FI-MM Integration

So our next topic is integration. 

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Here, now what is meant by integration? Here integration, if you remember the integration between FI and SD, we have seen. The integration between FI and SD means any invoice that any data that has been generated in sales and distribution module, is going to be flowing into the financial accounting. Means, say for example, sales. 

See, in case of integration between FI and SD.

See, up to here, this is the sales job. Means sales job in the sense, sales invoice, discounts, taxes, everything, this is the invoice. The invoice they generate, but the thing is these components will be posted to financial accounting. These are the components that will flow into the financial accounting, and this will be done by SD Consultants. 

So SD module, the sales components, the sales amount, discount amount, taxes. So under transportation charges, all those things will be this invoice is going to be configured and generated in the sales and distribution module, and this will be posted to financial accounting. Here, as an FI consultant, we need to assign the GL account, our job is to assign the GL account. Anyhow this we’ll see later. So in the same way, even in case of materials management, we are going to integrate materials management module with financial accounting. The reason being, see till now what we are doing is, whatever the sales data or purchase data, we are posting manually. So here because the thing is we have not configured materials management module because, that requires again a lot of strain for us. Again, from the beginning we have to configure the SAP system for materials management, and that is again a huge task. There are so many steps there, just take our company code, posting of GL accounts, all those things. One by one how we have done, similarly we have to configure materials management module also. So that’s why what we do is what are the standard implementation that has been done in materials management module in SAP, that I’ll show you. But of course how we do the integration part, I’ll show you how we have to do it. What are the concept, why should we have to integrate, how integration has to be done. The configuration and understanding of the integration between the MM module and FI is bit complicated and when compared to SD. And SD is of course very simple. 

 

Now first, let us come to the accounting entries. If you remember, we have posted the accounting entry when raw material is received. Inventory of raw material account return to vendor account. When payment is made by vendor, vendor account return to bank. This is the accounting entry. But in real scenario, this first entry will be split into 2 entries. Inventory of raw material account return to vendor account, this is split into 2 like this. 

One is when raw material is received, Inventory of raw material account return to GR/IR clearing account. Then subsequently, when invoice is verified, GR/IR clearing account is debited and vendor account is credited. But ultimately, Inventory of raw material account return to vendor account. Ultimately effect is same. That’s why we started posting the accounting entry in financial accounting directly. But my doubt is why should I bring GR/IR clearing account at all? What is this raw material received, that is material received and invoice received and invoice verified. Right, verification of invoice, etc. If you remember I told you, material is received from the supplier at the plant. In plant, they are going to raise some document like goods received note. That goods receivable note will be sent to the finance people, there they will book the liability, etc. So here in SAP, this receipt of material is taken in a T code called MIGO. So MIGO is nothing but it is a transaction code wherein MM consultants will use to receive the material. So the fields, whatever they fill against the purchase order, we procure the raw material of course, there’s a T code called MIGO. And in that transaction code, we are going to enter the quantity received, everything. Once you enter the quantity received, everything and you save it, then system will pass this accounting entry. System will post this entry, that is inventory of raw material account return to GR/IR clearing account. Then what is this GR/IR clearing account? See here, when we receive the material in the plant, as soon as we receive the material, we don’t receive commercial invoice immediately, commercial invoice is received subsequently. But anyhow, as soon as material is received, that will be first material goods receipt, invoice receipt we call it, right GR/IR means. So when goods is received, they will enter into their transaction code called MIGO, then system will pass this accounting entry, and vendor account is not credited immediately, because once the material is received, entered into the system and that has to be verified by one more person for the sake of control. And at the same time, invoice also will be received subsequently. We may not receive the commercial invoice immediately. So that’s why as soon as goods are received, goods received entry has to be passed. As soon as material is received, inventory of raw material return, and we cannot credit the vendor immediately. Because unless invoice has been verified, we cannot give credit to the vendor. But as soon as material is received in the plant, it has to be consumed in the production. So for that purpose, GR/IR account is nothing but one intermediary account. To this account, we are going to credit, and subsequently, when invoice is verified, there is a T code called MIRO, and this will be executed. Means invoice is verified and whatever the material that has been received with the help of purchase order, everything is verified. Once they verify, then as soon as you save, system will pass this accounting entry. GR/IR account is debited, so now GR/IR account will get verified and vendor account will get credit. So this is one accounting entry. Like this, we’ll be posting several entries. That is for receipt of raw material, uploading of opening balances of raw material, issue of raw material to the production, scrapping of the raw material, issuing the raw material for sample, issue of raw material for scrapping the material, different purposes of issues will be there. Each issue has to be identified separately.

In order to understand integration, we have to understand first what is being done in materials management module. First of all, what is a material and how it has to be created. So we have to create for each and every material whatever we have, what are the material that you use in the plant or wherever it may be, we need to create one master record. There’s a T code called MM01, there, it is the responsibility of the MM consultant to create this material. Of course, once the project is done with, we are going to hand over the project to the users, and users are going to take up, and one of the users will be given responsibility for creation of material master record. A material master record contains so many fields. See in case of our customer master, vendor master, we have so many fields, but that is just nothing. Here, you’ll have almost 30 views, 30 tabs, I can say. 30 views mean 30 tabs. Again, in each view, we have so many fields. Altogether, if I’m not wrong, more than, I think 11, 25 or so fields are there in every material master. Of course, it doesn’t mean that all the fields you have to fill up. And the twp material master record is not only the property of the MM consultant, but also every consultant like FI, CO, SD, production planning, quality, sales and distribution, every consultant will have a role in creating the material master record. What is so special in that? Because material is nothing but, that’s the basic part, and the data origin will come from that material master record.

Let me show you the material master.

Create- MM01, Change- MM02 and Display- MM03.

Here, P-100. These are all views. You see basic data, sales data, purchasing data, MRP, that is material requirement planning, and accounting, costing, like that for different views will be there. See, these are all views of material.

Basic data view, basic data 2, classification, sales, whatever the views you have selected, those things will be highlighted. All these are all the information that is available in material master record. We’ll come back to this again. 

So here, before we go to integration, we need to understand certain terminology. First of all, all materials in SAP have a material master. This material master has various views right from basic views, purchasing view, production, sales and distribution, accounting, controlling views, etc. In the accounting view of the material master, amongst other values we have a valuation class field, that is nothing but in accounting view  this is called valuation class.

What is the importance of this, the valuation class? This valuation class is a vital link which ensures that accounting documents are posted automatically. And every material will have a valuation class field. Every material means whether it’s a raw material or finished goods or semi finished goods or trading goods, whatever it may be. And this valuation class is the vital link between material master record and the financial accounting. And one more thing if you remember, several times I told you that whenever there is an automatic posting, there will be one transaction key. For example, if you take discount on the sales rebate, etc. Next for bills of exchange and for posting bank charges. At several places, if you remember, we have used the transaction codes, rather we can say transaction key or account key. In financial accounting generally we call it as account key, in other module they call it as transaction key. Whatever it may be, both are same. That we’ll get back to again on that. You can go to the transaction code MM03, put any material number and click on accounting 1 view. Just I wanted to show you these things.

Then examples of valuation class field are fixed goods, semi fixed goods, raw materials etcetera. See here we call it as material type. So material type maybe raw material, finished goods, semi finished goods, packaging material, trading goods like that. And here material type is defined in SAP like ROH. Raw material is called ROH, the abbreviation generally we use. Finished goods, FERT, Semi finished HALB, HAVA trading goods. These are all nothing but of course, the code given to that type of material. Because how system understands whether it is a raw material or a finished goods or a subassembly part or a tool or a trading good, how system will identify, there should be some code for the system to understand. This is the code. And, apart from that, the valuation class. 

So here, valuation class will differ if it’s a raw material and if it’s a finished goods, if it’s a semi finished goods, like that depending upon the type of material, valuation class will differ. Why? Because system has to identify and post if different valuation classes will be posted to different GL accounts. If it’s a raw material I’ll post to one account, if it’s a finished good I’ll post another account, semi finished good another account. Like that, depending upon the valuation class, you can assign GL account subsequently. That is called we have to establish an integration link between materials management and the financial accounting. It is a bit complicated to understand exactly the the link, but anyhow, we’ll try that one.

So are these predefined numbers. Everything is predefined. See here. 700920, 32 codes. 700925 32 products made to order.

So many validation classes are there here. 3000 raw material. 3001, another type of raw material. Like this different types of raw material. 3030 operating supplies. So operating supplies means say grease, cotton waste. For operating the supplies, we can say 3030, 3040 spare parts. So like this, SAP standard has given all these things. 3050 returnable packaging material, 3100 trading goods. Like that, different things are given. 7900 is semi finished goods and 7910 finished goods external, 7920 finished products. So there is the valuation class. This we’ll see anyhow in the latter section of the topic we’ll discuss. So here, this is what I want to tell you. So each and every valuation class, whatever we are going to define, this is going to be linked to the GL account. So that system will post the respective GL account. OBYC is the integration T code, there we have to do it. Anyway, before we go there, let me tell you one more thing. We have another terminology called movement type. So here I have told you about valuation class. So valuation class could be finished goods, semi finished goods, raw materials, etc. The combination of this valuation class plus movement type helps in determining the GL accounts.

What is movement type? See the moment type may be, say raw material is issued. When you receive raw material, say for example, for say raw material may be received for different purposes, received from vendor, received as uploaded as opening balance. Here, receiving the material means physically we receive the material from vendor. But after receiving it, you are going to enter into the system. When you are entering the system, system should understand whether it is a direct purchase from the vendor or we are just what are the working balances that are there we are uploading into the system. See, in both the cases, we have to update the values in the system. Say, when we are going for SAP implementation, say from 1st January project is going live. So when project is going live, I need to understand at different warehouses, what are the stocks that are available. Maybe if we say plant, we have in the plant, we have raw materials. For each and every raw material, whatever you have, that has to be uploaded into the system. 500 units of material a, 500 units of material b, 1,000 units of material c, all those things, whatever the opening balances that we have in the beginning, that has to be entered into the system. That is opening balance. Then subsequently, what are the material that you receive from the vendor, that will be added to that. Now whether it is a receipt from outside or opening balances upload, here the ultimate change is that material is going to be increased, isn’t it? Now how system should identify whether it is a material received by opening balance, this is material received from vendor. How system knows that? How to identify? So for that purpose, SAP has given different movement types. So the combination of valuation class plus movement type helps in determining the GL account. So both put together will be tracking the GL account or triggering the respective GL account. Here the movement types are, goods receipt is identified with movement type 101, goods delivered to the customer, goods issued to the production order, scrapping, initial upload of stocks. Number 1, goods receipt 101. Initial upload of stocks is defined with 561. So different numbers are given for different type of movement types. This is just like I can give you an example. How do you identify when payment is received from customer? When payment is received from customer, in that context, if customer is paid an advance to me, how you are going to identify that? When you are receiving advance from customer, how system identifies because whether you receive the amount before the sale or after the sale, we use special GL indicator. What is that special GL indicator? Because that identifies whether it is advance or not an advance. If it’s an advanced, we use A, that is a special indicator. System understands, okay we are receiving advance, so that’s why accordingly it will trigger the respective account. Similarly, even the movement types are also same. How system should know, okay even in case of issue of material, when you are issuing raw material, raw material is being issued for production, raw material is being issued for sample quantity, raw material is issued for scrapping. How system should do? So goods issue to production, goods are issued for scrapping, goods are delivered to the customer. So for each thing system identifies one movement type. So the combination of the valuation class with movement type together will identify the GL account.