Procurement Cycle in SAP MM

Procurement Cycle

The Procurement Cycle of materials and services consists of different phases given below:

1. Determination of Requirements
2. Source Determination
3. Vendor Selection and Comparison of Quotation
4. Purchase Order Processing
5. Purchase Order Follow up/ PO monitoring
6. Goods Receipt & Inventory Management
7. Invoice Verification
8. Payment to Vendor

1. Determination of Requirement - Material requirements are identified by various departments to the Purchasing Manager or via Material Requirement Planning. Purchase Requisition can be created manually or automatically in the system.

2. Source Determination - The procurement component help us to identify the possible source of supply based on Past orders or existing longer-term purchase agreement. Request for Quotation are created in the system and send to different vendors. And then we maintain the price in the Quotation which are provided by Vendor.

3. Vendor Selection and Comparison of Quotation - In this we finalize the vendor based on the price comparison of different Quotation. The comparison list ranks the quotation by item from lowest to highest price. Rejection letter sent automatically to the rejected vendor.

4. Purchase Order Processing - Purchase Order is created against selected Vendor with reference to Purchase Requisition or Request for Quotation. And send PO to vendor.

5. Purchase Order Follow Up/ PO Monitoring - Here we monitor the Purchase Order. The system check the status of the PO's like whether on-time delivery has been done or not, how much quantity still pending. It provides an up-to-date status of all PR, RFQ and PO.

6. Goods Receipt and Inventory Management - Vendor send the materials and then we post the Goods Receipt in the system to received the material by entering Purchase Order for reference.

7. Invoice Verification - Invoice is received from vendor after Goods Receipt and then Invoice is verified by Ordering Vendor. And then Invoice post in the system.

8. Payment to Vendors - The last step of Procurement cycle is payment to Vendors and is also known as Procure to Pay process. In this phase, Vendors are get paid as per the payment terms.