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An Analysis of Simplified Sourcing on SAP S/4HANA

by Caetano Almeida, Support Architect, SAP

August 29, 2016

Learn the differences between the material requirements planning (MRP) source of supply determination in SAP ERP and the simplified sourcing logic introduced in SAP S/4HANA.

One of the key aspects behind the SAP S/4HANA design is the simplification. This concept is present in S/4HANA, from simplified data models to the removal of outdated functionalities.

The simplification concept was also applied in the material requirements planning (MRP) source of determination, and this scenario was completely redesigned in S/4HANA. This new source determination in S/4HANA is called simplified sourcing. I analyze the differences between the source determination in the SAP ERP and the simplified sourcing in S/4HANA. I also explain how to implement the simplified sourcing for both external and internal procurement. 

Source Determination in SAP ERP

Before getting into the actual simplified sourcing in S/4HANA, you first need to understand how the source determination happens in SAP ERP.

The logic behind the source of determination during the material requirements planning (MRP) run is basically the same in SAP ERP since the R/3 release 4.6. The simplest way to set up the source determination in SAP ERP for external requirements consists of two steps:

  1. Create an Info Record for a specific material and vendor combination
  2. Create a source list for a material, specifying which source of supply should be used by MRP 

To create the source list, execute transaction code ME01. This action displays the screen in Figure 1. In Figure 1, a specific field called Source List Usage in Materials Planning (MRP) (the field highlighted in Figure 1) is used to determine that a specific source of supply should be used by MRP. When the value of this field is set to 1 - Record relevant to MRP, this source of supply is considered valid by MRP.

(Note: In Figure 1, the short text of the highlighted field is MRP, but the long text is Source List Usage in Materials Planning.)

Figure 1
Source list with a source of supply valid for MRP

In addition, the source list is only considered within this validity period. Therefore, if there is a requirement before the source list validity, MRP does not consider it when generating a new replenishment proposal to cover this requirement.

If the source determination should consider a contract or scheduling agreement, then there must be a reference to the agreement on the source list, as you can see in Figure 2. In addition, the schedule lines should be generated automatically. The MRP (Source List Usage in Materials Planning) field should contain the value 2 - Record relevant to MRP. Sched. lines generated automatically.

Figure 2
Source list with reference to a scheduling agreement

This logic is used if you want to generate replenishment proposals with reference to a contract. That means you must create a source list with a reference to the contract, just as the source list from Figure 2 was created with reference to a scheduling agreement. The difference here is that MRP can only create purchase requisitions with reference to a contract, whereas delivery schedules can be created if the source list points to a scheduling agreement. 

When there are several sources of supply, you can create a quota arrangement after executing transaction code MEQ1 to split a percentage of the replenishment proposals for each source, as seen in Figure 3.

Figure 3
Quota arrangement with a percentage for each vendor

The prerequisite to have the quota arrangement during the MRP run is that the field Quota arrangement usage must be set to a value that allows the usage in MRP, such as the quota arrangement 4, highlighted in Figure 4. The Quota arr. Usage (quota arrangement usage) field can be found in the Purchasing and MRP 2 tabs of the material master.

Figure 4
Quota arrangement usage in the material

What Is New in Simplified Sourcing?

The first and main difference when you compare the source determination from SAP ERP with S/4HANA simplified sourcing is that the source list is not relevant to MRP anymore. The creation of the source list is an additional step that does not bring any additional benefit from a business perspective.

Therefore, the MRP source determination on S/4HANA no longer considers the source list. It means less effort for the creation and maintenance of master data and less effort on master data loading during an S/4HANA implementation project.

Because there is no longer a source list, the following sequence of steps is executed during the source determination for external procurement in S/4HANA:

  1. If a quota arrangement is found, MRP creates replenishment proposals according to the percentages defined on the quota arrangement.
  2. If a valid scheduling agreement is found, delivery schedules are created for the vendor assigned to the agreement.
  3. If a valid contract is found, purchase requisitions are created with reference to this contract.
  4. If a valid Info Record is found, purchase requisitions are created for the respective vendor.

Consider here that when you are running MRP Live (transaction code MD01N), you don’t need to inform the system whether MRP should generate planned orders, purchase requisitions, or delivery schedules. MRP decides automatically which kind of replenishment proposal is generated, depending on the source of supply selected during the source determination.

How to Select a Source of Supply in S/4HANA Without the Source List

The simplest way to activate the source determination on MRP is by using an Info Record. To define that a source of supply is relevant for MRP, a new field called Auto. Srcg (automatic sourcing) was included on the Info Record, as you can see in Figure 5. When creating a new Info Record after executing transaction code ME11, you can find this field, and when this flag is checked, the source of supply is considered by MRP.

Figure 5
The Auto.Srcg check box in the Info Record

In SAP ERP, complex logic is used to check the source list validity, and MRP checks if the source list is valid on the requirement date. This is very often misleading, because the replenishment proposal can be created on a date different from the requirement date (for example, if it would start in the past).

The validity check in S/4HANA is also much simpler with the source determination using an Info Record. When a new Info Record is created, there is no start validity date and it is valid until 31.12.9999. It means that there should be no problems related to the Info Record’s validity check.

One additional feature is that the Info Record provides fields in which you can define a maximum and a minimum quantity and those limits are now considered during source determination. For example, if a maximum quantity of 100 EA was defined on the Info Record, this vendor will not be selected by MRP to create purchase requisitions with more than 100 EA.

Simplified Sourcing with Quota Arrangements

On the older ERP releases, using a quota arrangement could become a performance bottleneck during the MRP run. Therefore, the field Quota Arrangement Usage(shown in Figure 4)was introduced on the material master to let you choose which specific materials would consider a quota arrangement during the MRP run and for which materials the quota arrangement would not be relevant.

With MRP Live, the usage of a quota arrangement should no longer cause any kind of performance problems and this setting from the material master is no longer checked by MRP. It means that if a quota arrangement exists for a material, it will be considered by MRP.

In SAP ERP, the source list is used to select which specific vendor will be considered by MRP when there are several vendors for the same material or when a source of supply should be prioritized over a period. As you have seen in the previous section, this is no longer possible with the source determination using Info Records.

In this case, the quota arrangement can be used to replace the source list functionality and prioritize a certain source of supply over a specific period. As you can see in Figure 6, the quota arrangement has been used to allocate 100 percent of the quota to the supplier PLANT_0001 between 20.07.2016 and 31.12.2016.

Figure 6
Source list used to prioritize a source of supply

Simplified Sourcing with a Scheduling Agreement or Contract

Both the contract and the scheduling agreement are created using transaction code ME31 and changed using transaction code ME32 (Figure 7). The basic difference between them is the document type. Scheduling agreements are created with document type LP (or a similar document type created in customizing), whereas contracts are created with document types MK or WK (or a similar one created in customizing).

Figure 7
Scheduling agreement

As you have seen in Figure 2, to allow the creation of scheduling agreements or purchase requisitions with reference to a contract in SAP ERP, you must have a reference to the agreement or contract in the source list. 

In S/4HANA simplified sourcing, it is only necessary to create the contract or the scheduling agreement in order to have it considered by MRP. It is not even necessary to set the Auto.Srcg flag (Figure 5) checked on the Info Record in order to have these sources of supply selected.

The main concern regarding the source determination with scheduling agreements or contracts is to ensure that they are within the validity date so that they can be selected by MRP. Figure 8 shows the scheduling agreement validity.

Figure 8
Scheduling agreement validity

Simplified Sourcing for Internal Procurement

When I talk about simplified sourcing for internal procurement, I am basically talking about the selection of the bill of material (BOM) for the planned orders created by MRP.

In SAP ERP, the BOM selection can be controlled by the field BOM Selection Method, which is available on the Material Master tab MRP 4. This field offers four different options for the BOM selection for planned orders (Figure 9):

  • Selection by order quantity
  • Selection by explosion date
  • Selection by production version
  • Selection only by production version

Figure 9
BOM selection method in the material master

In S/4HANA, this field is no longer available for selection in the material master, since this setting is no longer considered by MRP. The BOM will be selected by MRP in S/4HANA only if there is a valid production version for the material, which means the creation of a production version is now mandatory for the BOM selection. The system behavior is similar to the BOM selection method 3 – Selection only by production version 

Since the creation of production versions is now mandatory in S/4HANA and there was no mass processing tool for the creation of production versions in SAP ERP, a new report called CS_BOM_PRODVER_MIGRATION is available in S/4HANA. This report can be executed using transaction code SE38. It proposes the creation of a production version for each valid material BOM, as shown in Figure 10.

Figure 10
Report CS_BOM_PRODVER_MIGRATION can be used to create production versions

Since MRP always reads the production versions to determine a valid BOM, a new option for locking is available in the production version. While in SAP ERP you can only define that the production version is locked for any usage, in S/4HANA you can also define that it is only locked for automatic sourcing, as you can see in Figure 11 after you execute transaction code C223. With this locking option you can avoid the production version to be selected by MRP, but it can still be used to create a production order or even for costing.

Figure 11
Locking options for the production versions

Which Actual Benefits Do You Have with Simplified Sourcing?

From the point of view of external procurement, since the source list is no longer relevant to MRP, the main benefit is that you have one less master data to create and maintain. You do not actually lose any functionality because the quota arrangement can perfectly replace the source list functionality.

As the source determination with Info Records has a simpler logic, I also expect to see fewer problems with a source of supply not being considered by MRP because it was outside the validity date.

On one hand, the creation of a source list is no longer mandatory, meaning one less step during source determination. On the other hand, now the creation of a production version is mandatory for internal procurement, meaning an additional step in source determination. It could be an extra effort during an S/4HANA implementation project, but the fact that a report was provided to create such production versions avoids any delays with the production version creation.

For those who are familiar with SAP Advanced Planning and Optimization (SAP APO), it is clear that the simplified sourcing in S/4HANA is very close to the SAP APO source determination. The production version was always used by SAP APO for internal procurement, and the Info Record, contract, and schedule lines were used for external procurement.

As SAP stated on the Simplification List for SAP S/4HANA, on-premise edition 1511, “A unified source of supply model is the basis for future innovations in sourcing,” so I expect S/4HANA to incorporate more and more of the SAP APO functionalities in the future, such as production planning and detailed scheduling (PP/DS).

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Caetano Almeida

Caetano Almeida ( is a computer engineer with an MBA in IT management. He has more than nine years of experience in production planning.


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