Presentation from 2015 SAP Business One ASUG Summit in Austin, TX. Explore Best Practices for Purchasing and Materials Management

1. Keith Taylor
Best Practices for Purchasing and Materials
Management Session # 3673

2.  Over 30 years of purchasing, materials
management and operations
 22 years with a large manufacturer of truck
mounted sewer cleaning equipment
 20 plus years experience implementing business
systems and helping companies improve their
efficiencies and bottom line through Business
Process Improvements
 Certified SAP Consultant on all versions since
2004. SAP Gold level partner since 2004
Background: Keith Taylor

3.  What is Purchasing and materials management?
 Make technology work for you
 Establish, monitor and follow Department Goals
 Data Integrity
 Requisitions and Purchase Quotes
 Purchase Orders and Purchase Order
Acknowledgements
 Expediting Purchase Orders
Key Discussion Points / Agenda

4.  CRM and now VRM
 Focus on TCO (Total cost of ownership) not just
cost
 Vendor Performance Reviews
 Materials Management and using MRP
 Managing Inventories – what reports to use?
 Vendor Managed Inventory (VMI)
Key Discussion Points / Agenda

5.  “If you think you are working hard to obtain
information or something is hard to do in or out of
B1 then there is probably a better way or there
should be a better way.” Keith Taylor
 Misconception is that just purchasing an ERP
solution will solve all of your purchasing and
materials management problems.
 Your ERP solution is a “tool” that enables
materials management to be successful.
Make Technology work for You

6.  When working “hard” it is generally
because you are working defensively
instead of being proactive.
 Examples:
 Waiting for someone to tell you to order
something instead of using data from the
ERP system to do so.
 Waiting for someone to tell you to
expedite an item
 “Bad” data in the ERP system
Make Technology work for You

7. What are the fundamental duties of
Purchasing and Materials Management?
To supply quality material, products,
and services at the right time and the
right price.
Purchasing & Materials Management

8.  Cost savings by buyer / product line or other
metric
 Vendor Reductions – the more vendors you
maintain and use the higher your costs
 Vendor on time delivery improvements
 Vendor Quality improvements
 Inventory reductions based on inventory turns,
inventory aging, total value
Establish Department Goals

9.  Many companies set department
goals but surprisingly many of these
same companies do not have a way
to monitor and determine if the goals
have been achieved.
 We are going to explore some ways
to measure and monitor that help you
pro-actively manage the purchasing
and materials departments
Measure / Monitor Department Goals

10.  Clean up and use your data in SAP
 All users of the ERP system share the
information
 Vendor information including contacts,
phone numbers, email addresses, etc.
 Accurate items and bill of material
information
 Accurate inventory data
 Without accurate data you will work
harder
Data Integrity – Best Practices

11. Now that SAP has them when do you use them?
 Sometimes used in conjunction with dollar
amount restrictions
 When you need a record that someone wanted
you to purchase materials or other items that you
cannot justify in SAP by running MRP or other
reports
 If using MRP - recommend that you only create
purchase requisitions for the special materials
needed or for supplies and similar products.
Purchase Requisitions – Best Practices

12. Now that SAP has them when do you use them?
 Sourcing New items
 Sourcing new vendors
 Use special prices for Business partners to
record costs for your vendors and items
 Fairly easy to use transaction notification in SAP
to update special prices when you record the
costs from a purchase quotation
Purchase Quotations – Best Practices

13.  While negotiating with your vendors or proposed
vendor convey your policies and procedures to
your vendors.
 Review your forms with the vendor and make
sure they clearly know what each field means.
 Use for all purchases
 P-Cards
Purchase Orders – Best Practices

14.  Contract to the vendor stating all terms and
conditions.
 Print buyer, phone number, extension, email, fax,
etc. on all documents using the Document owner
or buyer field on the PO screen
 Show part numbers on the line items and include
your item number and the vendor’s item number.
Include due dates and all pertinent information.
Purchase Orders – Best Practices

15.  Train your vendors to acknowledge receipt of
your purchase order.
 Verifies that the vendor received the PO AND
that they agree to all of the terms and conditions
of the order.
 Notation on the purchase order “Please
acknowledge receipt of this purchase order
including all pricing, delivery, terms and
conditions to the buyer below”.
Purchase Orders – Best Practices

16.  Update PO with acknowledged date
 Verbal purchase orders lead to errors and
disputes.
 Send or confirm the PO in writing using email. It
is free and now easier then ever to do using the
auto send email features of SAP B1 version 9.1
 Purchase Order Form
Purchase Orders – Best Practices

17.  Never place a purchase order without a cost.
There is no reason to do this. A PO without a
cost or terms basically tells the vendor charge
me what you want, delivery it whenever and don’t
worry about meeting any specifications.
Purchase Orders – Best Practices

18.  User defined field on Purchase Order
“Acknowledged” (date type)
 When vendor confirms go to the purchase order
and enter the date – change any other
requirements on the purchase order that the
vendor modified such as cost, dates.
 Create an alert for each buyer based on the doc
owner field showing all purchase orders that
have not been acknowledged.
 Buyer to follow up daily – goal is the alert is not
received meaning all PO’s have been confirmed
and acknowledged
Purchase Orders – Best Practices

19.  Most companies do not expedite pro-actively.
Why wait to have someone like the BOSS tell you
it is not here. You know this already!!
 Create an alert to run automatically and send to
each respective buyer showing PO’s that are late
based on the PO Line Due Date
 Can also use similar logic to send a list of
purchase orders that are due next week to make
sure that everything is still on target.
Purchase Expediting – Best Practices

20.  PO’s placed and sent daily
 PO receipts performed in the
warehouse using warehouse
personnel
 PO Receipts performed daily – you
do not know what is late if these are
processed the next day, once a
week, etc.
 AP Invoices – costs and information
should match what your vendor
acknowledged. If not call the vendor
return the invoice, etc.
Transactions – Best Practices

21.  CRM is commonly used to keep track of
important events on the sales side of the house.
 Use VRM to keep track of important events in
purchasing.
 Create Activities and use for areas such as
Expediting, quality issues, Performance, etc.
 If you use activities for purchasing it is fairly easy
to conduct vendor performance reviews
VRM – Best Practices

22.  How do you determine what to purchase now?
Surprisingly, many buyers still run an inventory
report to determine what they need to purchase.
 Min/Max, Safety Stock, Forecasts, sales orders –
which one(s) should I use to tell me what to
purchase?
 Depends on the type of company you are, for
example:
 M2O (make to order or job) - MRP using many of the
item master fields such as min, SS, Sales orders,
Production orders, forecasts
 M2S (make to stock) – forecast, min/max
Materials Management – Best Practices

23.  Often Buyers say my vendors are stocking
material for us. VMI is a perfect candidate for
these vendors and others.
 Material is in your warehouse. The vendor owns
it not you. No cash flow or taxes issues.
 Have seen examples of the vendor supplying
their own personnel to distribute the material
 Eliminates excessive freight costs for rush
service.
 No cost until material is used
Vendor Managed Inventory – Best Practices

24.  If standard report does not exist for
you develop the reports and / or
queries to tell you what you need to
know when you need to know it.
 Inventory Audit Report
 Inventory Audit Query
 Inventory Aging Report
Inventory Tools – Best Practices

25.  ABC Analysis
 Query / Alert of Items below
minimum or safety stock
 Excess inventory on hand – often
returnable to vendors if it is caught
quickly. Run queries, reports
periodically at least every 6 months
to catch these items.
Inventory Tools – Best Practices

26.  New vendors
 New Items
 PO receipts for the previous day
 Open Purchase Quotations
Other Queries / alerts – Best Practices

27.  Cost Reductions – fairly easy to
monitor by creating a price list at
year end with your last purchase cost
and then you can compare
purchases for a particular year
against the saved price list.
 Sourcing – Is your purchasing
department placing purchase orders
or truly sourcing products?
Measure / Monitor Department Goals

28.  Inventory Reductions – using reports
such as:
 Item Usage / Sales by Month
 Inventory Turnover Analysis
Measure / Monitor Department Goals

29.  Supply your vendor with a report of all
purchases for the last year or measurable
period of time. Easy to supply the data with
a query or Purchase Order Analysis report
 Review late shipments. Easy query of
receipts showing the date the material was
supposed to be here compared to the
actual PO receipt date.
 Review quality issues using the activities
you created.
 Review forecast if any for next period.
Vendor Performance Reviews

30. Best Practices for Purchasing and
Materials Management

31. STAY INFORMED
Follow the ASUGNews team:
Tom Wailgum: @twailgum
Chris Kanaracus: @chriskanaracus
Craig Powers: @Powers_ASUG
Presenter: Keith Taylor @KeithTaylorLBSi

32. Please provide feedback by completing a short survey at the end of
the session.
SID# 3673
For ongoing education in this area of focus, visit www.ASUG.com.
Follow us #ASUGB1
My contact information: Keith Taylor, keith@lbsi.com
Follow me on twitter @KeithTaylorLBSi