Purpose of outline agreement
Agreements play an important role in nearly all business processes. Customers and vendors agree on the goods to be provided under certain conditions and within a specific time frame. Agreements streamline business processes for both partners in
Usages
Agreements aim at streamlining business processes of both customer and vendor. Agreements can be effectively used to improve the efficiency in the following business areas.
• Reduce costs
• Increase quality
• Increase speed of delivery
• Increase quality
• Increase speed of delivery
- How to meet specific pricing requirements in an agreements
- How to incorporate various date relevant requirements (start date, end date, billing date etc..)
- How confirm delivery date with assured quantities
- How to deal with returns in agreements
- How to ensure the data transfer between transactions
and a customer for the purchase of goods
Types of Outline Agreements
- Scheduling Agreements
- Contracts
Scheduling Agreement
A scheduling agreement is an outline agreement between Company and Customer that is valid for a certain period of time. Scheduling agreements contain specific delivery dates in addition to target quantity and price information
Since a scheduling agreement contains delivery dates and quantities, a delivery note is created directly from the agreement. Scheduling agreements are fulfilled by creating deliveries on the due date for the schedule lines. You must create your own schedule lines by entering the delivery dates requested by the customer. (via Schedule lines)
In the scheduling agreement, the other functions can be carried out as in the order.
You must create your own schedule lines by entering the delivery dates requested by the customer. To create delivery dates for an item, select the item and go to “Item>Schedule lines. If the system cannot confirm the quantity specified on a given date, a second schedule line with the confirmed quantity and date will be automatically created.
A new type of scheduling agreement, called a delivery order has been developed for component suppliers. It represents a pick-up sheet, which functions much like a JIT delivery schedule, except that the pickup sheet is not renewed. The customer transmits material release data informing the component supplier of needed materials and the date the forwarding agent will pick them up
Scheduling agreements are very much useful in industries where materials are produced in accordance with expected demand.
Example:
Suppose in automobile industry a car manufacturer produces 1200 cars in a year.
He on an average produces 100 per month.
Suppose he requires radial tires from XXXX company, he need not place an order for the entirequantity he requires over an year.Instead the company enters into an scheduling agreement with XXXX company which ensures timely supply according to the need of production run.
A contract is an agreement stating that your customer will order a certain quantity of product from you within a given time frame. A Contract is an outline agreement between Company and
Customer that is valid for a certain period of time and contains an overall target quantity or value that a customer agrees to buy at a specific price over a certain period of time; however, it does not contain specific delivery dates (no schedule lines or delivery information.)
Contracts are 4 types.
- Quantity contracts
- Value contracts
- Master contracts
- Service contracts
Quantity contracts
Quantity contracts are agreements between the customer and company to order specific quantities of a product within a set time frame. The customer does not provide any information about delivery dates, only the start and end date of the contract. Quantity contracts are usually agreed to at discounts from totals if priced individually.
A quantity contract is fulfilled when the customer places orders against it in the contract period. These orders are known as release orders or ‘call-offs’. However, they are standard orders that automatically reference the customer’s quantity contract and reduce the remaining amount of product to be ordered under the contract.
If a customer can give delivery dates for the product, then it is preferable to use a scheduling agreement, instead of a quantity contract.
Releasing The Quantity Contract
- Release orders are created referencing the Quantity contract.
- Release orders created update the quantity contract.Since the contract does not contain any schedule lines or delivery information, a customer must fulfill the contract by placing a purchasing order against quantity contract.If you try to change a contract after the release order creation, the system warns you that subsequent documents exist.
Value contracts contain:
a)Validity period
b)The agreed upon total value
c)Rules controlling the who can release against the contract through partner authorizations
d)Restrictions regarding what materials can be ordered against the contract
There are Two types of value contracts:
1.Standard value contract: It is used in majority of instances. It is based on total value of an assortment of materials for a particular Customer. We use document type WK1 for these type of contracts.
2. Material Related Value Contract: it is based on a single material (usually configurable material). We use document type WK2 for these type of contracts.
•An Assortment Module is a order entry tool that displays a list of materials and services that can be released from a value contract. It has a validity date and a restriction that only the materials and services that belong in the same sales organization and distribution channel for which your release order is being made will be displayed.
•While creating an Assortment module we have to provide the materials and their respective validity dates.
•Release orders are created referencing the value contract.
•The system checks the released materials against the rules of the value contract as well as whether the release is within the validity period of the value contract.
•The value of the released material is checked against the remaining open value of the contract. It is possible to define whether a value contract quantity can be exceeded or not.
•Value contracts can be billed directly or billed per release order.
•When billing documents are billed directly, a billing plan can be used.
•A service contract is an agreement that contains the conditions for offering a certain service to the customer. You can manage rental and maintenance contracts in the standard version of the SAP R/3 System. A service contract contains validity dates, cancellation conditions, price agreements, and information on possible follow-up actions.
• Element of the service contract in which you define the services or products you are providing the customer with under the terms of the service contract
- Service contract describes which services are to be performed, for which objects, and under which conditions.
- Service contract consists of a header and one or more items. The header and each item can contain the following data:
•Pricing conditions
•Contract data
•Text
•Status
•Partner data
•Contract data
•Text
•Status
•Partner data
Release orders are created referencing the service contract.
The system checks the released materials against the rules of the service contract as well as whether the release is within the validity period of the service contract.
The contract start and end dates can be entered manually or determined automatically. The system can propose these dates upon document creation according to a date determination rule which can be proposed for the contract type.
Sales document types are used to control whether or not additional contract data is allowed. Contract data can be maintained at header and item levels. Contract data at header level is valid for all items as long as different data is not entered at item level.
In addition to the contract start and end dates, contract data includes the Installation Date, the Contract Signed Date, and the Dismantling Date. These dates are manually maintained in a contract and can be used to determine the contract start and end dates.
For canceling a contract we use the document type ’CQ’
The following information is required while canceling contracts
- Reason why the contract is cancelled.
- When will be the cancellation effective.
