SAP Purchase order

A PO specifies the vendor, materials/services, quantities, prices, delivery dates, and the plant/storage location or account assignment. It is a legal commitment to purchase and the reference against which goods receipt and invoice verification are matched.

• PO types (standard, subcontracting, consignment, service).
• Pricing conditions: net price, discounts, taxes, freight.
• Account assignment: stock vs consumption.
• Release strategy: approval before it is issued.

One more distinction worth knowing early: a purchase order is not the only purchasing document. A contract is a longer-term agreement with a target value or quantity, released against by orders. A scheduling agreement goes further and carries delivery schedules directly, so no individual order is raised at all. Businesses buying the same thing repeatedly should be on one of the two, and where they are not, every order is a fresh negotiation.

A purchase order has three levels and knowing which level a field lives on explains most of its behaviour.

The header carries what applies to the whole order: the vendor, the purchasing organisation and group, the currency, the payment terms, and header conditions such as an order-level discount.

The item is where the real decisions are. Material, quantity, plant, storage location, net price, and two fields that change what the order means. The account assignment category decides whether this goes into stock or straight to a cost object. The item category decides the procurement type: standard, subcontracting, consignment, third party, stock transport.

The schedule line holds delivery dates and quantities, and one item can have several, which is how a single line covers a phased delivery.

The tabs below the item are where the detail lives: conditions for pricing, account assignment for the cost object, delivery for tolerances and confirmations, invoice for the verification settings, and purchase order history once anything has been posted against it.

Twenty minutes, and it demonstrates the single most consequential field on the document.

1. Create a purchase order with ME21N for a stock material, account assignment blank. Receive it with MIGO. Stock rises; the accounting document debits inventory.
2. Create a second order for the same material with account assignment category K and a cost centre. Receive it.
3. Compare the two accounting documents. The second never touched inventory. It went straight to the cost centre's expense account, because the goods were bought to be consumed rather than stocked.
4. Check MMBE. Only the first receipt changed stock.

One field, two entirely different accounting outcomes, and the person raising the order chooses it. That is why account assignment is where procurement training concentrates and where finance queries originate. See goods receipt for the posting side.

The PO is the anchor of the three-way match: goods receipt is posted against it (updating stock and GR/IR), and invoice verification matches the vendor invoice to the PO and receipt before payment. Correct PO data (price, quantity, account assignment) is what makes the downstream postings correct.

The order is also the control document. Its price is what the invoice is matched against, its quantity is what the receipt is checked against, and its tolerances decide what passes without intervention. An order raised carelessly weakens every check downstream, which is the argument for release strategies and for maintaining info records rather than typing prices. See purchase requisitions for the step before.

• Stock or consumption. The account assignment category, and it should follow how the item is genuinely used rather than which is quicker to enter.
• Which document type. Standard order, contract release, framework order. The type controls number ranges, field selection and which item categories are allowed.
• Confirmation control. Whether the vendor is expected to acknowledge and give a shipping notification, which improves planning and requires the vendor to cooperate.
• Tolerances. Over-delivery, under-delivery and price variance, set per item or inherited from the material and vendor.

Approval on a purchase order is called a release strategy, and the mechanism is worth understanding because it is configured rather than coded.

A characteristic is a field the strategy looks at: order value, purchasing group, plant, material group. A class groups the characteristics. A release strategy is a combination of values on those characteristics, with a sequence of release codes, each code being a person or a role.

So a strategy might say: orders over fifty thousand in this purchasing organisation need release by the buyer, then the department head, then finance. Below that value, one release. Below another, none at all.

ME29N releases a single document and ME28 works a list. Until every required code has released, the order cannot be printed or received against, which is what makes the control real rather than advisory.

Changing a released order can reset the releases, depending on configuration, and that setting is the difference between a control and a formality. If a released order can have its value doubled without re-release, the approval meant nothing.

The design question is where the strategy sits. On requisitions it catches spend before commitment, which is usually right. On orders it catches it before it reaches the vendor.

Buying a thing and buying work are different, and the service purchase order is where people meet the difference.

A service line does not carry a quantity of material. It carries a service specification: a set of service lines, each with a description, a quantity in a unit such as hours or square metres, and a price. The order line holds a value limit rather than a quantity of goods.

Receipt works differently too. Instead of a goods receipt there is a service entry sheet, recording what was actually performed, which is then accepted. Acceptance is what creates the equivalent of the receipt, and it is usually the point where somebody who saw the work confirms it happened.

The three-way match then compares order, entry sheet and invoice, exactly as it does for goods.

The practical difficulty is that services are less verifiable than deliveries. Nobody counts hours into a warehouse, so acceptance depends on a person's judgement, and that is where the control is weakest and where unplanned services quietly exceed their limits.

• Wrong account assignment (stock vs consumption).
• PO price/quantity errors breaking the match.
• Unreleased POs stuck awaiting approval.

• Changing the price after a receipt has posted. The receipt was valued at the old price, and the difference has to go somewhere.
• Closing a line with the delivery completed indicator when more is genuinely coming. It removes the commitment and the expectation.
• Creating orders without requisitions in a business that has release strategies on requisitions only. See how to create a PO for the mechanics and inventory for what happens to the goods.

• Service orders without a value limit. Unplanned services then accumulate against the order with nothing capping them.
• Release strategies that do not reset on change. An approved order whose value can be doubled afterwards was not really approved.

Raising an order is straightforward, and configuring document types, account assignment and tolerances so orders control what they should is the part you do in the course.

The single field to check first on any purchase order question is the account assignment category, because it decides whether the goods became inventory or an immediate expense, and that answers most of what finance will ask.