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Published by : BELMACHIA Alaaeddine
Publication date : 05 February 2025
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When a client tells you their procurement team is spending too much time chasing vendors or that purchase orders are going to the wrong supplier too often, you know exactly where to look. RFQ and source determination sit right at the heart of how SAP MM turns requirements into smart buying decisions. RFQ gives you a structured way to ask multiple vendors for their best offer on price, delivery, and conditions. Source determination then takes those results—or the agreements you already have in place—and makes sure the system suggests or assigns the right vendor automatically. In projects, these two pieces work together so seamlessly that buyers can focus on strategy instead of manual lookups. You see them configured during blueprint, tested in integration cycles, and refined once the system goes live. The payoff is faster cycle times, better prices, and fewer surprises at month-end when the invoices arrive.The processes follow the same logic you use every day in purchasing—create a requirement, find a source, place the order—but they add layers of competition and automation that standard purchase orders simply cannot match. In a typical engagement you start with workshops to map current sourcing pain points, then build the master data that feeds both RFQ and source determination. Once the data is clean, the system does the heavy lifting: it pulls quotations into comparisons, applies quota rules, checks source lists, and even creates purchase orders directly from the winning bid. The result is procurement that scales with the business instead of slowing it down. In this article we walk through the full cycle in the order you usually meet it on a project: first the RFQ side because it is the most visible to buyers, then source determination because it runs quietly in the background, and finally how the two connect to deliver consistent, winning sourcing outcomes.
Why RFQ and Source Determination Matter in Real Procurement Projects
In most organizations the buying team handles hundreds of requisitions every week. Without a structured approach, decisions end up based on whoever answers the phone first or the vendor the buyer knows best. RFQ changes that by forcing a competitive process. You send the same requirement to several suppliers and ask for their best terms. The responses come back in a standard format that the system can compare side by side. Source determination builds on that foundation by making sure the chosen vendor—or the next best one—appears automatically the next time the material is needed. This combination reduces maverick buying, improves negotiation leverage, and keeps compliance high.These tools directly touch three key areas: cost, speed, and control. When you run an RFQ for a new component, you often discover price differences of 10 to 20 percent between vendors. The comparison screen in SAP shows net prices, delivery times, and even payment terms so the buyer can make an objective choice. Once the decision is made, you update the info record or source list, and source determination takes over. The next requisition for the same material automatically proposes the agreed vendor. In a manufacturing client we worked with last year, this shift cut average sourcing time from nine days to three and reduced price variance by 14 percent. The finance team noticed the difference immediately in lower material costs and cleaner variance reports.The processes also play a big role in MRP-driven procurement. When the planning run creates purchase requisitions, source determination decides whether the system can convert them automatically to purchase orders. If a valid source list or quota arrangement exists, the requisition carries the vendor and price. Without it, the buyer has to intervene. In projects where we activated source list requirement for critical materials, the number of manual interventions dropped sharply. The key is getting the master data right early—info records, source lists, quota arrangements—so the system has something reliable to work with.
Creating RFQs: From Purchase Requisition to Vendor Invitation
The RFQ process usually starts with a purchase requisition that cannot be fulfilled from stock or existing contracts. The buyer opens transaction ME41 and references the requisition or enters the material and quantity manually. You choose the document type—usually AN for standard RFQ—and enter the delivery date, plant, and purchasing organization. The system copies the material description, quantity, and any account assignment from the requisition. At this stage you decide how many vendors to invite. You can pull them from the source list, from previous info records, or simply enter them manually if you are testing a new supplier.Once the header and items are saved, the next step is to send the RFQ to the vendors. In older systems you print the form via ME9A and mail or fax it. In recent releases the Fiori app Manage RFQs lets you generate a shareable link or integrate directly with supplier portals. The important detail is the collective number. SAP groups all RFQs for the same requirement under one collective number so you can track responses together later. You also set a quotation deadline. Vendors who reply after that date still appear in the system, but the buyer sees the late submission clearly in the comparison.In a real project for a consumer goods company we created RFQs for packaging materials every quarter. The buyer referenced the MRP-generated requisitions, added three to five vendors per material, and included specific delivery terms in the header text. The vendors received the RFQ by email with a PDF attachment. Within two weeks the responses started coming in, and the system automatically created quotation documents linked to the original RFQ. The whole creation process took less than an hour per material group once the template was set up.You can also create RFQs without a requisition if you are running a market test or negotiating a new contract. In that case you enter the material master details directly. The system still treats the document as an RFQ and expects quotations to be maintained against it. This flexibility is useful when the procurement team wants to benchmark current suppliers without triggering a full requisition cycle.Maintaining Quotations: Capturing Vendor Responses Accurately
Once vendors reply, the buyer enters their offers in transaction ME47. You select the RFQ and the vendor, then maintain the net price, delivery time, and any conditions. The system copies the item details from the RFQ so the buyer only needs to update the price and validity. If the vendor offers a discount scale or freight terms, you maintain those in the condition screen. The quotation document stays linked to the original RFQ, which makes later comparison straightforward.In practice, vendors often send their quotes in different formats—email, PDF, or even Excel. The buyer reviews them and keys the relevant data into SAP. For high-volume items you might receive dozens of line items, so it pays to work item by item rather than trying to enter everything at once. Once the quotation is saved, the system updates the status and makes the data available for comparison. You can also reject a quotation partially if only some items are acceptable.A food manufacturer we supported used this step to negotiate better payment terms. Vendors quoted 2 percent discount for 30-day payment, but the buyer entered 60-day terms in the quotation and asked for confirmation. When the vendor accepted, the condition was recorded and carried forward to the purchase order. The finance team loved the visibility because the terms appeared automatically in the invoice verification process.If a vendor does not respond by the deadline, you can still enter a zero price or a note to mark it as no quote. The system treats it as a valid response for comparison purposes, so the buyer sees the full picture. In recent releases the Fiori apps for quotation maintenance make this even faster because they show the RFQ and the vendor side by side with pre-filled fields from previous quotations.Comparing Quotations: Turning Numbers into Decisions
The real power of the RFQ process shows up in transaction ME49. You enter the collective number and the system displays all quotations for the same items in a single screen. It calculates net prices including discounts, freight, and taxes so you can compare apples to apples. You can sort by price, delivery date, or total value. The system highlights the lowest price in green and the highest in red, making the decision almost visual.In the comparison you also see non-price factors. If one vendor offers faster delivery but a slightly higher price, the buyer can weigh that against production needs. The system lets you mark the winning quotation directly from the comparison screen and even create the purchase order with one click. For the losing vendors you can print rejection letters automatically via ME9A, which saves the buyer hours of manual communication.In an automotive project we ran the comparison for brake components. Three vendors quoted within 5 percent of each other, but one offered a 15-day shorter lead time. The comparison screen showed the total landed cost including freight, and the buyer chose the faster supplier. The decision was documented in the system, and the source list was updated the same day so future requisitions would propose that vendor automatically.You can also run the comparison multiple times as new quotations arrive. The system keeps the history, so you see how the ranking changes. This is especially useful in long-running negotiations where vendors improve their offers over several rounds.
Source Determination: How SAP Automatically Finds the Right Vendor
While RFQ is the competitive front end, source determination runs in the background to make sure the chosen vendor is used consistently. The system checks in a fixed order: quota arrangement first, then source list, then outline agreements, and finally info records marked for automatic sourcing. This hierarchy ensures that strategic decisions take precedence over tactical ones.When a purchase requisition is created—either manually or by MRP—the system looks for a quota arrangement. If one exists and is valid for the delivery date, it assigns the full requisition quantity to the vendor whose quota is next in line. The quota is updated automatically so the percentages stay balanced over time. If no quota arrangement is found, the system moves to the source list. Only vendors marked as relevant for MRP in the source list are considered. If the source list is required for the material, the system stops here and proposes only approved vendors.Next come outline agreements—contracts and scheduling agreements. If a valid agreement exists, the system proposes it as the source. Finally, if nothing else matches, the system checks info records that have the automatic sourcing indicator set. The info record supplies the price and delivery time, so the requisition can be converted to a purchase order without further input.In a chemical client we activated source list requirement for all raw materials. During the MRP run, requisitions for a key solvent automatically proposed the vendor we had agreed with after the last RFQ round. The buyer only had to release the requisition; the vendor and price were already filled. This cut processing time dramatically and eliminated the risk of ordering from an unapproved supplier.Connecting RFQ Results to Source Determination Master Data
The real win comes when you feed RFQ outcomes straight into the master data that drives source determination. After the comparison in ME49, you update the info record with the new price and validity dates. If the vendor won the business, you add or update the source list entry and set the MRP relevance indicator. For materials with multiple suppliers, you create or adjust the quota arrangement so the system distributes future requirements according to the agreed percentages.In practice this update happens the same day the purchase order is created from the winning quotation. The buyer opens the info record via ME12, copies the price from the quotation, and saves. Then in ME01 they maintain the source list, entering the vendor, validity period, and MRP indicator. If quotas are in use, they adjust the percentages in MEQ1. The next MRP run picks up the changes immediately.A machinery manufacturer we supported used this loop for all engineered components. Every six months they ran a fresh RFQ for critical parts. The winning vendor’s price went into the info record, the source list was updated, and the quota arrangement was recalibrated. Over two years their material cost index improved by 8 percent while delivery reliability stayed above 95 percent. The procurement team could show the audit trail from RFQ comparison to source list to purchase order, which satisfied both internal controls and external auditors.Advanced Sourcing: Quota Arrangements, Scheduling Agreements, and Regular Vendors
Once the basics are in place, you can layer on more sophisticated techniques. Quota arrangements let you split business across several vendors according to fixed percentages. You maintain them in MEQ1, entering the vendor, the quota percentage, and the validity period. The system tracks cumulative quantities and always proposes the vendor whose quota is due next. This is perfect for commodities where you want to keep multiple suppliers active for risk reasons.Scheduling agreements take the relationship one step further. You create a long-term agreement with delivery schedules instead of individual purchase orders. The vendor receives forecast quantities and firm schedules via EDI or the portal. Source determination treats the scheduling agreement as the primary source, so MRP creates schedule lines automatically. In projects we often set these up after a successful RFQ round when the client wants to lock in capacity and price for the next 12 to 24 months.The regular vendor indicator in the material master serves as a fallback. If no other source is found, the system proposes the vendor flagged as regular. This is useful for low-value items where you do not want to maintain full source lists but still need a default supplier.In a recent project for an electronics assembler we combined all three. Quota arrangements split high-volume capacitors between two Asian suppliers. Scheduling agreements covered the plastic housings with a European vendor. The regular vendor indicator handled maintenance spares. The result was a sourcing strategy that balanced cost, lead time, and supply security without requiring the buyer to intervene on every requisition.
Handling the Real-World Challenges That Come with These Processes
Even with clean master data, things can go wrong. Vendors miss quotation deadlines, prices change after the RFQ closes, or a preferred supplier suddenly cannot deliver. The system gives you tools to handle these exceptions. You can extend the quotation deadline in the RFQ header and send a reminder. If a better offer arrives late, you can still enter it and rerun the comparison. For urgent needs you can create a purchase order manually and then update the source list afterward.In one project the client faced a sudden shortage of a key resin. The RFQ process had selected Vendor A, but their plant went down. The buyer quickly created a manual purchase order for Vendor B from the source list and marked it as an exception. The system still respected the source list for future requisitions, but the emergency order went through without blocking the process. Later they adjusted the quota arrangement to give Vendor B a larger share for the next quarter.Another common issue is price validity. A vendor quotes a price that is only valid for 30 days, but the material is needed over six months. In the quotation you enter the validity period, and the system warns the buyer during comparison if the price will expire before the delivery date. The buyer can then negotiate a longer validity or plan a follow-up RFQ.During go-live the biggest challenge is usually data quality. Old info records have outdated prices, source lists contain inactive vendors, and quota arrangements are missing. The project team spends time cleansing the master data—often using mass maintenance transactions like MEMASSIN for info records and ME05 for source lists. Once the data is current, the processes run smoothly and the benefits appear quickly.Keeping the Sourcing Strategy Alive with Monitoring and Reporting
After go-live the work shifts to monitoring. The buyer runs ME49 regularly to see how quotations are performing against current info record prices. Transaction ME2L shows purchase orders by vendor, highlighting any deviations from the agreed sources. In S/4HANA the Fiori apps for supplier evaluation combine price, delivery, and quality data into a single scorecard that feeds back into future RFQs.Quota monitoring is especially important. The quota arrangement report shows whether the actual quantities match the planned percentages. If one vendor is consistently over or under, you adjust the quotas or run a new RFQ to rebalance the business. Source list reports highlight materials where the list is required but empty, so the procurement team can fill the gaps before MRP creates unassigned requisitions.In monthly steering meetings we review these reports with the client. The procurement lead presents the top five materials by spend, shows the RFQ history, and explains any source changes. The finance controller sees the impact on material costs, and the supply chain manager checks delivery performance. This closed loop keeps the sourcing strategy aligned with business priorities and gives the team data to negotiate better terms in the next round.RFQ and source determination together give you control over both the competitive moment and the ongoing execution of procurement. When they are set up well, the system handles the routine work and leaves the buyer free to focus on strategy, relationships, and continuous improvement. In every project where we have implemented them properly, the client sees measurable gains in speed, cost, and compliance. These are not just transactions—they are the mechanisms that turn procurement from a cost center into a value driver.Related articles :
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