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How does SAP ERP handle free goods procurement processes?

Learn how to handle business processes involving free samples or goods with no commercial value in SAP ERP.

The SAP ERP system offers features that can help keep track of goods with no commercial value, which can be useful...

in a few scenarios. For example, a company might receive a free product sample from a vendor and put the sample through extensive testing before deciding to place an order for a larger quantity of the product. Similarly, when a company is developing a new product, it coordinates with various vendors to obtain a very limited quantity of material for suitability testing purposes.

Let's check out the options that the SAP ERP system offers to manage these business procurement processes and the pros and cons of each option:

The "Free" checkbox

When creating a purchase order for free samples, users can click the "Free" checkbox. Using the "Free" checkbox is only beneficial if the sole objective is to record receipt of samples of no financial value.

With this checkbox selected, the system disables the option to record any additional costs such as customs duties or customs clearance charges that the company has to pay on free samples from foreign vendors.

Further, when the warehouse receives goods with reference to a free samples purchase order, stock or inventory accounts are not updated because the system considers free goods as non-valuated and non-stock items. A non-valuated item is one that has no financial value, and a non-stock item is not kept in stock in the warehouse. When using the checkbox, there's no provision to record the vendor invoice even for the customs duties or any other surcharges.

Cost center assignment

Each free sample may require its own material code to identify the material and help manage the entire procurement cycle, even when the purchaser does not pay for the material. Often the procurement processes related to a particular free sample occur once or on a limited basis, so the material codes take up valuable database space despite limited use. To minimize this problem, the purchaser can create a purchase order with reference to a cost center instead. Doing so will eliminate the need for a material code. A short description of the material in the purchase order will suffice to keep track of it.

Another advantage of using the cost center assignment approach is that the purchaser can assign a bare minimum value to the sample -- $.01, for example -- and then the purchaser can add all the additional costs such as customs charges. When the warehouse person records receipt of the sample, all costs are charged to the cost center. The warehouse doesn't maintain stock or inventory of the free samples procured for the cost center. With this approach, it is easier to record additional charges related to procuring the free samples and pay the vendors for them.

Material code

If the company wants stock visibility of samples, then the purchaser can create a purchase order with a material code, give a bare minimum price (say, $.01), load up all additional costs, and then the warehouse person receives the samples. The sample's landed cost is the cost incurred on sample handling. Since these samples are now stock-based, when the products development department wants to issue the samples for testing or product development, it can charge those activities back to its own cost center.

Next Steps

How to use SAP ProMan for procurement processes

SAP QM can help meet multiple quality specifications

Book excerpt on production planning with SAP ERP

This was last published in April 2015

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