Written by Takayama — Paddy & Water Inc. / Supply Chain

Materials Management: A Complete Guide to Purchasing, Goods Receipt, Inventory Valuation, Invoice Verification, and Special Procurement

June 2026

Chapter 1: Overview and Role of SAP MM

What Is MM

SAP MM (Materials Management: Purchasing and Inventory Management) is the module that lets a company procure the things it needs (raw materials, parts, consumables, and services) at the right quality, quantity, price, and time, and manage everything centrally from goods receipt through inventory management. MM handles the “input side” of SAP’s overall supply chain and works closely with PP’s manufacturing activities, SD’s shipping, FI’s accounts payable management, and CO’s cost management.

MM’s core functions are “automation of the procurement process” and “accurate, real-time inventory management.” Based on the requirements calculated by MRP (PP-MRP), it automatically generates purchase requisitions and completes every step—approval, ordering, goods receipt, and invoice verification—within the system. This eliminates manual, person-dependent operations such as paper purchase orders, fax ordering, and Excel-based inventory ledgers.

MM’s Integration with Other Modules

• MM↔PP: PP’s MRP run (MD01N) calculates material requirements and automatically generates MM purchase requisitions. Material issues to production orders (MIGO: movement type 261) are also executed from MM inventory.

• MM↔FI: Automatic journal entries are generated at goods receipt and invoice verification. The GR/IR clearing account functions as an intermediate account linking the two modules. Payment (F110) clears MM’s accounts payable.

• MM↔SD: The goods issue posting based on SD’s delivery instruction (VL01N) reduces MM inventory. For SD third-party orders (item category TAS), an MM purchase requisition is automatically generated.

• MM↔QM: For items with the QM flag enabled, goods received are posted to “quality inspection stock.” Posting the usage decision (QA32) moves the stock to MM’s available inventory.

• MM↔CO: For expense purchases (account assignment category K: cost center), costs are posted directly to the CO cost center at the time of the purchase order and goods receipt. For project purchases (P: WBS), costs are aggregated into PS.

MM’s Subcomponents

• Purchasing: Manages purchase requisitions, requests for quotation (RFQ), purchase orders, and outline agreements.

• Inventory Management: Manages goods receipt, goods issue, stock transfers, and physical inventory.

• Logistics Invoice Verification (MIRO): Performs three-way matching between the vendor invoice, the purchase order, and the goods receipt.

• Valuation: Manages inventory valuation using the moving average price, standard price, and the Material Ledger.

• Vendor Evaluation: Automatically evaluates vendor performance across four axes—delivery, quality, price, and service.

Automatic Journal Entry Generation, Movement Types, and Workflow

MM centers on the “movement type,” managing both the physical movement of stock and the financial journal entry simultaneously. The three-digit movement type determines which stock account is posted to which account. In addition, the approval of purchase requisitions (PR) and purchase orders (PO) is automatically controlled through multi-level approval via the Release Strategy.

Movement Type	Stock Movement	Automatically Generated Journal Entry (OBYC Setting)
101 (Goods Receipt)	Stock increase	Stock account (BSX) ← GR/IR clearing account (WRX)
102 (Goods Receipt Reversal)	Stock decrease	WRX ← BSX (reverse of 101)
201 (Issue to Cost Center)	Stock → expense posting	Expense account (GBB-VBR) ← Stock (BSX)
261 (Issue to Production Order)	Stock → work in process	Work in process (GBB-VBR/PRD) ← Stock (BSX)
301 (Plant-to-Plant Transfer)	Stock transfer (between plants)	BSX (receiving) ← BSX (issuing) + freight cost
501 (External Receipt, No Purchase Order)	Stock increase (no PO required)	Stock (BSX) ← Free-of-charge procurement account (GBB-ZZZ, etc.)
551 (Scrapping)	Stock → loss	Scrapping loss (GBB-VNG) ← Stock (BSX)
MIRO (Invoice Verification)	Journal entry only (no stock movement)	WRX (GR/IR clearing) ← Accounts payable (KBS) ± Price variance (PRD)

▌ Workflow: PR Approval and PO Release Strategy

·Purchase requisition (PR) approval: After the purchase requisition is created in ME54N, it is automatically routed to the approver group based on conditions such as amount and item category ·PO release strategy: Multi-level approval based on order amount, cost center, and purchasing group is defined through SPRO configuration ·Example: under ¥500,000 → section manager approval only; ¥500,000 or more → two-step approval by section manager + department manager; ¥5,000,000 or more → automatic escalation up to executive approval ·ERS (automatic invoice verification): MIRO is automatically executed at the same time as goods receipt, reducing invoice-processing workload (requires prior agreement with the vendor)

Chapter 2: What MM Can and Cannot Do

What MM Can Do

• Full automation of Purchase-to-Pay (P2P) from procurement to payment: The entire sequence—purchase requisition generated by MRP → approval workflow → purchase order → goods receipt → invoice verification → payment (F110)—is completed entirely within SAP. Paper purchase orders, faxes, and manual accounts-payable journal entries can be eliminated.

• Fraud and overpayment prevention through three-way matching: The order quantity and unit price on the purchase order, the actual goods receipt quantity, and the amount and quantity on the vendor invoice are automatically matched. If the variance exceeds the tolerance (configured in OMR6), the invoice is automatically blocked, forcing a manual check.

• Real-time inventory management: Every goods receipt, issue, and transfer is reflected in the stock balance the moment the transaction is posted. Reports such as MB52 and MB51 let you see stock in real time by plant, storage location, and material.

• Automatic calculation of actual cost using the Moving Average Price (MAP): The average unit price of stock is automatically recalculated with every goods receipt. This is ideal for valuing items sourced from multiple vendors or subject to large price fluctuations.

• Separate management of special stock: Vendor consignment stock (K), sales-order stock (E), and project stock (Q) are managed separately using the special stock category in the material master.

• ERS (Evaluated Receipt Settlement): An MIRO-less process that automatically posts accounts payable from the goods receipt information. Running MRRL reduces invoice-entry effort to zero.

• Vendor Evaluation: ME61/ME63 automatically aggregates the four criteria of delivery, quality, price, and service to calculate a vendor ranking.

• Efficient period-end physical inventory: The physical inventory count is completed in three steps—MI01 → MI04 → MI07. MI20 lets you filter and review only the items with discrepancies.

What MM Cannot Do / Points That Require Caution

• Retroactive changes to inventory valuation: The Moving Average Price (MAP) changes with every goods receipt and cannot be retroactively revised for past periods. Correcting values across accounting periods requires Actual Costing in the Material Ledger, which adds considerable complexity to configuration and operation.

• Fine-grained inventory management at the bin/zone level: The standard MM “storage location” only manages warehouses at a broad, top-level category. Detailed management of bins, zones, and picking routes requires a separate WM or EWM module.

• Complex e-procurement and bidding management: While standard MM’s RFQ can collect and compare quotations, online bidding to multiple vendors, reverse auctions, and supplier-portal integration require integration with SAP Ariba.

• Complex deliverable management for service procurement: While service completion can be recorded via the Entry Sheet (ML81N), complex service PO management involving time and labor tracking or milestone linkage requires an integration design with CS or PS.

• Handling variances under the standard price (S price): For items set to standard price, the difference between the receipt price and the standard price is posted to the “price variance account” (PRD). Large variances can distort the financial statements, so periodic standard-price revision (CKMVFM) must be operated regularly.

Chapter 3: Master Data

Material Master

The material master is MM’s most important master data. It stores all the fundamental settings for how a given material is procured, stored, and valued.

Walkthrough: MM01/MM02  Creating and Changing the Material Master

• Start MM01. Enter the material type (ROH: raw material, HALB: semi-finished product, FERT: finished product, HAWA: trading goods, NLAG: non-stock material, etc.) and press Enter.

• On the view-selection screen, select the required views (Basic Data 1, MRP 1, MRP 2, Purchasing, Accounting 1, Inventory Management, etc.).

• Basic Data 1 view: Set the material description (Japanese/English), base unit of measure, material group, and weight. This is basic information shared across the entire organization.

• MRP views (MRP 1–4): Set the MRP type, lot size, in-house production lead time, planning strategy, and special procurement type. This is the core data for integration with PP.

• Purchasing view: Set the order unit, vendor material number, quality management flag, purchasing group, and customs tariff code.

• Accounting 1 view: Set and check the valuation class (account determination for the stock account), price control (V: moving average, S: standard price), and the current moving average price or standard price.

• MM02 (Change): Specifying a valid-from date manages the history of values before and after the change. MM60 (change list) lets you check who changed which field.

Vendor Master (Business Partner)

In S/4HANA, the vendor master is managed through the Business Partner (BP) transaction. It is a unified master record that integrates FI’s accounts payable management with MM’s purchasing management.

• BP (creating a business partner): Select the BP role “Vendor (FLVN00)” and register the vendor. Configure, in order, general data (name, address), company code data (reconciliation account, payment terms, bank account), and purchasing organization data (order currency, ERS setting).

• Key settings in the purchasing organization view: “payment terms” (e.g., N030 = payment due in 30 days), “minimum order amount,” and the “Evaluated Receipt Settlement (ERS) enabled” flag.

Purchasing Info Record (PIR)

• ME11 (creating a PIR): Register the unit price, planned delivery time, and validity period for a material × vendor × purchasing organization combination. The price is automatically proposed when a purchase order is created.

• MEK1 (setting purchasing conditions): Register quantity-scale pricing and period-based price changes. When prices change, simply entering them in MEK1 automatically reflects them in the next purchase order.

Source List

• ME01 (setting up the source list): For each material, define “which vendor, when, and at what priority” to procure from. Setting the “Fixed” flag lets MRP automatically determine the vendor when generating a purchase requisition.

Chapter 4: Purchasing Process Flow

Purchase Requisition (PR)

A purchase requisition is an internal request stating that someone wants something purchased. It is either generated automatically by MRP (after running MD01N) or created manually by a staff member (ME51N).

Walkthrough: ME51N  Manually Creating a Purchase Requisition

• Start ME51N. Enter the “purchase requisition type (NB: standard)” and press Enter.

• Item tab: Enter the material number, quantity, desired delivery date, plant, storage location, and account assignment category (blank: stock material, K: cost, P: project, A: fixed asset).

• When account assignment category K is selected, enter the cost center and G/L account on the “account assignment detail” tab.

• Once saved, if an approval workflow is configured, the status becomes “IN APPROVAL.”

Walkthrough: ME54N  Approving a Purchase Requisition

• The approver starts ME54N (or opens it directly from a link in the approval-notification email).

• The approver selects the requisition from the list of approvable purchase requisitions and chooses “Approve” or “Reject.” A reason must be entered when rejecting.

• After approval, the status changes to “Released,” and the buyer can then convert it into a purchase order.

Request for Quotation (RFQ)

• ME41 (creating an RFQ): Request quotations from multiple vendors. Enter the material, quantity, and desired date, and send the RFQ to vendors by fax or email.

• ME47 (entering quotations): Enter the quoted prices and terms received from vendors into SAP.

• ME49 (price comparison list): Compare quotations from multiple vendors to select the one with the lowest price or best terms. Green, yellow, and red color coding makes the best vendor immediately identifiable.

Purchase Order (PO)

Walkthrough: ME21N  Creating a Purchase Order

• Start ME21N. Enter the “purchase order type (NB: standard)” and press Enter.

• Header tab: Check the vendor code, purchasing organization, purchasing group, order date, and company code. “Payment terms” and “order currency” are pulled automatically from the vendor master.

• Item tab: Enter the material number, order quantity, desired delivery date, and plant. The unit price is automatically proposed from the PIR.

• Conditions tab: Check the unit price, discount terms, and additional costs (customs duties, freight). The net price is automatically calculated based on the pricing procedure.

• Account assignment tab (for expense purchases): Enter the cost center, expense G/L account, and WBS element.

• Save (Ctrl+S): A purchase order number is generated. ME9F can be used to print the purchase order as a PDF or send it by email.

Walkthrough: ME22N  Changing a Purchase Order

• Start ME22N and enter the purchase order number. Quantity, unit price, delivery date, and text can be modified.

• When changing quantity: the quantity cannot be reduced below the amount already received.

• Saving after a change automatically records it in the change log, which can be viewed on the change-history tab of ME23N.

Outline Agreement

• ME31K (quantity contract): Agree with the vendor on an annual framework (e.g., “X units, ¥X”). Individual purchase orders are issued referencing the contract (ME21N), and the remaining contract quantity is managed automatically.

• ME31L (scheduling agreement): A long-term scheduling agreement used in industries such as automotive. ME38 (release) shares weekly or monthly delivery schedules with the vendor.

Chapter 5: Goods Receipt and Inventory Management

Goods Receipt (GR)

A goods receipt is posted when ordered materials arrive. The posting simultaneously generates a “stock increase” and an “automatic journal entry to the GR/IR clearing account.”

Walkthrough: MIGO  Posting a Goods Receipt (Movement Type 101)

• Start MIGO. Select “Goods Receipt” → “Purchase Order” (with reference to the purchase order).

• Enter the purchase order number and press Enter. The material, quantity, vendor, and plant from the purchase order are displayed automatically.

• Header tab: Enter the goods receipt date and the delivery note number (the vendor’s shipping-slip number).

• Item tab: Check and, if necessary, correct the actual receipt quantity. For a partial receipt, enter the actual quantity received (the remaining order quantity stays open). Specify the storage location.

• For items with the QM flag enabled: the “Quality Inspection” check is set automatically, and the material is posted to quality-inspection stock after receipt. QA32 (usage decision) posts the pass/fail result.

• OK / Save (post): The automatic journal entry “Stock account (BSX) Dr / GR/IR clearing account (WRX) Cr” is generated.

Key Movement Types

• 101: Goods receipt from a purchase order (standard receipt).

• 102: Reversal of a purchase-order receipt (correcting a mistaken receipt).

• 201: Issue to a cost center (when using consumables, etc.).

• 261: Material issue to a production order (integrated with PP).

• 301: Plant-to-plant transfer (moving stock between multiple plants).

• 311: Storage-location-to-storage-location transfer (between warehouses within the same plant).

• 541: Issue of components provided for subcontracting (ownership remains with the company while the material moves to the subcontractor).

• 551: Scrapping/loss (stock decrease, scrapping loss posted).

• 601: SD goods issue (GI: material document record). Automatically invoked from VL02N.

Walkthrough: MB52/MB51  Checking Stock Balances and Movement History

• MB52 (stock list by storage location): Also shows the breakdown of unrestricted stock, quality-inspection stock, and blocked stock.

• MB51 (material document list): Check the movement history for a specific material, period, or movement type.

• MB58 (consignment and special stock): Check special stock such as consignment stock and sales-order stock.

Physical Inventory

Walkthrough: MI01→MI04→MI07  End-to-End Period-End Physical Inventory Flow

• MI01 (creating the physical inventory document): Create the physical inventory document by specifying the plant and storage location to be counted.

• MI04 (entering the inventory count): Enter the physically counted quantities into the system.

• MI20 (inventory difference list): Review the list of differences between the counted results and the system stock. Items with out-of-tolerance differences can be checked and a recount requested.

• MI07 (posting the inventory difference): A positive difference (physical stock greater than system stock) is automatically posted as a stock increase, and a negative difference as an inventory loss.

Chapter 6: Inventory Valuation

Types of Valuation Methods and Selection Criteria

SAP MM’s inventory valuation method is set in “Price Control” on the “Accounting 1” view of the material master. Because a valuation method is difficult to change once set, the design decided at implementation time is extremely important.

• Moving average price (V price): Recalculates the average unit price of stock with every goods receipt. This is suited to raw materials and goods sourced from multiple vendors or subject to large price fluctuations.

• Standard price (S price): Values stock at a fixed price set annually (or semi-annually). It is linked to CO-PC standard cost calculation for finished and semi-finished products. The difference between the receipt price and the standard price is posted to the price variance account (PRD).

How Moving Average Price (MAP) Recalculation Works

Before receipt: Stock 100 units x ¥1,000 = ¥100,000 New receipt: 200 units x ¥1,200 = ¥240,000 MAP after receipt = (100,000 + 240,000) / (100 + 200) = ¥1,133 The next issue/valuation is calculated at ¥1,133 per unit.

Material Ledger and Actual Costing

The Material Ledger (ML) is a function that retroactively calculates the actual cost of standard-price items at period end. In S/4HANA, the Material Ledger is activated by default, and actual costing can be applied to every material.

• CKMVFM (standard price release): Updates the standard price for the next period based on the actual cost. The annual standard-price revision is carried out with this transaction.

• CKMLCP (running the actual costing run): Running the “actual costing run” at period end retroactively applies actual unit prices to every stock movement.

• CKMLQS (Material Ledger report): Check the planned price, actual price, and variance for each material.

Managing the GR/IR Clearing Account

The GR/IR clearing account records the temporary liability for goods that have been “received but not yet invoiced” or invoices that have “arrived but the receipt is not yet complete.” Managing the period-end balance is important.

• MR11 (clearing the GR/IR account): At period end, check the balances (received but not invoiced, invoiced but not received) and execute the clearing process.

• Principle for managing the period-end GR/IR balance: Identify items where more than 30 days have passed since the receipt date and the invoice has still not arrived, and follow up with the vendor. Long-standing items reduce the accuracy of the FI financial close.

Chapter 7: Invoice Verification (MIRO)

How Three-Way Matching Works and the MIRO Transaction

Invoice verification in MIRO automatically matches three documents: the purchase order (PO), the goods receipt (GR), and the vendor invoice. If the variance is outside the tolerance, the invoice is automatically blocked.

Walkthrough: MIRO  Performing Invoice Verification

• Start MIRO. Select “Invoice.”

• Header: Enter the invoice date, posting date, the vendor’s invoice number (reference), the invoice amount, and the tax code.

• Select the “Purchase Order” tab and enter the referenced purchase order number. Pressing Enter automatically pulls in the purchase order and goods receipt information.

• Checking the variance: If it is within the tolerance (configured in OMR6, e.g., price variance ±5%), it is automatically approved; if it exceeds the tolerance, a block flag is set.

• Post: The journal entry “GR/IR clearing account Dr / Accounts payable (vendor) Cr” is automatically generated.

Invoice Verification Troubleshooting

• MRBR (releasing blocked invoices): Check invoices blocked due to price or quantity variances. If the variance is legitimate, release the block; if it is a vendor error, request a correction.

• MR8M (cancelling an invoice): Cancels an incorrect invoice verification. A reversing journal entry (cancellation document) is generated automatically.

• MIR4 (display invoice) / MIR5 (invoice list): Used to check verified invoices and follow up on payment status.

• OMR6 (tolerance settings): Set the tolerance for price and quantity variances as a percentage or an absolute amount. Setting it too strictly causes frequent blocks for minor variances; setting it too loosely increases the risk of overpayment.

Chapter 8: Special Procurement Patterns

Vendor Consignment Stock Management

This pattern stores the vendor’s stock in the company’s own warehouse, with accounts payable arising only when the stock is actually used. The vendor bears the inventory risk.

• MIGO (movement type 101K: consignment receipt): No accounts payable is posted at the time of receipt. The offsetting account is the “consignment liability clearing account.”

• MIGO (movement type 201K: consignment consumption): Accounts payable is posted only when the material is actually consumed.

• MRKO (running consignment settlement): Performs the monthly settlement (posting accounts payable and payment) of consumed consignment stock.

Subcontracting

This pattern provides the company’s own materials to a subcontractor and receives the processed finished product back. A purchase order is created with item category “L.”

• ME21N (item category L): On the “Components” tab, specify the materials and quantities to be provided to the subcontractor.

• MIGO (movement type 541: issue of components provided): The material moves to the subcontractor while ownership remains with the company. The balance can be checked with MB58.

• MIGO (movement type 101: receipt of the finished product): The components provided are automatically consumed (movement type 543) at the same time as the receipt.

Service Procurement

• ME21N (item category D): Used for procuring services such as cleaning, maintenance, or consulting.

• ML81N (service acceptance: Entry Sheet): Records the completion of the service. This is the equivalent of a GI—confirmation that the service has been completed.

• MIRO (service invoice verification): MIRO is executed with reference to the Entry Sheet.

Chapter 9: End-to-End Transaction Walkthrough Guide

Scenario 1: Standard Raw Material Procurement Flow (P2P)

Walkthrough: Step 1  Automatic Purchase Requisition Generation from MRP

• MD01N (run MRP) → MD06 (check the list of delayed items) → a purchase requisition is automatically generated.

Walkthrough: Step 2  Creating the Purchase Order

• ME57 (source determination and PO conversion): The buyer displays a list of purchase requisitions in ME57, automatically determines the vendor by referencing the source list and PIR, and converts the requisition into a purchase order.

Walkthrough: Step 3  Goods Receipt

• MIGO (movement type 101): Post the goods receipt with reference to the purchase order number. The automatic journal entry “Stock Dr / GR/IR Cr” is generated.

Walkthrough: Step 4  Invoice Verification

• MIRO: When the vendor invoice arrives, perform three-way matching. The journal entry “GR/IR Dr / Accounts payable Cr” is generated.

Walkthrough: Step 5  Payment

• F110 (payment program): FI’s automatic payment run clears and pays the accounts payable: “Accounts payable Dr / Bank Cr.”

Scenario 2: Subcontracting Flow

Walkthrough: Step 1  Creating the Subcontracting Purchase Order

• ME21N (item category L): Create the purchase order by specifying the subcontractor, the subcontracted item, the processing fee, and the components to be provided.

Walkthrough: Step 2  Issuing the Components Provided

• MIGO (movement type 541): Manage the process while checking the subcontractor’s provided-component stock with MB58.

Walkthrough: Step 3  Receiving the Finished Product and MIRO

• MIGO (movement type 101): Receive the finished product. The components provided are automatically consumed (543). MIRO: Match the invoice for the subcontracting processing fee.

Chapter 10: Detailed SPRO Configuration

Enterprise Structure (MM-Related)

• OX08 (defining purchasing organizations): Define codes and descriptions such as “company-wide purchasing organization” and “purchasing organization by business division.”

• OX01 (assigning purchasing organization to company code): Define which company code a purchasing organization posts costs to.

• OX17 (assigning plant to purchasing organization): Set which purchasing organization each plant belongs to.

• OME4 (defining purchasing groups): Define the buyer groups in charge. Used for approval workflows and for narrowing down reports.

Pricing Schema

• M/06 (defining condition types): Define the types of MM pricing conditions, such as the base price (PB00), discount (RB00), and additional costs (FRA1).

• M/08 (defining the pricing procedure): Define the calculation sequence and subtotal steps for the condition types.

• OMFP (assigning the pricing procedure to the purchasing organization): Set which pricing procedure is used for each combination of purchasing organization, transaction, and schema group.

Invoice Verification Settings

• OMR6 (invoice verification tolerances): Set the tolerance for price and quantity variances. This can be configured per purchasing organization.

• MRM0 (defining matching rules): Set, per purchasing organization, whether matching is based on the purchase order or the goods receipt.

Inventory Management Settings

• OMJJ (configuring movement types): Customize the behavior of the standard movement types. Custom movement types (in the 701–799 range) can also be added.

• OMWB (Account Determination): Define, for each combination of movement type, valuation class, and company code, which general ledger account is posted to. Set accounts such as BSX (stock), WRX (GR/IR), and PRD (price variance).

• OMSY (activating inventory management): Activate Inventory Management (MM-IM) per company code.

Material Master Settings

• OMS2 (configuring material types): For each material type—ROH, HALB, FERT, etc.—set the available views, whether negative stock is allowed, and so on.

• OMWC (configuring split valuation): Configures “split valuation,” which values the same material at different moving average prices for, for example, “domestically procured” versus “imported” stock.

Chapter 11: Implementation Case Studies

Case 1: Precision Parts Manufacturer — Automating Invoice Processing with Three-Way Matching and ERS

Background and Challenges

At a precision parts manufacturer that manually matched 1,200 invoices per month in Excel, the matching work consumed 200 hours per month, and overpayments and double payments occurred several times a year.

Introducing MM Three-Way Matching and ERS

• Applied MIRO’s three-way matching to all materials. Set the price-variance tolerance to ±3% in OMR6, automatically blocking invoices that exceed the tolerance.

• Applied ERS to standard, recurring items. MRRL runs automatically as soon as the goods receipt (MIGO) is completed, and accounts payable is posted automatically, eliminating the need to enter invoices from the vendor.

• Turned MRBR (blocked-invoice processing) into a workflow, establishing an approval flow for processing and releasing blocked invoices.

Results

• After adopting ERS, the number of manually processed invoices fell from 1,200 to 280 per month (a 77% reduction).

• Automating three-way matching brought overpayments and double payments down to zero.

• The 150 hours per month of effort saved in the purchasing department could be reinvested in supplier development and price negotiations.

Case 2: Food Manufacturer — Consignment Stock Management and Transferring Inventory Risk

Background and Challenges

At a food manufacturer using many types of seasonal packaging materials, excess stock and stockouts kept recurring. A contractual condition with material vendors—that materials, once purchased, could not be cancelled—concentrated all demand-fluctuation risk on the company itself.

Introducing Consignment Stock Management

• Signed consignment stock agreements with key material vendors, under which the vendor deposits materials in the company’s own warehouse and accounts payable is posted only for the amount actually used.

• Consignment receipts are posted with MIGO (movement type 101K), and consumption/transfer is managed with 201K/411K. Actual usage is settled monthly through MRKO.

Results

• Transferred about 60% of the material inventory risk to vendors, achieving a 40% reduction in the company’s own material inventory valuation.

• Scrapping losses caused by demand fluctuations fell 65% year over year.

Case 3: Chemical Trading Company — Establishing a Subcontracting Flow and Subcontractor Management

Background and Challenges

At a chemical trading company that outsources raw materials to multiple subcontract processors to produce intermediate and finished goods, it was difficult to track the balance of components provided to each subcontractor, and the risk of material loss or overconsumption, along with the effort of matching subcontracting-fee invoices, was a challenge.

Establishing the Subcontracting Flow

• Created subcontractor purchase orders with ME21N (item category L). Components are issued with MIGO (541), and the provided-component stock balance for each subcontractor is checked in real time with MB58.

• The finished product is received with MIGO (101). The components provided are automatically consumed (543). The subcontracting-fee invoice is three-way matched in MIRO.

Results

• Real-time visibility into provided-component stock by subcontractor via MB58 made it possible to detect material losses early, improving detection from “the following month” to “the same day.”

• Automating the matching of subcontracting-fee invoices eliminated omissions in posting subcontracting costs during the monthly close.

End of document.

What You Can Do with SAP MM — Key Purchasing and Inventory Management Functions and Operations

SAP MM (Materials Management) is the module that provides integrated management of the entire procurement cycle, from purchasing through goods receipt, inventory management, and invoice processing. Through automatic order proposals generated by MRP, fraud prevention via three-way matching, and automated inventory valuation, it minimizes procurement cost and inventory risk.

▌ ① Purchase Requisitions and Ordering

·Creating a PR (Purchase Requisition): automatically created from MM/PP/PM, or created manually ·Source determination: automatically proposes the optimal vendor from contracts, info records, and competing quotations ·ME21N purchase order creation: enter the vendor, delivery date, price, and terms to place the order. Approved by the manager through the release (approval) workflow ·Recurring orders and scheduling agreements: automatically generate delivery schedules from long-term contracts

▌ ② Goods Receipt and Three-Way Matching

·MIGO goods receipt posting: post the receipt with reference to the purchase order. Automatically creates the FI journal entry (stock, GR/IR) at the same time as the GR document ·MIRO invoice verification (Logistics Invoice Verification): automatically matches the amount and quantity across the purchase order, goods receipt document, and vendor invoice ·Variance detection: automatically calculates price and quantity variances. Blocks payment when the tolerance is exceeded ·QM integration: automatically creates a quality-inspection lot at the same time as the receipt (QM in Procurement)

▌ ③ Inventory Management and Valuation

·Real-time stock inquiry (MMBE): stock quantity and valuation amount by plant, warehouse, and storage location ·Movement type: controls receipts, issues, transfers, and returns via a three-digit code. Automatically generates the FI journal entry at the time of posting ·Inventory valuation: set the standard price (S price) or moving average price (V price) per material ·Physical inventory (MI01–MI07): automatically calculates the difference between book stock and physical stock and posts the variance journal entry