Contract Management and Scheduled Agreements:
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Contract is the word we use normally for different scenarios in real life, but coming to procurement contract management will be agreement between the vendor and the client(ordering party), they may have different purposes but one thing common is Contract to maintain their business up to the mark or else they need to struggle on daily basis to see the production things manually and its very risky.
***It’s a legal agreement between the vendor and client***
Importance of Contract:
Every company they have contract but the main importance for maintaining contract is fallows.
· Price negotiations
· Supplier relationships
· Lead time management
· Payment terms
Example for understanding:
Let’s think you have a company where you see the production activity(TV Spare parts Company) and every time you need to order the material from vendor when there is a requirement and your company is growing big and you have more production(produce more TV’s for sales), even in this case you need to order the material whenever is required and here there is no confirmation that vendor can deliver those within time, he may take his sweet time for delivery because your orders are spot(whenever required) and even the price is also same for everyone in market.
Let’s think you hold a big company as above example and you have a contract with vendor for those required materials, when ever the production is increased(I mean sales) then you can place the order with contract(No need to contact any distributor), once the order is placed vendor is having agreed lead time like 2 days, where he should deliver within the time or else vendor may get fine around 20-30%, even the price and payment terms also will be favor to you and production will be done very smoothly.
Creation of contract and their requirements in SAP:
When we will create contract:
when there is a requirement of large production that you observed in your company, then you can recommend maintaining the contract with vendor for saving money, time, and to maintain relationship (Supplier relationship).
Each company have their own requirements to create contract and here I will explain the basic methods to follow the requirements/rules.
1. Sign- Off (Vendor Approval form)
2. Proposal for contract to create (Always from Stakeholders/Clients)
3. Form with vendor details (Company Specific)
4. Price, Net terms, Material, vendor, payment terms, Contract period
Step 1: Sign-Off Process:
Almost every company fallows the signoff process, which explains about agreed terms and condition from the vendor side and client side.
The document contains the information like Statement of work details and Quality/Quantity details, Payment terms and any violations from vendor side/client side.
All this information will be available in the signoff documents and both the parties needs to sign in the document and once this done step 2.
Step 2: Maintaining vendor in Approved vendor list for the company:
Once the signoff process is done the QAC team should get the details of the vendor and he can maintain those vendors in there approved vendor list and each company will be having there customized T-codes to save this data in SAP and contract management team can access those T-codes and get the information of the vendor has been approved vendor list or Not.
Basically, Quality management team will be updating this data in SAP, each plant will be having once QAC team for quality checkup.
Once the step 2 is completed we can go ahead with step 3.
Step 3: Getting details from Sourcing/Stakeholder:
Once we have above details, we can ask more details from sourcing like price, pay terms, MOQ, Total value of contract, Partner Functions, total Quantity of contract, Approvers, any other material texts that needs to maintain in contract.
Once we get all the details with form, then we can process further.
Step 4: Contract creation:
First thing we need to consider is, whether your company is fallowing value-based contract or Quantity based contract.
Value based: the total value of contract will be provided to buyer to update in contract, such that we can access only to that value in that period of time for that contract to procure from that vendor and for additional value we need to go for access.
Quantity based: same as value based, here we must go with Quantity, and we cannot order more than that quantity in that period for contract and if requires more we need to go for access.
Now start creating the contract in ME31K
Input the vendor -Agreement type
ZDMK- Quantity based
Others- Mention as required like services, Cost center
Now we need to enter the header details for the contract
If it is value-based contract-Enter total value
Here we go with item overview screen- where we need to maintain the material that we are going to order in future from this vendor.
Target Quantity-overall quantity if required
Now maintain the partners where all orders from this contract will have the same details as you are maintaining in contract and even the partners also.
Maintain the partners OA,GS,PI,Z5 and few are as per your company rules.
Click on couples’ symbol in the above picture to go to Partners
Item details- maintain the tax code and remaining required information.
Maintain the output printout- such that every order will reach to supplier directly
· Here we have done with contract creation, now every month we will receive the updates for the contract like changing the prices for the material contract, Payment terms, Etc
· We can maintain N number of materials in one contract but only one vendor and we can use N number of plants also.
· We have only one purchase organization in one contract, so that plant belongs to that purchase organization we should maintain, or else system will through error.
· Once we have contract, company will negotiate with vendor for price decrement every monthly or Quarterly or half early.
· Once the requester creates the PR with respect to contract, the PO will generate automatically within 30 seconds and if there is any error Batch report will be generated to resolve the issues.
Scheduled agreements have the same concept as contract, whereas here we need to give the scheduled specific dates to vendor that we are going to order the material.
Every company will prefer to go to contract, because we can order the material whenever its required.
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