What is Purchase order in SAP? | SAP online training

This post provides general information about purchase order and how they are processed with Material Management (MM) Purchasing. The purchase order defines a formal request or instruction from purchasing organization to vendor or a plant to supply certain quantity of goods or services by certain point in time.

What is a purchase order?

The purchase order represents the formal and final approval of a purchasing transaction with the vendor. It identifies the below

• The vendor
• The material or service to be ordered
• The quantity
• The price
• The delivery date and terms of delivery
• The terms of payment

In addition, the purchase order determines whether the ordered material is placed in stock or consumed directly upon goods receipt. Purchase orders can be subject to a release procedure.

Structure of a purchase order

As in the case of other purchasing documents, the PO consist of:

1. Header, It containing information specific to the entire PO. For example, the terms of payment and the delivery terms are in the header.

2. Tems, It containing information specific to the material or service.
For example:

• Material number or short description (“short text”)
• Quantity
• Price

For each item, you can enter additional information such as time-spot schedule lines and item-specific texts. The PO history menu enables you to monitor deliveries and invoices received with regard to the item.

Item category

The item category defines whether a purchase order item:

• Requires a material number
• Requires an account assignment
• Will be placed in stock
• Requires a goods receipt (GR) and/or an invoice receipt (IR)

The following are the item categories defined in the standard system:

Standard items categories in POs

Standard, It provides for normal goods and invoice receipt

Consignment

• Material number required- no account assignments
• Kept in stock
• GR necessary
• IR not necessary

Subcontracting

• GR allowed
• IR necessary

Stock transfer

• Material number required
• GR necessary
• No IR

Third-party

• Account assignment required
• GR and IR allowed

Standard

 
Items with the item category “Standard” are orders for goods that are to be procured externally. In this case, goods and invoice receipt are possible.

Consignment

 
Items with the item category “Consignment” are items relating to goods procured on a consignment basis. Account assignments cannot be made for material ordered on consignment. Consignment stocks are managed separately and are not valuated.

Subcontracting

Order items with the item category Subcontracting are used to order finished assemblies from a subcontractor, for example. Any components the subcontractor requires to assemble the final product are entered as “material to be provided.”

Stock transport order (inter-plant stock transfer order)

The stock transport order is a mechanism facilitating the transfer of stock from one plant to another (that is, a transfer involving transport over a longer distance). The stock transport order is one of the special order types in Purchasing.

Third-party order

Part of a triangular business deal. A third-party order is an order placed with a vendor instructing the latter to supply goods to or perform a service for a third party (for example,
one of your customers). The third-party order is specified in the item category field of a requisition or purchase order. The third-party order is one of the special order types in Purchasing.

Item category and account assignment

The item category requires an account assignment for materials that are consumed directly (that is, materials that are not taken into stock). In the case of stock material, an account assignment is possible, but not mandatory.

PO texts

You can enter text in a purchase order directly or change texts that are suggested by the system. There are two kinds of text:

• Header text – applies to the entire document
• Item text – applies to an individual item

You define which texts appear in which order on printouts in Customizing. You can enter several header or item texts, which you can identify by your own codes

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What is Condition Technique in SAP?

To discuss the Condition technique in sap,

The condition technique is used to define pricing across applications. For example, it is used in the SAP SD (Sales & Distribution) module as well as in the SAP MM module. The goal of the condition technique is to calculate the effective price in a purchase order. Master conditions are simply conditions defined with the condition technique. While this section is not essential to your understanding of master conditions in purchase orders, it does provide useful
background information on the mechanism for determining pricing in Purchasing.

The Basic elements of the condition technique, The condition technique consists of four main elements:

• Condition types
• Condition tables
• Access sequences
• Calculation schema (pricing procedure)

These concepts are important for understanding how the system determines pricing in master conditions.

Condition type is a representation of a pricing element. Condition types exist for discounts, surcharges, and freight costs, for example. You use condition types to enter pricing in purchasing documents. You learned how to specify condition types when entering pricing in quotations and purchase orders, for example.

Condition table defines the combination of fields (the key) that identifies an individual condition record. The system stores the condition data you enter in the form of a condition record. For example, when you enter a vendor’s pricing in a purchasing info record with reference to a material master record, the key of the condition table includes the vendor number and the material number.

The actual pricing information – such as the gross price and any discounts – is stored in a condition record under this key.

Access sequence is a search strategy that the system uses to find condition records for a particular condition type. The access sequence determines the sequence in which the system searches condition records for a valid price.

Price calculation schema (pricing procedure), The calculation schema (also known as a pricing procedure, but the same mechanism can also be used to calculate tax amounts, periodend rebates, or costs, for example) is a group of condition types, defined in a particular sequence. It enables the system to determine that a particular set of condition types, in a specified sequence, apply in given circumstances. For example, the calculation schema determines which condition types apply to the gross price. The calculation schema also determines that the condition types for discounts are calculated in the effective price automatically.

With SAP MM Customizing, you can define price calculation schemas for specific vendors and/or purchasing organizations. The system searches for pricing data in condition records. The criteria it uses in the search depend on the keys in the condition table. The sequence of the search depends on the access sequence specified for the condition type. Which condition types are used in the search are defined in the calculation schema.

For example, suppose that you have just created an info record that specifies a 10% discount from the gross price. This condition is then stored in a condition record under the vendor and material number. When the material is ordered from the vendor in a PO, the system searches for the discount using the access sequence. The calculation schema ensures that the 10% discount is deducted from the gross price instead of the net price during the price calculation process.

The different ways of maintaining master conditions, you can maintain conditions in the following ways:

Prices, As this method you can list or maintain the conditions that determine the net price in a single info record or contract. You can enter the going market price for a material.

Discounts and surcharges, As this method, you can enter discounts or surcharges that apply to all info records or contracts meeting your pricing criteria.

Other condition types,If your company has defined its own condition types, access sequences, and condition tables, you can define master conditions that use these pricing elements.

Price changes, You can change pricing by a fixed amount globally.

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Material Ledger Closing in SAP Quick review

Movements for a material that is valuated with the material ledger are always carried out using the valuation price. If the price control indicator in the material master record is S, movements for the material are carried out with the standard price. If the price control indicator in the material master record is V, movements for the material are carried
out with the periodic unit price.

When postings such as invoice receipts occur, the prices can differ from the valuation price. These differences are collected and totaled by the material ledger and taken into account during material ledger closing.

The Before Material Ledger Closing:
The differences between the valuation price that occur when postings are made are collected the following categories:

GR/IR (goods receipt/invoice receipt):
Differences between actual values and the valuation price that may occur due to invoice receipts are collected here. Differences can occur between a goods receipt and an invoice receipt, because the invoice price is unknown at the time of goods receipt. The values from invoice receipts are posted to a GR/IR clearing account and the offsetting entry is made in the vendor account.

Value Variances:
Differences between actual values and the valuation price that can occur due the to the following are collected as,

1. The Goods receipts for the production order
2. Transfer postings
3. Goods issues
4. The Initial entries of inventory data with a specified amount
5. Deliveries free of charge
6. Inward movements from consignment inventory to the company’s own stock
7. Purchase order-related goods receipts

Values from goods receipts are posted to a GR/IR clearing account; the offsetting entry takes place in the material inventory account. If the the order price differs from the valuation price in the goods receipt, the system posts an offsetting entry to the material stock account and the price difference account (transaction key PRD). Such differences are totaled in the material ledger and indicated as to be closed.

With goods receipts that are not based on a purchase order item, price difference are posted directly to the price difference accounts.

Posting to a Prior Period:
Variances are collected here when a posting is made to the previous period using a valuation price other than the one in the current period.

At Material Ledger Closing:
At material ledger closing, the system takes the differences arising in the above categories into account, depending on the price control of the material. If you carry out material ledger closing for a single material (without saving), you can display which postings the material ledger would make and with what amounts if you were to save the material ledger closing at
this time.

Materials with S price control (standard price):
The system calculates for each material, the balance on the GR/IR clearing account and posts this amount to a price difference account (transaction key PRY). Differences that were collected in the Value variances category were posted to various price difference accounts before material ledger closing. These postings are not changed. 

Differences that were collected in the Posting to a prior period category were posted to the revaluation account before material ledger closing. These postings are not changed. The new periodic unit price is calculated for statistical information.

Materials with V price control (periodic unit price):
The system calculates the balance on the GR/IR clearing account and posts this amount to the material stock account in proportion to the current inventory quantity. The portion of the balances with which the material inventory cannot be debited are posted to a price difference account (transaction key PRY).

Differences that were collected in the Value variances category were posted to various price difference accounts before material ledger closing. These postings are offset in total against a separate price difference account at material ledger closing (transaction key PRY).

The system calculates the balance and posts this amount to the material stock account in proportion to the current inventory quantity. The portion of the balances with which the material inventory cannot be debited are posted to a price difference account (transaction key PRY).

Differences that were collected in the Posting to a prior period category were posted to the revaluation account before material ledger closing. The system calculates the balance on this account and posts this amount to the material stock account in proportion to the current inventory quantity.

The portion of the balances with which the material inventory cannot be debited are posted to a price difference account (transaction key PRY). The postings to the material stock account result in a new periodic unit price for the material, found by dividing the inventory value by the inventory quantity.

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Master conditions in SAP

Master conditions in SAP are conditions that determine the effective price in the purchase order. They serve as a central repository of pricing for purchase orders. They are automatically included in the price calculation in the purchase order if the PO references a contract or an info record, or if it meets certain criteria defined in the extended conditions.

There are three types of master conditions in SAP:

Conditions in contracts – Conditions in a contract apply to all release orders issued against the contract.

Conditions in info records – Conditions in the info record apply to orders that specify the material and vendor contained in the info record.

Extended conditions – These are a flexible way of setting vendor pricing. Extended conditions are master conditions that are included in the price calculation in a purchase order only if the PO meets certain criteria. One way to use extended conditions would be to define a 10% discount on all orders placed with a specific vendor that are created by a certain purchasing organization. In this case, the vendor number and purchasing organization are the two criteria a PO must meet before the price in the PO can be calculated.

Extended conditions are more flexible than master conditions in info records or contracts because you can define which criteria they must meet before they are applied to a purchase order. The documentation on outline agreements and purchasing info records shows how the conditions specified in outline agreements and purchasing info records, respectively, influence the calculation of the effective price in the purchase order.

The next post will learn how to specify conditions that apply to the pricing of all orders for any material with a vendor, not only for a specific material or material group as is the case
with outline agreements and info records.

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