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What are the benefits of using Active Ingredient Management in SAP QM?

SAP QM's Active Ingredient Management ensures that a company pays vendors only for the active or potent content of a material, and in turn gets paid for the active content that it delivers to its own customers.

Materials planners who are struggling to gain better visibility into the actual amount of procured material that...

will be available for production processes often find Active Ingredient Management helpful. Active Ingredient Management is a functionality in the SAP Quality Management (QM) module that distinguishes the "active" content of the material from the carrier material. It's like separating wheat from the chaff, where wheat is the active material that can be ground into flour, while chaff is the carrier material -- like water, an impurity or an otherwise unusable material.

In the process industry, which extensively uses materials managed and tracked in batches, the planner can set the benchmark (for example, 85%) of active content that a material must have. When the vendor delivers the material, the quality inspector conducts quality tests and records the results. The quality results from the lab tests confirm the active content of the material. For example, if the quality test determines that the delivered material contains 75% active content -- less than the company's benchmark of 85% -- then the receiving company correspondingly pays less to the vendor. Vice versa, if the vendor delivers material with an active content greater than the 85% benchmark, then the company pays more.

With Active Ingredient Management, the system automatically adjusts the amount payable to the vendor. If batches of material have lower active content than required to meet product specifications, the company can then adjust their processes accordingly to increase the amount of active material.

Figure 1 shows that a company ordered a material quantity of 100 AIU (AIU is a unit of measure) that is worth $12,000 (see the second row in Figure 1). However, the active content of the delivered material was found to be less than the benchmark, hence an automatic deduction of $2,823.48 (see the first row). The final payable amount to the vendor is $9,176.52 (shown in the third row), which accounts for the difference in payment for the ordered and the delivered quantities. Notice the active quantity of delivered material (denoted as "Goods receipt") is 76.471 AIU against the ordered quantity of 100 AIU.

To summarize, Active Ingredient Management not only calculates the amount payable to the vendor but also the actual quantity of active material received from the vendor, providing complete visibility of the stock situation to help planners with realistic materials planning.

Figure 1: Active Ingredient Management
Figure 1: Active Ingredient Management

The benefits of the active ingredient management functionality are not just confined to the procurement process, but extend to the production and sales processes as well. In production, the system calculates and proposes the number of batches and the quantities required to produce a company"s product. In the sales process, the company only bills for the active content of material it delivers to its customers.

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