Procurement Cycle

Every organization acquires material or services to complete its business needs. The process of buying materials and obtaining services from vendors or dealers is procurement. The steps which are required to procure a material forms the procurement cycle. Every organization performs some common sequential steps so that a material can be procured in right quantity at the right price. The important steps in procurement cycle are as follows:

• Determination of Requirement
• Creating Purchase Order
• Posting Goods Receipt
• Posting Invoice

Determination of Requirement

This is the first step in procurement cycle. It is the logical subdivision where it is determined that what material or services are required by company, and which supplier can fulfill the requirement. A list of requirements is made and then it is approved by senior authority within the organization. After approval, formal list is made that is known as purchase order with one more level of approval which is sent to the vendor.

Creating Purchase Order

Purchase order is the formal and final confirmation of the requirements which is sent to vendor to supply material or services. Purchase order will include important information like name of material with its corresponding plant, details of purchasing organization with its company code, name of vendor,and date for delivery of material. Purchase order can be created by following the below steps:

Path to create Purchase Order:

Logistics => Materials Management => Purchasing => Purchase Order => Create => Vendor/ Supplying Plant Known

TCode: ME21N

On SAP Menu screen select Create Vendor/Supplying Plant Known execute icon by following the above path.

Fill in all necessary details like name of vendor, purchasing organization, purchasing group, company code, details of material like material number, price, currency, plant.

Fill in all necessary details under Item by selecting the tabs like Invoice/Delivery Tab (Provide the tax code, Payment terms and conditions, and incoterms), Assignment Tab (Provide the valid G/L code, business area, and WBS element. Click on save. A new Purchase Order will be created.

Posting Goods Receipt

After processing of purchase order by vendor, material is delivered to ordering party and this process is called as goods receipt. So, goods receipt is the phase in which the material is received by the ordering party and the condition and quality are verified. Once material is verified against quality then goods receipt is posted. Goods receipt can be posted by following the below steps.

Path to post Goods Receipt:

Logistics => Materials Management => Inventory management => Goods movement => Goods movement

TCode: MIGO

On SAP Menu screen select Goods movement (MIGO) execute icon by following the above path.

Fill in all necessary details like movement type(101 for goods receipt), name of material, quantity received, detail of storage location and plant in which the material will be placed. Click on save. Goods Receipt is now posted for the material.

Posting Invoice

Invoice is received from the vendor after goods receipt, and then invoice is verified by the ordering party. So, this is the phase in which the vendor (seller) is paid from the company and reconciliation of the invoice and PO is accomplished. Invoice can be posted by following the below steps:

Path to post Invoice:

Logistics => Materials Management => Logistic Invoice verification => Document Entry => Enter Invoice

TCode: MIRO

On SAP Menu screen select Enter Invoice execute icon by following the above path.

Fill in all necessary details like invoice posting date, amount that is paid to vendor along with quantity for which amount is paid. Click on save. Invoice is now posted for the goods receipt.

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