Control User Compliance to a Stipulated Source of Supply Using a Source List

  • by Patrick Imhen, Business Analyst and Senior SAP MM/SD/PM Functional Consultant, ZOCODE Limited
  • December 1, 2016
Learn how to set up and implement the SAP system functionality to enforce user compliance to an approved source of supply with a source list at the plant and material levels in the SAP ERP Materials Management Purchasing (MM-PUR) component.
Learning Objectives

After reading this article, you’ll know how to:

  • Set up and implement the relevant control requirements at the plant and material levels
  • Simulate source determination
  • Analyze source list records
Key Concept
A source list can be a vital tool for achieving 100 percent user compliance with an organization’s stipulated source of supply. It has the functionality to optimize and control which source is considered for selection and should be considered for selection during the procurement process. A source list is a list of the preferred sources of supply for a material. It has several control functions that can be used to block a source of supply during source determination when carrying out purchasing transactions in SAP ERP.

Several organizations have had issues ensuring that users in the procurement process source their material requirements from the approved source of supply. I guide you on how to use a source list to resolve this challenge in the SAP ERP Materials Management Purchasing component (MM-PUR). The challenge has sometimes affected organizations’ annual budgets for procurement of materials when such purchasing is done with a non-approved source of supply, undermining several pricing conditions that have been reached with approved vendors. It can also affect the quality of procured materials. A vendor that may not have gone through the quality due diligence approval process of the organization may deliver substandard quality materials in detriment to the stipulated standards of the organization.

I describe how to use a source list as a tool to enforce user compliance. I also explain how to set up and implement the relevant control requirements at the plant and material levels. I look at the following areas:

  • Relevance of controlling the source of supply
  • The policy (business scenario)
  • Using a source list in SAP ERP as a tool for compliance
  • Source list functionalities
  • Steps on how to set up source list control at the plant level
  • Steps on how to set up source list control at the material level
  • Tips on simulating and analyzing a source list.

Several times my colleagues and I have encountered management teams that are responsible for making procurement policies and vendor approvals that express frustration about not getting users 100 percent compliant in sourcing material requirements from the approved source of supply. This happens more in organizational structures that have a centralized purchasing organization, a structure in which purchasing administration is usually done from the head office even though buying is permitted in the plants by assigned purchasing groups. Users tend not to comply with stipulated sources of supply sometimes because they may not even be aware of such approved vendors, especially when such compliance is to be applied to every material requirement in the plant.

During such cases of non-compliance, we investigated to find out why some of these users were not complying100 percent with the sourcing policy of their organizations, and we found out the following:

  • Favoritism: Sometimes this issue of non-compliance is caused by the selfish interest of the buyer or a group of personnel who have been induced or who may get some personal benefits from their preferred source of supply to the detriment of the stipulated rule of the organization.
  • Information gap: A buyer who has been hired recently, although trained and given orientation about his or her sourcing policy, may not know how to differentiate between non-approved vendors and approved vendors because the organization did not provide a standard way to identify them. This issue usually occurs in organizations with a high volume of procurement activities and poor information management structure.

Further in this article, you will learn how we resolved this issue and how to apply the plant source list requirement or the material source list requirement.

Relevance of Controlling the Source of Supply

Controlling the source of supply for materials in an organization can go a long way toward helping organizations better manage their annual budgets and ensure the right quality and material availability. With the source list record in SAP ERP MM-PUR, organizations can achieve this by making it impossible for a user to purchase from a source of supply that is not approved for a particular material requirement in a plant.

It is therefore imperative for SAP procurement professionals to realize how important it is for organizations to implement this best practice as a way to enhance compliance with their sourcing policy. SAP procurement professionals also should recommend the use of a source list to organizations that do not have it as part of their requirements during the implementation of projects or support services.

In the SAP procurement process, after a requirement has been determined either automatically by material requirements planning (MRP) or manually by users, the next phase is to determine the source of supply, which can be external or internal. An external source of supply could be from an existing vendor with a contract, a scheduling agreement, a purchasing info-record, or with none of these, depending on what is to be procured and what the sourcing policies are. On the other hand, a request for a quotation may have to be sent to vendors for new price conditions and other business terms. The sourcing can also be internal, which means it is by a stock transfer using a stock transfer order.

Patrick Imhen

Patrick Imhen is a business analyst and a certified SAP ERP consultant with proficient knowledge, skills, and experience in Materials Management (MM), Sales and Distribution (SD) and Plant Maintenance (PM) gathered from successful SAP implementations projects, support, training, business process analysis, modeling, unit testing, and integration testing. He has profound understanding of the supply chain process across industries and helps organizations cut the cost of operation and improve process optimization. He has more than 10 years’ experience in the business environment and six years’ experience in the SAP domain.

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