Preface – This post is part of the SAP MM series.

Introduction :

SAP MM is one of the modules of the SAP ERP system which deals with the logistics (Material management and inventory management) of the materials. It includes modules such as Sales and Distribution, Production Planning, Plant Maintenance, Project Systems and Warehouse Management. This module contains master data, system configuration and transactions to complete the procure to pay process.

This process ensures that there is never a shortage of materials in the supply chain process of an organization It deals with the management of materials (products and/or services) and resources of an organization to make the business run smoothly on time and in a cost-effective manner.

Material Management process :

What is SAP MM – Image Illustration

Requirement Determination:

Planning of what materials are required, when they are required, budget of the enterprise for the material.

Source Determination :

Determining potential suppliers of the requested material.

Vendor Selection :

On identification of potential vendor, request for quotation(RFQ) is sent by the requester. The contract is awarded to the vendor based on selection criteria.

Order Processing :

A formal purchase order is created and sent to the vendor.

Order Monitoring: 

Order monitoring is tracking of dates and the goods from the time of ordering to the time the goods are delivered. It is done to ensure that there are no discrepancies and if any, they can be handled beforehand.

Goods Receipt :

On receiving the material from the supplier, the purchase department prepares the good receipt which can be used later for reconciling if there is any discrepancy .

Invoice Verification :

The good receipt is compared to purchase order to avoid any mismatch. Materials are checked whether they meet the ordered specification, and then priced according to the terms of the purchase order. For any damaged goods, the buyer contacts the supplier either for replacement or for a refund.

Payment Processing :

Once the verification is done, the payment invoice is created and vendor is paid.

SAP MM integration with other modules

Integration of MM and FI :

• On posting of goods receipt, a debit is posted to inventory account and a credit is posted to GR/IR clearing account.
• On posting of invoice receipt, a debit is posted to GR/IR clearing account and a credit is posted to vendor account.
• On payment of vendor, a debit is posted to vendor account and a credit is posted to bank clearing account.

Integration of MM and SD:

• When sales order is created in SD, the details of the materials are copied from Material Master of MM.
• Data like availability and MRP is also copied from MM.
• On creation of inbound or outbound delivery with reference to a sales order, determination of shipping point with the help of plant, loading group etc. which refers to Material Master.

Integration of MM and PP :

• On creation of Production order in PP, BOM (Bill of materials) is determined and PR is raised for materials through MM.
• Stock determination helps to implement various strategies to withdraw materials for goods issue and stock transfer based on material requirement.

Advantages of MM :

• Integration with other modules helps to reduce data entry and human error.
• Ensures there is never a shortage of material.
• Avoids stocking of unnecessary or obsolete materials.
• Least inventory loss.
• Controlled manufacturing cycle time.
• Reduces expenditure on unnecessary material storage.
• Different release strategies for different purchasing document based on various criteria like vendors, payment terms etc.
• Automatically creates Purchase order for specific vendors based on stock.

Challenges in implementation :

• Information such as material requirement, planning activities and order input should be managed and reflected carefully.
• Material planning and demand forecast should be in line with the manufacturing requirement.
• Standard product quality should be maintained.
• Vendor must be selected carefully to meet quality management principles to safeguard quality of end-product.

SAP MM sub-modules:

• Master Data
• Purchasing
• Inventory management
• Pricing Procedure