SAP S/4HANA : Simplified Sourcing Approach

Background of ERP sourcing

In the ERP system, the sources are referred in the planning procedure to generate procurement proposals. Sources provides the material or service to achieve KPIs of the business. In this blog, we are going to discuss the material sources in the SAP ECC system and its simplification achieved in SAP S/4HANA.

The main source for the external material procurement is the vendor and for in-house procurement, it is own production shop. These sources are identified in the MRP run to finalize procurement proposals. In SAP, this mechanism is called Source Determination. Source determination is based on the master data definition. Following is the list of master data elements in the SAP which are used to finalize the procurement proposals.

Master Data in SAP Sourcing process

Master Data	Used in	ECC	SAP S/4HANA
Bill Of Material	In-house production	Mandatory	Mandatory
Routing	In-house production	Mandatory	Mandatory
Production Version	In-house production	Optional	Mandatory
Source List	External Procurement	Mandatory	Optional
Purchasing Info-Record	External Procurement	Mandatory	Mandatory

Concept of Source Determination in ECC

Before the introduction of SAP S/4HANA, due to the technical limitations of ECC, the source determination was based on the multiple user parameters. The user parameter values of Quota arrangement, BOM selection, Routing selection takes part in the planning run to help the correct source determination. In SAP S/4HANA, the process got simplified due to in-memory computing. The ECC source determination can be depicted as below,

Just looking at the procedure you can predict the longer runtime of the planning process in ECC. On the other side, the process is simplified in SAP S/4HANA to achieve better planning performance.

Simplification of Source Determination in S/4 HANA

The following changes are incorporated in SAP S/4HANA to achieve process simplification. (For reading refer SAP Note 2268069)

Functionality	Changes in SAP S/4HANA	Business Impact
MRP Indicator on MRP run transactions screen	The creation indicator functionality is discontinued in SAP S/4HANA. This makes a clear separation of the Production planner job and Buyer job.	The system creates the Planned order where procurement type = ‘E’ or ‘X’ and purchase requisition in case of procurement type = ‘F’
Field Quota Arrangement Usage (MARC- USEQU) in MRP 2 View is continued	The quota is always part of the planning run	Quota Management switching is not required.
Purchasing Info-record with sourcing information.	The role of the source list is reduced in SAP S/4HANA. The info record with Indicator “relevant for automatic sourcing” will be considered for source determination.	The Info-record is considered as a single element to determine the source.
Source List is no longer used for the preferred source determination in the planning run	The source list is not used for the determination of vendor	The source list use is limited to temporary block/enable the vendor for procurement.
The Selection Method ( MARC-ALTSL) in MRP 4 is discontinued	The production version is a single source of supply for the in-house production	User is required to create the number of production version as per Bill of Material variations
The order type attribute Routing Selection (T399X-ARBPA) in the OPL8 is discontinued.	The production version is a single source of supply for the in-house production	User is required to create the number of production version as per routings variations
Phantom assembly	The production version with BOM details is required for the phantom BOM Explosion.	The production version is required for Phantom Assembly which will be without routing
Subcontracting BOM	The production version is mandatory for the Subcontracting BOM explosion.	same like phantom assembly, the production version will be required for the subcontracted material

Conclusion –

The concept of sources is unified – Sources (i.e. Production Version or Info Record) can have time validity, Quantity Validity, and deletion indicator. Even users can lock the source for automatic sourcing.
Info record will be the single master data for the determination of external sources.
Quota Management is part of planning – By maintaining quota, users can prioritize the source of supply or share requirements within the sources of supply.
Production version is the single master data for the determination of in-house sources
The sourcing structure of PPDS and ERP become analogous with the production version
Future development in S/4 HANA will be based on this sourcing model.

Regards,

Chandrashekhar

Additional Details are available in the following documents,

2614920 – Sourcing priority during MRP in S/4 HANA system

2523417 – “Scheduling according to purchasing info record or agreement” indicator is simplified in S/4 HANA system

2420547 – Source Determination and Usage of MPN – Differences on S/4HANA

2592317 – How is scheduling agreement’s validity date be considered during MRP

2637452 – Purchasing info record is not considered by MRP in S/4 HANA system

2268069 – S4TWL – Simplified Sourcing

2339947 – How source of supply and quota works for MRP areas in S/4HANA

6 Comments

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Vignesh Bhatt

December 9, 2019 at 11:07 am

Chandrasekhar,

This is indeed a well documented blog and those flow chart brings in more clarity. Thanks for writing this blog especially on this topic which has always been quite confusing to understand.

Regards,

Vignesh Bhatt