SD Outline Agreements

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

Main Challenges would be

• 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

Outline agreements are legal documents which represent an arrangement between a supplier
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.

Contracts

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

A value contract is a value based outline agreement with a customer in which it is agreed that a certain value of products will be purchased over a period of time.

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

Value Contract Types

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.

Assortment Module

•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.

Releasing The Value Contracts

•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.

Service Contracts

•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

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.

Contract Data in Sales Document

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.

Contract Cancellation

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. 

Once the contract is cancelled we cannot create release Orders with respect to contracts. We cannot cancel a contract after its validity is over

Configurable Sales Order

lets discuss,steps necessary to process a configurable sales order.  

The goal of a configurable sales order is to allow customers to tailor a product to their needs.  Configurable sales orders enable customers to choose the specific parts which are combined to form their customized product.  Configurable sales orders are commonly used for products which include numerous configurations, such as cars, bikes, a ski set and computers.  A configurable sales order for a computer, for example, would allow the customer to mix and match different memory, speed, size of screen, peripherals, etc.  Before a material can be configured in a sales document, the following prerequisites must be met by Materials Management (MM) and Production Planning (PP):

·         The material must be created and defined as configurable in the material master.

·         The material must be allocated to a class (ie. a product category) and assigned characteristics (the different pieces combined to form the material).  For example, if a PC was a configurable product, it would be allocated to a class (ie. computer equipment).  The product, PC, would then be assigned characteristics, such as memory, speed, and screen, etc., to identify the characteristics  necessary for completion of the line item product.  These characteristics can be assigned values.  Values can be assigned to the characteristic ‘memory’ to specify the desired amount of memory.

·         A bill-of-material (BOM) which can be configured in the sales document, must be created.  A configurable BOM describes the different assemblies that make up a configurable product.

·         A configuration profile with configuration parameters used to control sales document processing must be created for the material.  This profile controls how the BOM is exploded during processing (ie. production order, sales order, or order BOM). 

·         Dependencies are allocated to characteristics so that separate pieces of the final product are properly combined.  A particular ‘screen size’, for example, may not fit a certain type of laptop PC.  Dependencies, therefore, are assigned to ensure that product pieces are combined appropriately.

·         Finally, selection conditions must be created so that the system chooses the proper routing and items needed to create the end material.

For information on the Materials Management and Production Planning processes that must be carried out before a sales order can be configured, refer to Solution Define Materials with Characteristics.

It is important to note that sales orders are configured based on BOMs created within Materials Management.  A BOM is a list of the components that make up a product.  BOMs are exploded and configured in sales orders.  This explosion in the sales order opens the configurable BOM for the selected material, so that the components can be determined and listed.  Using this BOM, the user from Sales and Distribution configures the material from the choices provided in the BOM.  Configurable BOMs, therefore, are usually not created in a sales order; they are simply customized and processed.  There are four ways of processing configurable materials (or exploding BOMs) in sales orders.  They include:

·         Planned/Production Order: Single-Level: The configurable item appears as the header material in the sales order.  With this type of processing, the material characteristics and values are allocated to the header material and cannot be configured separately.

      The header material ‘bike’, for example, has the characteristic ‘tire’ which has predetermined value options.  ‘Tire’, however, cannot be configured separately.  A pre-defined value must be assigned to it within the configurable profile of the bike.  After this header item is configured in the sales order, a production order is created and the material is assembled.  This type of processing is used when the separate parts of the header material must still be assembled to form a configurable item.  If a sales order is created for a bike, for example, a production order must also be placed for the assembly of the unique parts of the bike.  The specific parts demanded by the customer are crucial to the proper assembly of the bike. 

      On the other hand, once each separate piece of a laptop has been put together (ie. Memory, speed, screen, etc.), no further assembly is necessary because the pieces can be easily combined to form the PC at the time of a sales order.  In single-level planned/production order processing, the individual pieces of the configurable product are already determined, however, they still must be properly selected and assembled to form a one-piece unit, like a bike.

·         Planned/Production Order: Multi-Level:  In this case, the characteristics of the header material can be configured separately.  Unlike single-level production order processing, configuration is not limited to the header material.  A car, for example, possesses characteristics (the parts which are combined to create it), such as the body, engine, and tires which can be configured individually.  If a car is the configurable header material, its characteristic tire can also be configured.  The configurable assemblies of the characteristic materials, however, are stored separately from the BOM item (header material).  Using a production order, the different characteristic items are produced and then, assembled to form a car.

·         Sales Order: Also referred to as SET processing, sales order processing allows the user to view the different items that are combined to create the configurable header material in the sales order.  Collectively, the materials that make up the configurable product are referred to as a SET.  Skis, poles, and ski boots, for example, form the SET that make up a ski set.  The items of the ski set, like other configurable items that utilize sales order processing, are predetermined and remain separate when delivered to the customer.  A production order, therefore,  is not created for the assembly of SET items.  SET items are simply combined in the sales order to create a configurable material whose pieces remain separate.  Only the header material (ie. that of the ski set) can be configured and displayed in the sales order, not the components of each individual item of the set.  The different characteristics of the material appear as separate order items.  This type of processing is effectively used for configurable products, like ski sets and stereos, whose parts require little or no internal configuration.  For example, there are few, if any, configurable assemblies for the item skis.  They can be easily pulled from inventory along with boots and poles and sent unassembled at the time of delivery.  

·         Order BOM: This type of processing is used when a customer wants a make-to-order product.  Make-to-order products are unique to a particular customer, and therefore, cannot be properly configured from any existing BOM.  Since customer demand cannot be predicted in the case of a make-to-order, SAP allows the user to make manual revisions to an existing BOM by creating an order BOM in the sales order.  From this BOM, the user is able to configure the various pieces of the end product by deleting, inserting, and changing the quantity of items.  The results are sent to MRP for assembly.   

Initiate Configurable Order Entry

Order type (any order type is possible), business partners, and sales hierarchy information are entered normally at this stage of the process.

This task is carried out in the same manner as a standard order.

Determine Order Items and Terms   

At this point, the user chooses the desired configurable material.  The appropriate BOM explosion indicator must be set in the configurable profile of the selected material for planned/production orders: single-level, planned/production orders: multi-level, sales order, or order BOMs.

 

Contracts, payment terms, and scheduling agreements are determined in the same manner as for a standard order.

Check Configurability of Material

To create a configurable sales order, the end user must first ensure that the material desired by the customer is configurable.  As stated previously, a configuration profile, indicating which type of BOM explosion (processing type) to use, must be set up for the configurable material.  In addition, the BOM for the ordered material must be configurable, meaning that it offers multiple options for each item that makes up the finished product. 

If the configurable BOM does not meet customer demands at sales order time, an SD order BOM can be created.  This BOM is created in the sales order so the user can make the necessary manual revisions to the pre-existing BOM of the chosen material.  The revisions made for the SD order BOM are not saved as a new BOM for later use, nor is the original BOM updated with the changes. 

Configure Material

At this point, the material is configured to customer specifications.  After the necessary configuration profile is set up, the user enters the customer's selections in the configurable sales order.  If the customer simply orders off the configurable BOM that is exploded in the sales order, SET or production order processing is utilized.  A make-to-order, in contrast, is utilized to meet customer demand for materials and combinations which are not options in the BOM.  In this case, manual changes are made to the existing BOM through order BOM processing.  This type of processing is effective for a configurable product that requires a large amount of internal configuration.  A car, for example, is one material with many internal configurations.  The customer, as a result, can be more particular about the component assemblies.  To execute this type of processing the order BOM indicator must be set in the configuration profile of the material.  This allows the user to revise the present BOM according to customer specifications.  A stereo or a ski set, on the other hand, is usually processed in a SET.  These materials consist of separate items which are already assembled and therefore, do not permit internal configuration.  The chosen items, which form a SET, are simply taken from inventory and delivered to the customer.  SETs consist of separate items that do not require assembly.  A material that utilizes production order processing, however, requires a production order for the assembly of its parts.

Determine Type of Payment Guarantee

Typically payment terms have been set up for the customer on the customer master, prior to creation of the sales order.  There are situations, though, where the payment terms may be either changed from what has been defaulted from the customer master into the order, and a different form of payment may be input. 

Determine Delivery and Transportation Guidelines 

This task is carried out in the same manner as a standard order.

Check Processing Type

The system checks material processing type for production purposes.  In single-level planned/production order processing, sales order configuration requirements for the different pieces of the line item material are sent to MRP (Material Requirements Planning) where components are determined and stored in a production order for assembly.  In multi-level planned/production processing, requirements for the header material are sent to MRP.  The characteristic values assigned determine the components of the header material.  In addition, if these components have been assigned values, they must also be sent to MRP so the proper materials can be determined.  Once all requirements are determined and the components are assembled, the material is assembled in a production order. 

In SET processing, the separate items of the configurable material are simply pulled from inventory.  In production terms, this is called stock material processing.  Since the items are already present in inventory and remain separate, a production order is not needed to assemble the SET.  A production order, however, is created to pull the appropriate items from inventory and therefore, also serves as a means of tracking inventory.  Only the header material can be configured and saved in SET processing.  Item characteristics must be configured separately from the header material. 

Order BOM processing allows changes to be made to a BOM which was previously configured in the sales order.  For this to occur, a separate order BOM is created for the material.  Once the revisions are made, assemblies are sent to MRP.  Once the components are determined, a production order is created for assembly.  From a production standpoint, an order BOM requires sales-order related production because the production of the material is reliant on the make-to-order product configured in the sales order.  Since the requirements of the product cannot be predicted, production must rely solely on the configuration in the sales order.

Perform Availability Check and Transfer of Requirements

An availability check only occurs for component of the SET order processing.  If the customer is ordering a ski set, for example, he or she can choose from three types of skis, two types of poles, and four types of boots which have been predetermined and stocked.  Since the separate items of the SET are part of the company's stock, an availability check is carried out. 

Planned/production order processing does not involve an availability check because the chosen parts of the material must be assembled to create the material.  Although the different pieces of a bike can be selected in the sales order, the finished product (bike) does not exist in the company's stock.  A production order must be placed for the bike and

its different components.  In addition, an availability check is not carried out for order BOM processing.  This type of processing involves the revision of a configurable BOM.  Since a new BOM is created to account for these changes, the company is not equipped with the inventory needed to fulfill this order.  The desired assemblies, therefore, must be sent to MRP so a production order can be placed.  Order BOM processing initiates a make-to-order situation where the company cannot anticipate customer demands because the desired goods are not available in stock.

Determine Pricing

In order to calculate pricing for a configurable material, SAP uses a method called variant pricing.  Variant pricing is controlled by conditions and variant configuration.  Variant configurations are simply different assemblies of the same material.  The material car, for example, may have two different configurations, one which utilizes a V6 engine and one that uses a V8.  Each of these configurations is a variant of the material car.  Pricing conditions are records which calculate the discounts, surcharges, and taxes that are added to the price and can be created at different levels of the variant configuration.  Dependencies tell the system to apply the relevant condition record to the variant material.  If a discount is being offered for a red two-door car with a V6 engine, for example, the system would use a dependency to locate the appropriate condition record.  If the car is red and has two doors and a V6 engine, use discount condition record "XXXX".  This discount condition record is set up at the finished good level (ie. for the car) to facilitate the pricing process.  If condition records were set up for each of the characteristic values (ie. V6 engine, two-door, red car), it would be extremely time consuming, not only to create all the conditions, but also for the system to roll the prices of the components up into the individual configurable items, and finally into the header material.   

Order BOM processing, however, is unique because production costing information must be calculated after the sales order is configured.  Since the material is make-to-order, no prior production costing information exists for the product.  The system, therefore, cannot derive a price for the configurable product until production costing is complete.

Check Customer Credit

A customer credit check is performed in the same manner for a standard order.

Release Configurable Sales Order

The release order process is carried out in the same manner in a standard order.

Output Determination for Sales Transactions

A sales transaction involves various stages like presales, order, delivery, picking and packing, shipping, and billing. At each stage, various documents are generated specific to that stage. They might be required for legal or commercial reasons, or act as a stage completion milestone.

For example, an order acknowledgment that confirms the seller’s acceptance of the order marks the completion of the order stage, and an invoice sent by the seller to the buyer is a confirmation of the completion of the sales transaction and so on. These documents often have different formats, and can be communicated in various forms such as printed copies, EDI, email, fax, etc.

In SAP SD, all these documents are called outputs, and their processing is controlled using the output determination technique provided by SAP. Order acknowledgment, delivery note, pick/pack list, shipping order, invoice, etc are examples of output documents.

Output determination sets up the output control, which is needed to provide information to various stakeholders. It involves two functions:

• Output Determination
• Output Processing

The Condition Technique functionality is used to determine the output. The system can automatically propose the output for a Sales and Distribution document, or it can be manually chosen as well.

Output determination can be defined at various stages of the sales cycle:

• Sales activities
• Sales documents
• Logistics execution related
• Billing related

 In this section we’ll describe how to setup/view the Output Determination process for

• Sales documents
• Delivery documents
• Invoice

Sales Document

Open the sales document in edit mode (VA02). Goto Extras àOutput à Header à Print Preview. We can see a preview of the sales document, if the ouput determination configuration has been done correctly. We can chose to print the order by going to menu, Text à Print.

Delivery Document

In transaction VL02N, enter the delivery number for which output is to be viewed. Donot open the document, but in the same screen go to Outbound Delivery à Issue Delivery Output. Output type is LD00, corresponding to the delivery. Using the Preview button, the output of the delivery can be seen, and it can be printed by issuing the Print butotn command.

Invoice

In transaction VF02, enter the invoice number for which output is to be viewed. Donot open the document, but in the same screen go to Billing Document à Issue Output To. Output type is RD00, corresponding to the invoice. Using the Preview button, the output of the invoice can be seen, and it can be printed by issuing the Print button command.