Notes on Supplier Selection, RFX, and SAP Procurement Workflows

Supplier Selection and Management Framework

• Sources of information for supplier evaluation include events and shows (e.g., car show, home garden show at the UI center) and existing supplier databases.
• Importance of tracking disqualified suppliers as well as potential candidates for future opportunities.
• Spending level influences supplier selection: the higher the dollar amount with an existing supplier, the greater the likelihood you will continue with them.
• Supplier ladder (progression of relationship strength):
  • Approved suppliers: those we have already done purchases with or have vetted as potential candidates.
  • Preferred suppliers: have given us more favorable terms while maintaining consistent quality.
  • Certified suppliers: have continuously supplied without issues for four years or more; never late; consistent quality; no bookkeeping or delivery issues; may allow stopping incoming inspections due to proven reliability.
  • Partnered/Strategic suppliers: our top-tier, long-term partners.
• Next steps related to supplier evaluation focus on RFX documents and bid processes.

RFX Documents: Definitions and Roles

• RFI (Request for Information): sometimes referred to in the material as RFI/RIFI. Purpose: gather information about potential suppliers with no commitment to future business.
• RFQ (Request for Quotation): a more serious step where you request specific price and terms for defined items; price and terms are binding if a contract proceeds; there is usually a time limit.
  • Example: if you need a specific computer model, you would issue an RFQ with model number and required details.
• RFP (Request for Proposal): allows suppliers some flexibility and creativity to meet the requirements; typically larger-scale and used when you want more options or innovative approaches (e.g., a laptop with configurable RAM/speed rather than a single fixed model).
  • Relationship to RFQ: RFQ is more rigid with defined items; RFP allows more variation from suppliers.
• Overall, RFQ/RFPs have time limits and binding price/terms once a contract is signed.
• Practical examples discussed: RFQ for a specific computer model vs RFP for a general laptop with RAM/speed/size preferences.

Evaluation and Selection Mechanics

• When choosing a supplier, decisions include whether to single-source, sole-source, or use multiple sources.
• Definitions:
  • Sole source: only one supplier can supply the item.
  • Single source: there are multiple potential suppliers, but you select one for the contract.
• Location and organizational fit matter: supplier location (geography), size, capacity, and alignment with organizational needs.
• If no supplier can be found, consider developing a supplier (supplier diversity).
• Supplier diversity concepts:
  • Diverse suppliers are owned/operated by individuals or groups traditionally underserved or new entrants.
  • Examples: minority-owned, women-owned, or suppliers from developing countries.
  • Corporate social responsibility (CSR) objectives may require mentoring and training for these suppliers.

Group Exercise (Summarized Outcomes)

• Arguments for a single supplier:
  • Builds loyalty and strong relationships; supplier may prioritize you over competitors.
  • Higher volumes can yield discounts and favorable treatment.
  • Consistency and quality tend to be better; reliable and predictable deliveries.
  • Easier logistics: fewer suppliers simplifies communication, scheduling, and transportation.
  • Potential for reduced freight costs due to consolidated shipments.
  • Lower risk of duplication of effort (single purchase order process).
  • Confidentiality and security: potentially less risk of sensitive information leaking to multiple suppliers.
• Arguments for multiple suppliers:
  • Greater product flexibility and variety; ability to compare products and features.
  • Competitive pressure can lead to better prices and terms overall.
  • Increased flexibility and redundancy: reduces risk of disruption if one supplier fails to deliver.
  • Proximity benefits: geography can reduce lead times and support local suppliers.
  • Capacity: large orders may require multiple suppliers if one cannot meet demand.
  • Ability to split costs for large orders if multiple suppliers offer competitive terms.
  • Regulatory considerations: safeguards against monopolistic practices.
• The instructor encouraged sharing additional ideas and confirming understanding.

SAP: Multilevel Bill of Materials (BOM) and Related Purchasing Transactions

• Context: We explore a multilevel BOM for a semi-finished or finished product to understand how parts and subassemblies are tied to final products.

Multilevel BOM (Exploding the BOM)

• Example material: NRGA energy bar (finished product) with a BOM that includes subcomponents (dough, ingredients).
• Steps and terminology:
  • Select a semi-finished product to explore BOM, then switch to the finished product (NRGA energy bar) to see levels.
  • Finished product level is Level 0; its direct inputs (e.g., dough) are Level 1; inputs for the dough (e.g., oats, wheat germ, cinnamon, etc.) are Level 2.
  • Base quantities example (for a given output):
  • Finished product NRGA: base quantity for the finished item is $7$ cases.
  • For the dough: to produce $7$ cases of NRGA, the BOM shows that a set of ingredients is required (e.g., $500$ pounds of dough, which itself requires $300$ pounds oats, $50$ pounds wheat germ, $5$ pounds cinnamon, etc.).
  • If you change the finished quantity (e.g., to produce $14$ cases), you adjust the base quantity and recalculate the needed materials accordingly (the example notes multiplying inputs in multiples of the base quantity and ensuring the math remains straightforward). The idea is you can determine whether you have enough stock to meet a production target by scaling quantities.
• Practical notes:
  • The BOM view is used here for inventory management (FEST) rather than cost or production planning in this class; there is no real-time inventory check (no MD04-like lights) in this setup.
  • In a future SAP module (production planning), you would have automated stock checks (e.g., MRP/MO4) and color lights to indicate sufficiency; this class focuses on manual checking.
  • When switching between the BOM levels, you can trace how much of each component is required to produce the finished quantity.

Purchase Requisition (PR) and Source of Supply

• Creating a PR for raw materials (e.g., oats):
  • Include typical fields: purpose, approved by, line items for multiple materials, and a tracking number (e.g., March 21).
  • Source determination is performed to identify potential suppliers; you can assign a source of supply to each line item if you know preferred vendors.
  • Example troubleshooting note: difficulty locating oats in the catalog may lead to selecting an alternative (e.g., raisins) for demonstration purposes.
  • When multiple items are added to a PR, each line item receives a unique line number (e.g., 10, 20, 30, …). Line numbers are in increments of 10 to accommodate future insertions.
• Source of supply and line-item details:
  • You can assign a source of supply per line item (the interface may differ between SAP versions; the old setup permitted multiple sources per line item, whereas the newer version may restrict this in some contexts).
• Deleting line items in PRs:
  • PR line items can be marked for deletion with a trash icon; the data is not actually removed but flagged as deleted.
  • If the PR has already been saved, the deleted line remains visible until the PR is converted to a PO or you process it via the exceptions in the later steps.
  • The instructor notes that data remains and is accessible for auditing; this is the reason you may see a line still listed in the PR after you think you deleted it.
• PR to PO conversion and exceptions:
  • The typical workflow is to use ME21N with document overview enabled to adopt a PR into a PO.
  • After adoption, the system may show extra or deleted lines in the PO if the PR had deletions; you can fix this by navigating to the PR exceptions (MD04-related or related interfaces) and cleaning up the lines before finalizing the PO.
  • If you encounter a line that was deleted in the PR and you proceed with conversion, you may end up with a PO that still lists that line; you must delete the corresponding line in the PO (via ME52N) to avoid duplications and ensure accuracy.
• Practical note on testing: the instructor demonstrates how a PR saved with two lines (one later deleted) can produce a PR-to-PO path that requires follow-up cleanup in the PO to reflect only the active lines.

PROC: Converting PR to PO and Managing Lines

• ME21N (Create PO from PR):
  • Turn on the document overview, select the PR, and adopt it into a PO.
  • After adoption, you may see the PR with a deleted line still appearing in the PO screen as a separate line item.
  • You must inspect the PO and remove the deleted line from the PO (using the Trash/Delete action in the PO line items) to prevent the PO from containing a line that should no longer exist.
• ME52N (Change/Display):
  • If a line item remains in the PO after adoption (e.g., line 20), you delete it from the PO using ME52N to ensure it is not part of the finalized PO.
• MD04 (Stock/Procurement Monitor) and related transaction exploration:
  • MD04 is used to view purchasing documents tied to a tracking reference; it lists PRs and POs but not Goods Receipts or Invoices, since those are inventory management documents.
  • MD04 can show outstanding items and exceptions, such as PRs not converted or POs without goods receipts.
• MD2N (ME2N) and document exploration:
  • The instructor uses a generic example to illustrate how to search by tracking number and filter by parameters like purchasing group to isolate relevant documents.
• Document history and reporting:
  • The system can generate a report (e.g., via a dedicated SAP report) listing PRs and POs associated with a given tracking number; it does not show goods receipts or invoice verifications in that document history.

Goods Receipt (MIGO) and Partial Deliveries

• After a PO is created and goods arrive, you perform a goods receipt using MIGO:
  • Select the PO, confirm the received quantity, and specify the storage location.
  • Example: if you ordered $50$ units but only $20$ arrived, you would enter a 20 in the receipt; the system would adjust the remaining quantities accordingly (e.g., remaining quantity becomes 30).
  • The delivery note should be updated to reflect the actual quantity delivered (e.g., 20) and the storage location updated (e.g., raw materials).
  • Post the goods receipt to update inventory levels.
• PO History after goods receipt:
  • The PO history shows the original quantity ordered, the quantity received, and the current status.
• Invoice Verification (MIRO):
  • Use MIRO to verify supplier invoices against the PO and goods receipt.
  • Enter the invoice date, supplier reference, and purchase order number, and then post the verification.
  • The system calculates the amount due; you can choose to include or exclude tax (tax calculation option dependent on the setup).
  • In the example, a simple invoice of $4$ dollars was posted against the PO; the balance would then be zero once verified.

Post-Delivery and Invoice Processing Scenarios

• Partial receipts and subsequent invoices:
  • When later receipts complete the order, you can continue with additional MIRO postings for the remaining quantities.
  • As quantities are received, the remaining quantity on the PO is updated accordingly (e.g., after receiving a second shipment of $30$ units, the PO would reflect the full delivery of the original order).
• Handling multiple items on PR/PO:
  • Government procurement practice often favors one item per PR/PO to simplify tracking, but multiple items may be acceptable if they are from the same supplier and have the same delivery date.
• Exceptions and cleanups:
  • In class activities and exams, students may encounter MD04 exceptions showing outstanding items; the recommended approach is to delete obsolete lines from PRs or to finalize POs with only the active lines to avoid exceptions.
• In-class activity logistics:
  • The instructor scheduled an in-class SAP activity with a due date by the end of class and mentioned an additional global activity; guidance included documenting document numbers and attaching screenshots for tasks.

Practical Takeaways and Best Practices

• For supplier management:
  • Maintain a clear ladder of supplier statuses and use that to guide negotiations and sourcing decisions.
  • Use RFI/RFQ/RFP appropriately based on the complexity and specificity of requirements.
  • Consider supplier diversity as part of CSR objectives while planning mentoring and training.
• For SAP workflow (PR/PO/GR/IV):
  • Understand the multilevel BOM to plan material requirements and inventory impacts.
  • Use PRs to initiate purchases and populate line items with tracking numbers and sources of supply.
  • Convert PRs to POs carefully, reviewing exceptions and cleaning up deleted lines to prevent discrepancies.
  • Use MIGO for goods receipts (including partial deliveries) and MIRO for invoice verifications, ensuring quantities and delivery notes are accurate.
  • Regularly review PO histories and document lists (via ME2N/MD04) to track procurement progress and resolve outstanding items.
• Practical classroom tips:
  • In SAP practice, expect to deal with line-item numbering (e.g., 10, 20, 30) and understand how deletions in PR affect conversions to PO.
  • When in doubt about whether to include multiple items in a single PR/PO, default to one item per PR/PO for government contexts, unless there is a clear operational reason to consolidate.
  • Be prepared to discuss and defend supplier selection strategies in terms of risk, cost, reliability, and strategic fit.

Quick Reference: Key SAP Codes and Concepts Mentioned

• BOM exploration: FEST (inventory management) for BOM application; material explosion to see Level 0, 1, 2 components.
• PR creation and management: ME52N (delete line item in PR), ME21N (adopt PR to PO), document overview toggle.
• PR→PO transition cleanup: manage deleted lines in PO using ME52N; verify via exceptions in the PO process.
• Document search and tracking: MD04 (stock/requirements list for tracking number; shows PRs and POs, not receipts or invoices).
• PO and receipts: MIGO (goods receipt against a PO; partial receipts allowed); ME23N (PO display/history).
• Invoice processing: MIRO (invoice verification); reference PO number; tax calculation options.
• Reporting: ME2N/Document History to review purchasing documents tied to a tracking number.

End of Notes

• The instructor indicated the SAP in-class activity is posted in Brightspace under Activities/Assignments and Week 11 materials, due by the end of class, with an additional global activity to follow.
• Students were encouraged to ask questions if unsure about SAP steps to ensure full understanding before the next class.