Real-World Techniques to Tighten Purchasing Controls and Ensure the Quality of Incoming Goods

2. Real-World Techniques to Tighten Purchasing Controls and Ensure the Quality of Incoming Goods Isaac Mazliach S.D.M. Consulting

3. What We’ll Cover … Why use SAP Quality Management (QM)? Setting up QM in Purchasing Master data needed Inspection at the vendor’s site Inspection at Goods Receipt Integrating inspection results with Vendor Evaluation The use of Audit Management What’s new in SAP ERP? Wrap-up

4. Why Use SAP QM? Purpose With the functions of this component, you can implement the most important elements of a quality management system Integration The integration of the QM application component in the SAP system allows quality management tasks to be combined with those in other applications (such as Materials Management, Production Planning, Sales and Distribution, and Cost Accounting) Benefits Do I need to convince you of this?

5. QM Features — General • The QM application component supports tasks associated with quality planning, quality inspection and quality control. In addition, it controls the creation of quality certificates and manages problems with the help of quality notifications. • The following components are available in QM: • Basic data (for example, Material Master, catalogs, inspection characteristics, inspection methods, and sampling procedures) • Inspection planning (inspection plans, reference operation sets, and material specifications) • QM in procurement • QM in sales and distribution • Inspection lot processing (inspection lot creation and inspection lot completion)

6. QM Features — General (cont.) • The following components are available in QM (cont.) • Results recording • Defects recording • Sample management • Quality Information System • Dynamic modification of the inspection scope • Quality certificates • Quality notifications • Test equipment management

7. What We’ll Cover … Why use SAP Quality Management (QM)? Setting up QM in Purchasing Master data needed Inspection at the vendor’s site Inspection at Goods Receipt Integrating inspection results with Vendor Evaluation The use of Audit Management What’s new in SAP ERP? Wrap-up

8. Customizing Settings for QM in Procurement  • The following slides identify settings that can be made in the Customizing application in order to use the quality management functions in procurement

9. Keys for Certificate Processing • Keys are defined for processing quality certificates and are stored in the Material Master record. These keys stipulate that a certificate be requested from the vendor for every Purchase Order item. The keys can also be used to determine: • Whether the system checks that a certificate has already been received for the Purchase Order item during Goods Receipt • Whether a certificate must be provided for a Purchase Order item with every Goods Receipt • The notification type generated by the system if the required certificate is not present

10. Keys for Certificate Processing (cont.) • Keys are defined in the Customizing application for blocking supply relationships. Depending on whether the block applies to all, or only some, of the materials from a vendor, a blocking key is stored in the Vendor Master or in the Q-info record for the "material * vendor" combination. • The key controls blocking of the following transactions: • Request for quotation • Purchase Order • Goods Receipt

11. Document Types   • There are two types of system support for exchanging Q documents with vendors: • Technical delivery terms (document type Q02) • Quality assurance agreements (document type Q01) • These documents are used during procurement operations (for requests for quotation and Purchase Orders, that is), and are sent to the vendor • The standard SAP system contains fixed settings for these document types, such as: • Changes to a document cause a new version to be created in the system • The status sequence of the document is suitably defined

12. QM Systems • Verification requirements with regard to the QM system of the vendor are defined • You store the actual QM system in the Vendor Master record at the client level or in the Q-info record for the material-vendor combination at the plant level • In procurement (request for quotation and Purchase Order), the system checks whether the vendor’s QM system meets the specified requirements for the material or material group that is to be purchased

13. Status of the Supply Relationships • Status profiles are defined for the supply relationships. An inspection type is assigned to each status contained in the profile. • You can stipulate that deliveries of materials from a vendor must pass through several statuses. For example: • Model series • Preliminary series delivery • Production series delivery • These statuses can be assigned different inspection types with corresponding plan usages. The system will then select inspection plans to match the status of the supply relationship.

14. Other Customization Settings • Maintain QM Standard Setting Catalogs • QCCK – The purpose of this activity is to copy entries for QM standard settings for catalogs from client 000 to the installation client • Maintain QM Standard Setting Quality Notifications • QCCM – The purpose of this activity is to copy entries for QM Standard Settings for Quality Notifications from client 000 to the installation client • Maintain Settings at Plant Level • SPRO – Quality Management  Basic Settings  Maintain Setting at Plant Level: Plant-Dependent QM Setting

15. Other Customization Settings (cont.) • Define Catalog Profile • The purpose of this activity is to define a catalog profile and to assign the permitted code groups to that catalog profile • IMG  Quality Management  Quality Notifications  Notification Creation  Notification Content Define Catalog Profile • Define Action Box • The purpose of this activity is to define additional functions (activities) that can be performed during the processing of a notification: • IMG  Quality Management  Quality Notifications  Notification Processing  Additional Notification Functions  Define Action Box

16. Inspection Lot Creation: Purpose • In the Quality Management (QM) component, you process quality inspections on the basis of inspection lots. • If you want to inspect a specific quantity of a material or a piece of equipment, an inspection lot must be created in the system • The documentation describes how inspection lots are created automatically or manually, and how you use the inspection lots to process different types of inspections • Once an inspection lot has been created, you can inspect the goods, record the inspection results or defects, and complete the inspection with a usage decision

17. Inspection Lot Creation: Implementation Considerations • You should implement the Inspection Lot Creation component if you want to create inspection lots in the system. You must also implement the following additional QM components to be able to plan, process, and complete the inspections: • Basic Data (QM-PT-BD) • Inspection Planning (QM-PT-IP) • Results Recording (QM-IM-RR) • Defects Recording (QM-IM-RR-DEF) • Inspection Lot Completion (QM-IM-UD)

18. Inspection Lot Creation: Integration • You must also implement the following component in the logistics supply chain: Materials Management (MM) • Manage materials and material stocks in the system and process inspections for goods movements

19. What We’ll Cover … Why use SAP Quality Management (QM)? Setting up QM in Purchasing Master data needed Inspection at the vendor’s site Inspection at Goods Receipt Integrating inspection results with Vendor Evaluation The use of Audit Management What’s new in SAP ERP? Wrap-up

20. Master Data • Enhance Material Master (QM View): • The purpose of this activity is to maintain the Material Master using the quality management view: Logistics Materials Management  Material Master Material  Change  Immediately (MM02): • The table on the right demonstrates some of the fields available for entry/use

21. Master Data (cont.) • Create Master Inspection Characteristic: Logistics  Quality Management  Quality Planning Basic Data  Inspection Characteristic  Create: QS21: • Qualitative characteristics • Quantitative characteristics • Maintain Material Specification: Logistics  Quality Management  Quality Planning Inspection Planning  Material Specification  Edit: QS61

22. Quality Information Record  • If a quality assurance agreement or a vendor release is required for a material, you must create a Quality Information Record (QIR). The QIR determines how the material can be processed further.

23. Quality Information Record (cont.)  • When a quotation or Purchase Order is created, the system checks whether a QIR is required and is available for the combination of material and vendor • The system also checks whether the vendor and material-vendor combination is blocked or released for quotations, Purchase Orders, and/or Goods Receipts. The execution of this check depends on the setting of the QM in Procurement control key in the Material Master. • The QIR displays a vendor block specified in the Vendor Master, the vendor's QM system, and the lock date • You can also specify a status profile for releasing the supply relationship and the QM system of the material-vendor combination in the QIR. You can also decide whether you want to deactivate the Goods Receipt inspection or perform a Goods Receipt inspection and/or source inspection. 22

24. Characteristics • The design of different inspections per material etc. is configured using the characteristics technique: • Create master Inspection characteristics (Plant level) • Create Inspection Plan (Material+Plant level) • Add Operations to the Inspection Plan • Assign the Master Inspection Plan to each operation

25. Create Master Inspection Characteristics (Plant Level)

26. Create Inspection Plan (Material+Plant Level)

27. Add Operations to the Inspection Plan

28. Assign the Master Inspection Plan to Each Operation

29. What We’ll Cover … Why use SAP Quality Management (QM)? Setting up QM in Purchasing Master data needed Inspection at the vendor’s site Inspection at Goods Receipt Integrating inspection results with Vendor Evaluation The use of Audit Management What’s new in SAP ERP? Wrap-up

30. Inspection at the Vendor’s Site: General • Source inspections are performed upon request and with the participation of the customer or sold-to party. A source inspection can be performed by the receiver of the service, the vendor in the presence of the receiver, or by a person or third party (for example, a surveyor) appointed by the receiver. • Inspection lots for source inspections that reference a purchasing document can be created with or without specifying a (vendor) batch. (Set the Inspect Without Batch indicator in the worklist for source inspections). • If the inspection lot for the source inspection is rejected for a Goods Receipt item, the Customizing settings for the QM in the procurement control key determine whether: • A Goods Receipt posting is not possible or • A quality notification is not created and a new inspection lot is created

31. Triggering of Source Inspections  • When the system generates a worklist for source inspections, it only considers materials and vendors for which: • Quality information records exist (these records specify a source inspection as the inspection type) • The inspection type has been defined and activated in the Material Master record • You can manually generate a list of materials that are defined for a source inspection

32. Triggering Source Inspections Manually  • Choose:Logistics  Quality management ª Quality inspection ªWorklist ª Inspection lot creation ª Source inspection ªTrigger manually • The system creates a list of materials that are defined for a source inspection • Options: • Create an inspection lot for an item in the list • Display the scheduling agreement (Purchase Order) for a material • Display the quality information record for a material

33. What We’ll Cover … Why use SAP Quality Management (QM)? Setting up QM in Purchasing Master data needed Inspection at the vendor’s site Inspection at Goods Receipt Integrating inspection results with Vendor Evaluation The use of Audit Management What’s new in SAP ERP? Wrap-up

34. Vendor Release • The quality department releases a vendor for a certain material. It can also restrict the release to a certain period of time or a certain quantity. If the vendor has serious quality problems, the Quality System can safeguard against this by blocking requests for Quotations, Purchase Orders, or Goods Receipts for certain materials from that vendor.

35. Inspection Skip for Certified Vendors • Vendors that have certified QM systems in use may be able to maintain a higher product quality than those without QM systems. In Customizing for QM in Procurement, you can waive the requirement for Goods Receipt inspections when goods are delivered from vendors who have certified QM systems in use. If you waive the inspection requirement: • The system does not create an inspection lot when goods are procured from these vendors • The goods are posted directly to unrestricted-use stock when they are received • In Customizing for QM in Procurement (Define QM systems), you must set the indicator Certified QM System for the QM system that is presently in use

36. Inspection Skip for Certified Vendors (cont.) • If you want to define a QM system and be able to control inspection skips, you must maintain various master records: • You define the requirements for a vendor's QM system in the Material Master record • You specify the vendor's QM system (which is identified in Customizing as a certified system) in the Vendor Master record or the quality info record • In the quality info record, you can override an inspection skip that has been defined in Customizing. For example, if you want to force inspections for a certain combination of material, vendor, and plant, you can specify this in the corresponding quality info record.

37. Quality Certificate for Goods Receipt • When you procure goods from a vendor, you can request that the vendor submit a quality certificate with the shipment of goods (in addition to meeting the requirements specified in the technical delivery terms and quality assurance agreement). If you request a quality certificate: • You can monitor the receipt of the certificate independently of the Goods Receipt posting … • Regardless of whether an inspection lot is created or not. The certificate can be filed in the optical archive. If a certificate is yet to be delivered, a reminder can be created automatically.

38. Quality Certificate for Goods Receipt (cont.)

39. Electronic Certificate Receipt of a Quality Certificate for Delivery

40. What We’ll Cover … Why use SAP Quality Management (QM)? Setting up QM in Purchasing Master data needed Inspection at the vendor’s site Inspection at Goods Receipt Integrating inspection results with Vendor Evaluation The use of Audit Management What’s new in SAP ERP? Wrap-up

41. General The Vendor Evaluation belongs primarily to the purchasing area. Its functionality and the relevant customizing can therefore be found in the SAP purchasing component. The QM component contributes to the calculation of the criterion “Quality” The Quality criterion contains the automatically valuated subcriteria: Goods Receipt Audit Complaints

42. Goods Receipt (GR) The Goods Receipt score is calculated from the quality score (QSc) for the inspection lots, according to the following formula: QSc = (S1 + S2) / (n1 + n2), where: S1 = Sum of quality scores for the inspection lotsn1 = Number of inspection lotsn2 = Number of deliveries for materials with a quality information record, for which no inspection lots exist QScmax = highest value of Quality scores, andS2 = n2 * QScmax You can break down the GR score for the vendor according to the material and the inspection type

43. Audit The audit score is either the average quality score for the audits or is made up of the quality scores for the most recent audits You can also enter an audit score manually

44. Complaints The complaints score is calculated from the number of complaints against the vendor, according to the following formula: QSc = QScmin + (QScmax - QScmin) * (1 - (N * K) / (F * U))QSc = QScmin if  (N * K) > (F * U) where: QScmin  =  Lower limit for QScQScmax  =  Upper limit for QScN       =  Number of Q-notifications in the applicability periodK       =  Estimated nonconformity costsF       = Share of business volume for QSc calculationU       =  Sales of the vendor in the applicability period

45. What We’ll Cover … Why use SAP Quality Management (QM)? Setting up QM in Purchasing Master data needed Inspection at the vendor’s site Inspection at Goods Receipt Integrating inspection results with Vendor Evaluation The use of Audit Management What’s new in SAP ERP? Wrap-up

46. Audit Usage You can use Audit Management for a variety of purposes — to perform quality audits or environmental audits, for example. In general terms, you can apply Audit Management to any usage involving the valuation and appraisal of material or intangible items on the basis of a question list.

47. Audit Type You specify an audit usage (for example, quality audit) and an audit category (for example, system audit, process audit, or product audit) to provide a closer definition of the audit type. Note: The audit usages are defined in a Customizing table. The audit categories are predefined in the system.These specifications only serve to differentiate between audit types. They have no controlling effect.

48. New Functionality in SAP ERP Creation of corrective actions: You can use a BAdI to create a business object, such as a quality notification, for a corrective action Better integration Document Management System (DMS), e.g., viewing Document Information Record (DIR) data as thumbnails in the Audit document Better integration of DMS with Knowledge Management (KM) in SAP NetWeaver® Portal

49. What We’ll Cover … Why use SAP Quality Management (QM)? Setting up QM in Purchasing Master data needed Inspection at the vendor’s site Inspection at Goods Receipt Integrating inspection results with Vendor Evaluation The use of Audit Management What’s new in SAP ERP? Wrap-up

50. Sample Management (Enhanced) As of SAP ECC 5.0 the following fields were added to the master record of physical samples: Sampling Location Sampling Location Information Processor Date of Sample Drawing Time of Sample Drawing You can select according to these and other fields using the worklists for results recording transactions QE52 and QE51N. You can also select according to the sample status.