Key Logistics Process handled by SAP Material

management
Some important logistics and supply chain business processes in which MM plays a
central role include the following

Procure-to-Pay-Process
In the P2P business process, we can procure material in two ways.

• Either a business user creates a request manually

• Or the system generates it automatically through a material planning program.
Such as material requirements planning (MRP).

In an SAP system, we create this material request as a purchase requisition. Here

the system converts it into a request for quotation (RFQ) and sends it to relevant
suppliers.

Upon receipt, the system also maintains quotes from suppliers in the RFQ.

Further, we perform a price comparison of all the quotations received and choose
one supplier to supply the required material.

We mark the remaining quotations as rejected to prevent users from mistakenly

processing these quotations further. We also send rejection letters to the rejected
suppliers.

Subsequently, we convert the successful quotations into a procurement element.

Such as a quantity or a value contract, a scheduling agreement or a purchase order
(PO).

However, if this procurement element goes through an approval process, then the
system triggers a release strategy (approval process). Once released or approved,
the goods are received in the warehouse.

Finally, the system records the supplier’s invoice and verifies it via a three-way
matching process. These include:-

• Purchase Order
• Goods received
• Invoice received

And then finally we generate payment to the supplier.

Plan-to-Product Process
In this business process, a company produce products in-house. The planning
involves both production planning and planning for raw materials and packing
materials, which a company often procures.
This planning takes place using a materials planning program such as material
requirement planning (MRP). The plan-to-product business process triggers raw and
packing materials procurement.

Once the company receives these materials in their warehouse, they can start the
production process. As the required raw and packing materials to produce a product
are now available in the warehouse.

A goods issuance for the raw and packing materials, to produce a product, involves
the inventory management area of materials management. When the product is
produced, that product is delivered to the warehouse which again is a part of SAP
MM functionality.

Order to Cash
The order-to-cash business process begins when the company receives an inquiry
from a customer for a product. It maintains this inquiry in SAP S/4 HANA Sales. The
Salesperson issues a quotation to the customer with reference to the same inquiry. If
the customer accepts the quotation, it is converted into a Sales Order.

Subsequently, when you are ready to deliver the product to the customer, the
company issues the product from its warehouse with reference to the sales order.

Issuing products and an inventory management process is in the domain of Material

Management.

Finally, once we receive payment from the customer, billing work takes place.
Further, we record the payment in the accounts receivables (AR) of the SAP system.

Maintenance Management
In this process, we procure the spare parts and consumables required to maintain a
plant’s Machinery or Assets. We do this in two ways:-

• Either using the procure-to-pay business cycle or

• Issued from the warehouse.

Both are an inventory management process of MM and include reference to a

maintenance order in plant maintenance.

SAP Material Management Integration

Material Management can easily integrate with the other tools and functionalities
within S4 HANA.

Material flow of the Supply Chain

A material flow is the movement of a material from the supplier to the customer. To
initiate flow, we must create a material requirement with the PP functionality through
an MRP system. Or we can also create it with a sales order in SAP S/4 HANA Sales.
Subsequently, we need to send a purchase requisition to the supplier, relating
instructions on the delivery date, quantity and price. Post this, the vendor sends the
material.

Once approved, the material may be stored in the warehouse using WM. It is further
used in Production through Production Order in PP.

Finally, once Finished Stock is available for the customer, it is picked from the
warehouse and shipped to the customer using the Sales Functionality.

Financial Flow of the Supply Chain

The flow of financial information in a supply chain includes:-

• Vendor invoices
• Vendor payments
• Billing the Customer for supplying materials and
• Incoming payments.

The vendor supplies materials to your company and sends an invoice for payment.

SAP Vendors can be paid in two ways:-

1. Payment on receipt of the materials (two-way match)

2. Payment on receipt of the vendor invoice (three-way match)

The Accounts Payable department carries out this function. The invoice verification
process within the SAP system is an excellent example of the integration between
MM and SAP S/4 HANA Finance.

The financial flow of the supply chain has not changed in magnitude even though the
information and material flows may have.

Explore: SAP S/4HANA Finance Training

SAP Material Management- Managing the Supply

Chain of the industry
In this blog, we discussed how MM functionality in SAP is the foundation of any SAP
Implementation. We also understood, where SAP Material Management fit into the
structure.

We can describe SAP Material Management as the engine that drives a supply chain
within SAP. SAP MM also integrates with other SAP modules like Sales &
Distribution and FICO.