• Dheeraj Chawla

What is ERP (Part two)

Updated: Jan 22

If you haven’t already read the first part, it is recommended that you do so <here>



As soon as the sales employee sells the 4 Washing Machines, the procurement employee gets an alert from SAP Business One saying that there is only 1 Washing Machine in stock, below the minimum inventory amount of 2.


Seeing this, the procurement employee decides to place a Purchase Order of 3 Washing Machines from an International Vendor, and since he is also getting a good price for Tablets, decides to add 5 Tablets to the same Purchase Order.


Referring back to SAP Business One’s inventory calculation method (Available Quantity = In Stock – Committed + Ordered), for the Washing Machines, the ‘In Stock’ Quantity shows 1, the ‘Ordered’ Quantity shows 3 and the ‘Available’ Quantity shows 4.


This international vendor, however, wants to be paid before the Washing Machines and the Tablets arrive. The procurement employee, then creates an A/P Reserve Invoice, which allows for the creation of an outgoing payment but maintains the quantity of the stocks.


When, the goods arrive, a Goods Receipt PO is created and records the delivery of the items. The inventory for the Washing Machines now show 4 in stock, 0 ordered and 4 available.


However, when the procurement employee receives the goods, an A/P invoice is also handed to him regarding Freight Costs, which are based on the weights of the items. The procurement employee then simply creates a Landed Costs document and copies in the Goods Receipt PO. He enters the Landed Costs in the ‘Costs’ Section of the document and selects ‘Distribute by Weight’, and SAP Business One allocates the costs based on weight for the 3 Washing Machines and 5 Tablets for an accurate average cost price for the separate items. Lastly, the procurement employee creates an AP Invoice and copies in the Landed Costs and sends out an outgoing payment to the freight forwarder. Additionally, automatic journal entries and postings in the relevant G/L Accounts occur for each transaction.


You might be wondering, how does SAP Business One already know the information of the items, vendors, customers, and employees. This is because before going live with the system, everything is already configured, in the form of - Item Master Data (Item Information: Inventory Accounting, Warehouses, Units of Measure, Item Groups, Item Properties, Price Lists), Business Partner Master Data (Customer, Vendor, Lead Information: Contact Persons, Addresses, Payment Terms, Price Lists, Accounting Data), and Employee Master Data (Employee Information: Contact Information, Address, Salary, Company Roles and other Personal Details). It is possible to add more to the Master Data after Going Live. The Master Data allows for users to just click the item, vendor, customer or employee, and all required information is automatically populated in their respective fields.


All this, done in an integrated, powerful system – SAP Business One.

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