Materials Management is a core functionality of SAP ERP. The functionality within MM is the engine that drives the supply chain. In this chapter, we’ll describe the elements that make MM such an important part of SAP ERP and the Logistics function.
1Materials Management Overview
In this chapter, we’ll describe the importance of the Materials Management (MM) functionality in SAP ERP, as it relates to the overall functionality within the SAP software and as a part of the supply chain.
MM contains many aspects of SAP functionality, including purchasing, goods receiving, material storage, consumption-based planning, and inventory. It’s highly integrated with other functionalities or components such as Financials (FI), Controlling (CO), Production Planning (PP), Sales and Distribution (SD), Quality Management (QM), Plant Maintenance (PM), and Warehouse Management (WM).
This chapter examines why MM is a core functionality of SAP and of any SAP ERP implementation. You’ll learn why MM can be described as the engine that drives the supply chain functionality within SAP ERP and how MM is integrated with the other SAP components or functionalities.
1.1Materials Management as a Part of SAP ERP
This section provides a brief overview of the core SAP ERP functionality and describes where MM fits into the structure. We’ll also cover business suite functionality that includes important business functionality of supply chain management.
1.1.1Core SAP ERP Functionality
SAP was originally developed as an enterprise application-software package that was attractive to very large manufacturing companies. As the number of companies adopting SAP began to grow, a number of smaller companies in many different industries came to believe that SAP was the product that could give them a competitive advantage.
Many of these companies required just the core SAP ERP functionality. That usually comprises MM, FI, SD, and PP. Often companies would start their implementations with this core functionality, and then on the second and third phases of their implementations, they would introduce functionalities such as CO, WM, HR, QM, and so on.
SAP SE has packaged the software suite to include four core functional areas: Financials (FI, CO), Human Capital Management (HCM), Product Lifecycle Management (QM, SAP Environmental Health and Safety [EH&S]), and Operations (PP, MM, WM). SAP ERP is now also available on SAP HANA, which is provides fast data processing.
SAP SE not only continue to innovate and bring new offerings often, it is also following a vision of making it simple to run and use SAP software. SAP S/4HANA (which, at the time of writing include SAP S/4HANA Finance and is planned to expand to other logistics areas) is the latest offering that not only simplifies logistics operations by combining several interconnected logistics and supply chain functionality, but also makes the entire experience of working with SAP software user-friendly.
The latest release of core SAP, rolled out at the end of 2005, is SAP ERP 6.0. With this release, SAP announced its plan for future releases dubbed “innovation without disruption,” whereby the upgrade cycles are minimized, but a number of enhancement packages (EHPs) will be released over the lifecycle of the product. SAP has indicated that mainstream maintenance for SAP ERP 6.0 will continue until March 2015, and extended maintenance will expire in March 2017. The examples and screenshots in this edition are all from the SAP ERP 6.0 release and with the latest EHP 7.0, unless otherwise stated.
As SAP develops more extensive solutions and tools for its customers, MM continues to be an important part of the foundation on which subsequent functionality is built.
1.1.2Business Suite Functionality
In addition to the core SAP ERP 6.0 MM, consultants should also be aware of functionality in the SAP Supply Chain Management (SAP SCM) business suite that can be implemented alongside SAP ERP. Functionality found in SAP SCM (for example: SAP Extended Warehouse Management [SAP EWM]) may be implemented by your client, which will require you to understand the interaction between the functions. The current release, SAP SCM 7.0, was made available at the end of 2009.
SAP SCM 7.0 includes SAP Advanced Planning and Optimization (SAP APO), SAP Extended Warehouse Management (SAP EWM), SAP Supply Network Collaboration (SAP SNC), SAP Auto-ID Infrastructure, and SAP Transportation Management (SAP TM).
Now that we’ve reviewed the history of MM as part of SAP ERP, the next section examines how MM functions as part of the Logistics function.
1.2Materials Management as Part of Logistics
The SAP Logistics function incorporates a number of distinct areas that together follow the movement of materials from manufacturer to consumer. Logistics, in its essence, is the management of business operations, including the acquisition, storage, transportation, and delivery of goods along the supply chain. The supply chain is a network of retailers, distributors, transporters, storage facilities, and suppliers that participate in the sale, delivery, and production of a particular product.
This section reviews the function of the MM functionality as part of logistics
1.2.1Management of the Supply Chain
Given the nature of logistics and the supply chain, it’s clear that MM is an integral part of the Logistics function within SAP ERP. There are three important flows when we look at MM in the supply chain (discussed in greater detail in Section 1.3):
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Material flow
The material flow describes the movement of materials from the vendor to the company and then on to the customer (and, potentially, customer returns). Today, companies are integrating with suppliers and customers, not just interfacing. Therefore, any improvements companies can provide to the visibility of their material flow will allow them to be flexible and responsive to their customers. Customers want to do business with companies who are responsive. Those companies can gain a competitive advantage and increase market share by being more flexible, quicker, and more dependable.
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Information flow
The information flow includes transmitting orders (electronic data interchange [EDI], fax, etc.) and updating the status of all deliveries. Companies that can show customers and vendors viability by using real-time information have a distinct competitive advantage over others.
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Financial flow
The financial flow includes the financial documents that are created at each material movement. If a material is valuated, then a movement—credit or debit—is made between accounts to reflect the value moving from, for example, inventory accounts and accounts payable (AP) clearing accounts.
1.2.2SAP and Logistics
We’ve defined the Logistics function and the flows within the supply chain. So how does SAP help clients manage this supply chain to gain a competitive advantage?
SAP ERP software enables a company to have the correct materials at the correct location at the correct time with the correct quantity and at the most competitive cost. The competitive advantage is achieved when the company can manage the process. This involves managing the company’s relationships with its vendors and customers. It also involves controlling their inventory, forecasting customer demand, and receiving timely information concerning all aspects of the supply chain transactions.
When you break this down and look at the functionalities and components involved in the management of the supply chain, you can see that although MM is an integral part of Logistics, it’s only one part of the bigger picture.
The Logistics function in SAP ERP includes the following:
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Materials Management (MM)
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Sales and Distribution (SD)
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Quality Management (QM)
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Plant Maintenance (PM)
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Production Planning (PP)
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Project Systems (PS)
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Financials (FI)
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Warehouse Management (WM)
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Logistics Information System (LIS)
Additional functionality in the Logistics area includes Batch Management, Handling Unit Management (HUM), Variant Configuration, Engineering Change Management (ECM), and SAP Environment, Health, and Safety Management (SAP EHS Management). These can be important in the Logistics area, depending on the individual customer requirements.
Next, let’s review the integration of the MM functionality with other SAP software.
1.3Materials Management Integration
When you look at the supply chain, you can see where MM integrates with the other tools and components to create an efficient product for managing the supply chain. The following sections further examine the supply chain flows and the ways in which MM is integrated into them.
1.3.1The Material Flow of the Supply Chain
The material flow is the movement of the material from the vendor to the customer. To instigate a flow, a material must be created by either the PP functionality via a materials requirements planning (MRP) system or by a sales order created in SD. The need is created, and a purchase requirement is sent to the vendor, relating to instructions on delivery date, quantity, and price.
The vendor sends the material, and it’s received and may be subject to a quality inspection in QM. Once approved, the material may be stored in a warehouse using WM. The material could be required in a pro...
