Module Objectives

• Upon completing this module, you will be able to:

– Understand the process to create Purchase Order.
– Create stock purchase order & Consumption
purchase order.
– Configuration setting for Purchase order

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Agenda

• Introduction to Purchase Order

• Pre-requisites & Important Terms & Conditions
• Various methods to create Purchase Order
• Overview and Conceptual understanding of
Account assigned PO
• Differences between Purchase orders for stock and
Account assigned.
• Customization settings for PO
• Customization settings for Account Assignment

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Agenda

• Introduction to Purchase Order

• Pre-requisites & Important Terms & Conditions
• Various methods to create Purchase Order
• Overview and Conceptual understanding of
Account assigned PO
• Differences between Purchase orders for stock and
Account assigned.
• Customization settings for PO
• Customization settings for Account Assignment

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Introduction to Purchase Orders

• It represents the formal and final confirmation to the vendor to supply material or
service.

• Its an external document created with ref to PR / RFQ/PO/Outline agreement by

the Purchasing group as per the agreed terms & conditions.

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Purpose of Purchase Orders

• The purchase order can be used for a variety of procurement purposes.

• You can procure materials for direct consumption or for stock. You can also
procure services.
• Furthermore, the special procurement types "subcontracting", "third-party"
(involving triangular business deals and direct-to-customer shipments) and
"consignment" are possible.
• You can use purchase orders to cover your requirements using external
sources (i.e. a vendor supplies a material or performs a service).

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Purpose of Purchase Order(contd..)

• You can also use a purchase order to procure a material that is needed in one
of your plants from an internal source, i.e. from another plant. Such
transactions involve longer-distance stock transfers.
• You can use purchase orders for once-only procurement transactions. If, for
example, you wish to procure a material from a vendor only once, you create a
purchase order.
• If you are thinking of entering into a longer-term supply relationship with this
vendor, it is advisable to set up a so-called outline agreement, since this
usually results in more favorable conditions of purchase.

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Agenda

• Introduction to Purchase Order

• Pre-requisites & Important Terms & Conditions
• Various methods to create Purchase Order
• Overview and Conceptual understanding of
Account assigned PO
• Differences between Purchase orders for stock and
Account assigned.
• Customization settings for PO
• Customization settings for Account Assignment

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Pre requisites for creating Purchase
Orders

• Before we create a PO, we need the following details to be configured:

– Valid Vendor Master created
– Purchase Organization
– Company Code
– Purchasing Groups
– Plants assigned to the company code being used
– Material Master record(optional)
– Quantity and price for the goods to be procured.
– Account Assignment Category and Item Category should be configured
correctly for the PO document type.

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Structure of a PO

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Structure of a PO

• A purchase order (PO) consists of a document header and a number of items.

• The information shown in the header relates to the entire PO. For example, the
terms of payment and the delivery terms are defined in the header.

• The Items can further have details maintained for them e.g. different weights,
delivery schedules etc.

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Important Data for Purchase order

• Prerequisites required for maintaining purchase order are as follows.

Header data Item data

• Vendor • Material no.

• Order(doc.) type • Plant no.
• Purchase organization • Quantity
• Purchase group • Delivery date
• Company code • Price
• The terms of payment

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Important Data for Purchase order

• Item category
• Item category controls the procurement process and defines whether an
item requires material number, account assignment, goods receipt, and/or
invoice receipt.

• Standard Item categories

• Standard
• Subcontracting
• Third Party
• Consignment
• Stock Transport Order

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Important Data for Purchase order

• Account Assignment Category

• It determines the nature of account assignment and accounts to be charged

when the incoming invoice or goods receipt is posted.

• Standard Account assignment categories :

• Asset
• Order
• Production Order
• Cost Center
• Project
• Unknown
• Sales order

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Document type

• The purchasing documents are differentiated via document type, also

determines which is the relevant number ranges and which field should be
offered during maintenance purposes.
• Document Type of PO controls:
• Screen Layout of the PO: This will determine which fields are mandatory,
optional, read only or hidden.
• Allowed Item Categories
• Number ranges for the PO
• PR document types allowed for the item categories
• PO release strategy can also be configured based on the PO document
type.

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Agenda

• Introduction to Purchase Order

• Pre-requisites & Important Terms & Conditions
• Various methods to create Purchase Order
• Overview and Conceptual understanding of Account
assigned PO
• Differences between Purchase orders for stock and
Account assigned.
• Customization settings for PO
• Customization settings for Account Assignment

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Purchase order creation process

• Purchase order can be created by following methods:

1. Manual purchase order: In this case you need to enter all the required
details in purchase order.

2. Automatic purchase order: It can be created with reference to purchase

requisition

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Various Methods to Create a PO
• Vendor known(ME21N)
– We can use this procedure if you know which vendor is to receive the order.
• Vendor unknown(ME25)
– We can use this procedure if you want the system to select and suggest
possible vendors.
– These suggestions are then made on the basis of sources of supply that
have been predefined in the system.
– Note: the term "source" covers outline purchase agreements, info records,
and source lists).
• Creation of POs from assigned requisitions(ME58,ME59,ME59N)
– We can use this procedure to list the requisitions for your purchasing group
that have already been assigned to a vendor (that is, those requisitions
containing a vendor, outline agreement, or info record as a procurement
option). POs can be generated from these requisitions automatically.
• Stock transfer(ME21N)
– Choose this procedure if you wish to order not from a vendor but from one
of your plants.
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Process flow

•Purchase Order

With ref. to With ref.to RFQ

With ref.to PR
Outline Agree.

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ME21N

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ME25

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ME58

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ME59N

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Creating STO- ME21N

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Demo1_Creating a Purchase Order
Objective To create a Purchase Order

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Agenda

• Introduction to Purchase Order

• Pre-requisites & Important Terms & Conditions
• Overview and Conceptual understanding of Account
assigned PO
• Differences between Purchase orders for stock and
Account assigned.
• Customization settings for PO
• Customization settings for Account Assignment

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Account Assignment

• Specification of the objects (e.g. cost center, sales order, project) that are
charged in the case of a purchase order for a material that is intended for direct
usage or consumption.
• Use:
– We can specify one account assignment for an item, or several account
assignment for several items.
– Multiple account assignment allows you to apportion the cost of a material
covered by a PO among your own cost center and several others.

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Account Assignment Category

• You specify which account assignment object is to be charged via the account
assignment category.
• The account assignment category can be entered for each line item of the PO.
• The account assignment category determines:
– The nature of the account assignment (cost center, sales order, and so on)
– Which accounts are to be charged when the incoming invoice or goods
receipt is posted
– Which account assignment data you must provide

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Account Assignment Category

Description Required account assignment data

Asset Main asset number and sub-number
Order Order and G/L account number
Production order Production order number
Business process Business process and G/L account number
Cost center Cost center and G/L account number
Sales order Sales order and G/L account number
Individual customer Sales order and G/L account number
requirement

Project Project and G/L account number

Unknown None

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Account Assignment Category

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Features of Account Assigned POs

• Account assignment category will be entered on the PO items

• Based on the selected category, cost object needs to be entered on the PO

• When GR is done for the PO item, stock will not increase in the system, but it
will be directly consumed against the cost object.

• One exception to this rule is account assignment category Q(Project made to

Order) for which the stock will be displayed under Project Stock.

• If Unknown account assignment is used on the PO, system will ask for the
details of account assignment while posting the Goods Receipt for the PO.

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Agenda

• Introduction to Purchase Order

• Pre-requisites & Important Terms & Conditions
• Overview and Conceptual understanding of Account
assigned PO
• Differences between Purchase orders for stock and
Account assigned.
• Customization settings for PO
• Customization settings for Account Assignment

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Procurement for Stock & Consumption

Account Assigned Purchase

Sr No Purchase Orders for Stock
Orders

Account Assignment Category Account Assignment Category

1
will be blank will be entered on the PO

Cost Object is mandatory while

Cost Object is not required while
2 creating the PO except for
creating the PO
Unknown account assignment

Posting the GR will result in

Posting the GR will increase the consumption of goods against
3
stock in the system the Cost Object. Stock will not
increase

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Agenda

• Introduction to Purchase Order

• Pre-requisites & Important Terms & Conditions
• Overview and Conceptual understanding of Account
assigned PO
• Differences between Purchase orders for stock and
Account assigned.
• Customization settings for PO
• Customization settings for Account Assignment

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Demo2_Customizing Settings

• Define document type

• Define number ranges

• Define screen layout

• Set tolerance limit for price variance

• Account Assignment Category

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Demo2_Customizing Settings
Objective To Define the document type purchase order document.

•1. Select the document Type(NB)

•2. Click on “Allowed Item categories”- here you can see Item categories allowed for the document type
•3. further to that Select option “Item category & click on Link purchase requisition - document type”
• It will display allowed reference document types & item categories

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Demo2_Customizing Settings
Objective To Define the number ranges for purchase order document.

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Demo2_Customizing Settings
Objective To change the screen layout for Purchase Order

•Select the field ME21

and double click.

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Demo2_Customizing Settings
Objective To change the screen layout for Purchase Order

•Mark the check box as

Per requirement

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Demo2_Customizing Settings
Objective To change the tolerance settings

•Click on radio button as per

requirement and enter the
% also

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Agenda
• Introduction to Purchase Order
• Pre-requisites & Important Terms & Conditions
• Overview and Conceptual understanding of Account
assigned PO
• Differences between Purchase orders for stock and
Account assigned.
• Customization settings for PO
• Customization settings for Account Assignment

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Account assignment category
Objective Field selection for Account Assignment Category

•Field selection for account

assignment category

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Quiz/Check point

• Questions/Discussions :
• What is the purpose to create Purchase
Order?
• What is Stock Purchase Order?
• What is Consumption Purchase Order?
• What is the transaction code to create
Purchase Order?

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Questions and Comments

• What questions or comments

do you have?

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 Exercise

Exercise 9: Create a Manual Purchase Order (60 min.)

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