . Click the Conditions tab to see the price
for the item as copied from the quotation.

Check Pricing
Costing for the SAP make to order process is done on the sales order. Scroll down to
condition type EK02 – Calculated costs to see the costing and ensure that there is
sufficient profit margin.

Display Calculated Costs

Hit Enter then Save . The sales order will be saved with a confirmation message:

Note down the sales order number.

Check Production Order

Enter the sales order in change mode to see the production order which was
automatically generated. Use transaction code VA02 and enter the number of the sales
order created in the last step in the initial screen. Hit Enter to see sales order
information in change mode. Select the line item and press the Display item
details button from the toolbar at the bottom.
Display Item Details
In the item details, select the Schedule lines tab. Press
the Procurement button to see the production order details.

Schedule Line Details

In the Assembly/Process section of the procurement details, the production order
number is displayed. In our case, the production order number is 60006109 as shown
below. To see further details of the production order, press

the Header button .

Production Order Number Displayed

The production order shows the start and end dates of production of the finished
product. You can also see the sales order number, item number and schedule line
reference along with the customer details as displayed below:
Production Order Details

Execute Delivery

Now let’s suppose that the SAP make to order production process has been completed
and goods are sent to the finished goods storage location awaiting dispatch to the
customer. Check the stock overview via transaction code MMBE and enter the finished
goods material number to see the stock for the specific make to order product. (In the
below stock overview, the quantity is presented in European format, with a comma
representing a decimal point. Thus, the below image shows a quantity of 1 in
unrestricted use.)
Stock Overview List
Let’s create a delivery and see what happens to the stock level. Use transaction
code VL01N to enter a delivery. In the initial screen, enter the shipping point and sales
order number as shown below:
Create Delivery Initial Screen
Hit Enter to proceed to delivery document creation. The deliver document is displayed
with delivery information pre-populated from the sales order.
Delivery Document Overview Screen
Press the Post Goods Issue button to save the movement. The
delivery document will be updated with a confirmation message as shown below:
Delivery Document Saved
Let’s check the stock overview once more to see if the sales order stock is consumed.
Execute transaction code MMBE and enter the finished goods material number. The
stock is reduced by the quantity entered in the delivery document. In our case, the stock
is now non-existent, as shown below:
Stock Overview List

Generate Billing

Finally, generate the billing for the make to order product. Execute transaction
code VF01 to create the billing document. In the initial screen, enter the sales order
number and press Enter to proceed to the billing document.
Create Billing Document

Hit Save to post the billing document, print the output, and post the accounting
document. The billing document is saved with a confirmation

message:

Let’s have a look at the sales document flow via transaction code VA23. Here you can
trace the flow of documents through the entire SAP make to order process, beginning
with the quotation and completing with the accounting document.
Sales Document Flow
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