APAC Procurement Business Model

Outline Agreement Procedure Training Document

Local Group Companies

Submit Date, 19-Nov-04

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 Copyright @ 2003 Holcim Services (Asia) Ltd.
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Document Control
Document Name Outline Agreement Procedure Training Document
Author Ha Tran
File Name & Path
Created 19-Nov-04
Last Edited
Printed on

Version Revision Date Revision Description Author Sign-off

V 1.0 19-Nov-04 Ha Tran

Document Approval
Role Name Signature Date

Distribution List
Role Name Signature Date

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Table of Contents
OVERVIEW .......................................................................................................................................... 4

USE OF CONTRACTS......................................................................................................................... 4

CONTRACTS FOR MATERIAL GROUP ............................................................................................ 5

ITEM CATEGORY M.............................................................................................................................. 5
Example of use of item category M: ..............................................................................................................5
ITEM CATEGORY W ............................................................................................................................. 6
Example of use of item category W:..............................................................................................................6
CENTRALLY AGREED CONTRACTS................................................................................................ 6
USE .................................................................................................................................................... 6
FEATURES .......................................................................................................................................... 7
Plant Conditions............................................................................................................................................7
Partner Roles ................................................................................................................................................7
BUSINESS PROCESS PROCEDURE................................................................................................. 9
1. CREATION OF CONTRACT WITH ITEM CATEGORY M ........................................................................... 9
2. CREATION OF CONTRACT WITH ITEM CATEGORY W......................................................................... 20

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Overview
An outline purchase agreement is a longer-term arrangement with a vendor covering the supply of
materials or the provision of services, subject to predetermined conditions. These apply for a
predefined period and a predefined total purchase quantity or certain total purchase value.

An outline agreement does not contain data on specific delivery dates or quantities to be delivered.
This data is transmitted to the vendor in one of two ways, depending on the type of outline
agreement. A vendor is notified of quantities and delivery dates either in a specialized form of
purchase order called a contract release order, or in a delivery schedule.

An outline agreement can be a contract or a scheduling agreement. There are two key differences
in the use of these two agreement types:

• The volume of documents

In the case of the contract, as a rule, a new purchase order is created in the system
each time goods or services are released against the contract. With the scheduling
agreement, on the other hand, there is only one further document apart from the
agreement document; this is the delivery schedule, which is continually extended as
new requirement quantities and delivery dates are added.
• Use in automatic materials planning
Requirements planning can be set up in such a way that the contract item is
automatically assigned to a requisition item as the source of supply. However, this
requisition must subsequently be converted into a purchase order (contract release
order). In the case of the scheduling agreement, it is possible to directly generate
scheduling agreement delivery schedule lines from the planning run, thus reducing
purchasing department processing time.

Use of Contracts
Contracts can be created without reference, or with reference to an outline agreement requisition, an
RFQ, or another contract.

Various item categories can be used. The item category influences document field control.

If the contract item is for a stock material, the corresponding views and data of the material master
record must have been created. If the item is for a consumable material, the account assignment
data may already be stored in the contract. Alternatively, account assignment category U can be
used. The use of this account assignment category means that the account assignment data does
not have to be specified until the purchase order is created.

Noted that since R/3 4.6A, the reference to the contract in the purchase order is entered at item
level. This has the advantage that items both with and without contract reference, or referencing
different contracts, can be included in a single purchase order.

The release documentation for the contract item is updated for each PO item created with reference
to a contract. The system provides the following data for each release order:

• The number of the PO and the relevant item

• The order date
• The order quantity
• The order value

The release documentation also includes the total quantity or value already released and the target
quantity in comparison with the still open quantity, or the target value in comparison with the still
open value.

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Whether the release documentation is updated with reference to the target value of the contract, or
the target quantity of each individual contract item, depends on the agreement type used.

There are three types of contract:

• Quantity contract
The contract is fulfilled when a stipulated target quantity per contract item is reached as
a result of the issue of release orders.

• Value contract
The contract is fulfilled when a stipulated overall target value (total value of all items) is
reached as a result of the issue of release orders.

• Distributed contracts
These are centrally agreed contracts that are made available to other R/3 system for the
issue of release orders against the contract. Contracts can be created in one SAP
system and then be made available to other independent SAP systems (that is,
distributed among other systems). The central system in which the contract is created
and the local systems that also procure using this contract are all separate, independent
SAP systems. The data must therefore be kept identical in each individual system. In
order for changes to be continually compared and reconciled, thus ensuring that all the
systems involved always have the correct data, data is exchanged via Application Link
Enabling (ALE).

The contract type quantity contract (MK) is chosen if the total quantity of each item to be ordered
over the duration of the contract is known. After specifying the validity period of the contract in the
header data, it is mandatory to enter the target quantity at item level. Specification of the total value
in the header data is optional.

The contract type value contract (WK) is selected if the total value of all release orders issued
against this contract is not in excess of a certain amount. In addition to the validity period, the target
value must be specified in the header data of the value contract. Specification of the relevant target
quantity at the item level is possible, but not necessary.

Noted that all contracts that are due to expire in the future can be listed. The analysis, which is
based on a suitable selection parameter, is run over the fields Target Value and Total Release Value
for value contracts and Target Quantity and Quantity Released To Date for quantity contracts.

Contracts for Material Group

The contract-specific item categories M (material unknown) and W (material group) are available to
represent contractual agreements for groups of materials.

The item categories M and W are intended for the entry of contract items without specification of the
material number.

Item Category M
Recommended for similar materials of the same price. These can be materials with different
material numbers or materials without material master records.

Example of use of item category M:

A vendor-specific contract has been set up covering various types of writing paper (lined, squared,
blank, two-/four-hole pre-punched, etc…). The different types of paper have the same weight, the
same quality, and the same price.

When this contract item of category M is entered, the short description, material group, target
quantity, unit of measure, and price are entered but not the material number. The short description
must then be entered in the contract release order (for example, lined, two-hole pre-punched).

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It is also possible to have the option of releasing materials with a material master record against this
contract item in the release order, provided that the material group and purchase order unit of
measure agree.

Item Category W
Recommended for materials belonging to the same material group but with different prices. Item
category W can only be used in value contracts.

Example of use of item category W:

A vendor-specific contract has been set up covering various types of cable. The contract is to cover
all types of cable included in the vendor’s price list. However, the exact type is only determined
when a purchase order is created for a certain cable. Instead of creating one contract item for each
type of cable in the vendor’s assortment, an item category W and the appropriate material group (for
example, cable) could be entered instead. From the short text, it would then be clear that the
contract item covers all types of cable supplied by the vendor in question. Each release order
issued against this contract would then contain the exact specification of cable type and quantity
(double-shielded coax, 1 meter, for instance), and price.

When entering the contract item, only the short text and the material group are entered. The target
quantity or price is not required to be entered. However, it is possible to enter additional conditions.
For example, a discount can be entered in the header conditions if the vendor grants a discount on
all POs referencing the contract. The discount is calculated automatically when a contract release
order is created.

The price, the target quantity, and the material number are not specified until a release order is
created. The relevant material master record must be assigned to the same material group as the
contract item referenced. If the contract release order does not contain a material number, it must
have a valid account assignment (such as a cost center).

Noted in the purchase order, the item categories M and W are not allowed. Prior to R/3 4.6A, it is
required to remove the preset item category M and W manually when a release order is created
referencing a certain contract item. Since 4.6A, the item category in a release order to be issued
against a contract item having the item category M or W is blank, so it is not mandatory to remove it
any longer.

No new item categories can be defined in Customizing. Neither can the attributes of existing item
categories be changed. Of course, only the short description of item categories can be changed.

Centrally Agreed Contracts

Use
An enterprise that operates with a central purchasing organization covering several plants can
negotiate better conditions at a higher level. It is possible to create contracts that relate not to just
one particular receiving plant, but to the purchasing organization. In this case, a centrally agreed
contract is created without specification of a plant.

The plant is not specified until the contract release order is created. All plants covered by the
purchasing organization can release against a centrally agreed contract. In the case of plant-
specific contracts, a release order can only be created for the relevant receiving plant. In addition, in
centrally agreed contract, different conditions or partners (for example) for individual plants can be
created as well.

A centrally agreed contract is involved if:

• A single purchasing organization procures for an entire corporate group; or

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• A reference purchasing organization makes a contract available to other associated

purchasing organizations, enabling the latter to issue release orders against this
contract

Noted if certain plants are not to be allowed to release against the contract, the centrally agreed
contract should be blocked as a source in the source list for these plants.

Features

Plant Conditions
Centrally agreed contracts enables to specify separate conditions for each receiving plant ie. it
allows prices and conditions to be determined individually for each receiving plant. This makes it
possible, for example, to make due allowance for different transportation costs for different routes
and distances. Plant conditions are not an add-on to the central conditions, but a plant-specific
alternative to them. Noted, however, that maintenance of plant conditions in centrally agreed
contracts is only possible via Edit Æ Plant Conditions.

When the contract release orders are created for plants without plant conditions, the conditions of
the contract item are used.

If certain plants are not to issue release orders against the contract, the central contract should be
blocked from use as a source of supply by these plants in the source list.

Partner Roles
Vendors may assume different roles (partner roles) in the procurement process. Partner roles
(sometimes also referred to as “partner functions”) include the roles of “ordering address”, “goods
supplier”, and “invoicing party” or forwarder/carrier.

Various partner roles can be maintained either in the vendor master record (in the Partner Roles
view) or in each individual contract. The partners being defined in the vendor master record are
valid for a certain purchasing organization. In addition to the partners that are valid for a purchasing
organization, different partners can be created for individual plants or vendor sub-ranges in the
vendor master record.

If the partners have already been defined in the vendor master record, they are pulled from there
into the contract as default values. However, partner roles can also be assigned for the first time in
the contract.

Example of use of partner roles:

The following graphic shows how partners are determined at the time Contract Release Orders are
created:

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Two individual vendors belonging to the vendor corporate group X supply receiving plants in different
region. In the vendor master record, the receiving plants have been assigned as follows: Vendor X2
supplies plant 0001 only, and vendor X3 to plant 0002 only. If a buyer wishes to release material
4711 against the centrally agreed contract with vendor corporate group X, he or she enters the key
for the plant for which the material is to be procured.

If he or she enters plant 0001, the system determines vendor X2 as the ordering address on the
basis of the assignment in the vendor master record. Similarly, if he or she enters plant 0002, the
system determines vendor X3 as the ordering address on the basis of the assignment in the vendor
master record.

It is also possible to assign several partners with the same role to a plant (e.g. two ordering
addresses). When the release order is created, it is required to decide on one of them.

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Business Process Procedure

1. Creation of Contract with Item Category M

1.1. Access transaction by

Via Menu Logistics Æ Materials Management Æ Purchasing Æ Outline

Agreement Æ Contract Æ Create

Via Transaction Code ME31K

Key T-Code: ME31K

Fig-01

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1.2. On “Create Contract : Initial Screen” screen, fill in the data as below:

Fig-02

Field Name Description R/O/C/D User Action and Values

Vendor Alphanumeric key uniquely R Enter the vendor number
identifying a vendor
Agreement type Indicator allowing R Enter the agreement type
differentiation between the
various kinds of outline
purchase agreement in the
SAP system
Agreement date Date the agreement was R Enter the agreement date
created

Agreement Number of the outline O Enter the agreement number

agreement

Purch. Denotes the purchasing R Enter the purch. organization

Organization organization

Purchasing group Key for a buyer or a group R Enter the purchasing group
of buyers, who is/are
responsible for certain
purchasing activities
Item Category Key defining how the O Enter the item category
procurement of a material
or service item is
controlled
Acct assignment Specifies whether O Enter the acct assignment cat.
cat. accounting for an item is to
be effected via an auxiliary

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Field Name Description R/O/C/D User Action and Values

be effected via an auxiliary
account (such as a cost
center)
Plant Specifies the key for a R Enter the plant number
production facility or
branch office within the
company
Storage location Number of the storage O Enter the storage location number
location at which the
material is stored.
Material group Key that you use to group O Enter the material group
together several materials
or services with the same
attributes, and to assign
them to a particular
material group.
Reg. tracking Number that facilitates the O Enter the reg. tracking number
number monitoring of the
procurement of required
materials or services.
Vendor sub- Subdivision of a vendor’s O Enter the vendor sub-range
range overall product range
according to various
criteria
Acknowledgeme Determines whether the O Select the acknowledgement reqd
nt reqd purchasing document is to
be acknowledge by the
vendor
Click on icon to branch to the
‘Header Data’ view of the Contract
Legend: R = Required, O = Optional, C = Conditional, D = Display

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1.3. On “Create Contract : Header Data” screen, fill in the data as below:

Fig-03

Field Name Description R/O/C/D User Action and Values

Validity start Date as of which services R Enter the validity start date
can be performed or
materials delivered
Validity end Date up to which services R Enter the validity end date
can be performed or
materials delivered
Incoterms (part1) Commonly-used trading O Enter the incoterms (part1)
terms that comply with the
standards established by
the International Chamber
of Commerce
Incoterms (part2) Additional information for O Enter the incoterms (part2)
the primary incoterms

Press “ENTER” to branch to ‘Item

Overview’ View of the Outline
Agreement
Legend: R = Required, O = Optional, C = Conditional, D = Display

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1.4. On “Create Contract : Item Overview” screen, fill in the data as below:

Fig-04

Field Name Description R/O/C/D User Action and Values

I (Item category Key defining how the O Enter the item category
in purchasing procurement of a material
document) or service item is
controlled
A (Account Specifies whether O Enter the account assignment
assignment accounting for an item is to category
category) be effected via an auxiliary
account
Material Uniquely identifies a O Enter the material number
material

Short text Short description of the O Enter the short text

material

Targ. qty. (Target Total quantity that can be O Enter the target quantity
quantity) released or scheduled
against the relevant
agreement
Oun (Order Unit) Specifies the unit of O Enter the order unit
measure in which the
material is ordered
Net price Net price per price unit O Enter the net price

Per Specifies how many units O Enter the price unit

of the purchase order price
unit the price is valid for

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Field Name Description R/O/C/D User Action and Values

OPUn (Order Indicates the unit of O Enter the order price unit
price unit) measurement to which the
purchase order price
relates
Matl group Key that you use to group O Enter the material group
(Material group) together several materials
or services with the same
attributes, and to assign
them to a particular
material group
Sloc (Storage Number of the storage O Enter the storage location number
location) location at which the
material is stored
Item Item starting from which O Enter the item number
the document is to be
displayed
Select the contract line item and
click on icon
Legend: R = Required, O = Optional, C = Conditional, D = Display

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1.5. On “Create Contract : Item XXXXX” screen, fill in the data as below:

Fig-05

Field Name Description R/O/C/D User Action and Values

Determine whether the O Select the indicator
purchasing document is to
be acknowledge by the
vendor
Indicates that this net price O Select the indicator
is merely an estimated
price
Determines whether or not O Select the indicator
the price is to be included
in the purchase order
printout
Tax code A tax category which must O Enter the tax code
be taken into consideration
when making a tax return
to the tax authorities
Shipping instr. Specifies the packaging O Enter the shipping instructions
(Shipping and shipping instructions
instructions) issued to the vendor
Stock type Specifies the stock to O Enter the stock type
which the materials is
posted upon goods receipt
Click on icon
Legend: R = Required, O = Optional, C = Conditional, D = Display

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1.6. In case, supplementary pricing conditions are required to be maintained for the contract
document. On “Create Contract : Item XXXXX Additional Data” screen, maintain
information as specified in the table below:

Fig-06

Field Name Description R/O/C/D User Action and Values

Click on icon to make such
pricing condition entry
Legend: R = Required, O = Optional, C = Conditional, D = Display

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1.7. On “Create Gross Price Condition (PB00) : Condition Supplements” screen, maintain
information as specified in the table below:

Fig-07

Field Name Description R/O/C/D User Action and Values

Click on icon to return to the
‘Item View’ View of the Contract
Legend: R = Required, O = Optional, C = Conditional, D = Display

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1.8. On “Create Contract : Item Overview” screen, maintain information as specified in the
table below:

Fig-08

Field Name Description R/O/C/D User Action and Values

Click on icon to save the
Contract
Legend: R = Required, O = Optional, C = Conditional, D = Display

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Fig-09

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2. Creation of Contract with Item Category W

2.1. Access transaction by

Via Menu Logistics Æ Materials Management Æ Purchasing Æ Outline

Agreement Æ Contract Æ Create

Via Transaction Code ME31K

Key T-Code: ME31K

Fig-10

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2.2. On “Create Contract : Initial Screen” screen, fill in the data as below:

Fig-11

Field Name Description R/O/C/D User Action and Values

Vendor Alphanumeric key uniquely R Enter the vendor number
identifying a vendor
Agreement type Indicator allowing R Enter the agreement type
differentiation between the
various kinds of outline
purchase agreement in the
SAP system
Agreement date Date the agreement was R Enter the agreement date
created

Agreement Number of the outline O Enter the agreement number

agreement

Purch. Denotes the purchasing R Enter the purch. organization

Organization organization

Purchasing group Key for a buyer or a group R Enter the purchasing group
of buyers, who is/are
responsible for certain
purchasing activities
Item Category Key defining how the O Enter the item category
procurement of a material
or service item is
controlled
Acct assignment Specifies whether O Enter the acct assignment cat.
cat. accounting for an item is to
be effected via an auxiliary

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Field Name Description R/O/C/D User Action and Values

account (such as a cost
center)

Plant Specifies the key for a R Enter the plant number

production facility or
branch office within the
company
Storage location Number of the storage O Enter the storage location number
location at which the
material is stored.
Material group Key that you use to group O Enter the material group
together several materials
or services with the same
attributes, and to assign
them to a particular
material group.
Reg. tracking Number that facilitates the O Enter the reg. tracking number
number monitoring of the
procurement of required
materials or services.
Vendor sub- Subdivision of a vendor’s O Enter the vendor sub-range
range overall product range
according to various
criteria
Acknowledgeme Determines whether the O Select the acknowledgement reqd
nt reqd purchasing document is to
be acknowledge by the
vendor
Click on icon to branch to the
‘Header Data’ view of the Contract
Legend: R = Required, O = Optional, C = Conditional, D = Display

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2.3. On “Create Contract : Header Data” screen, fill in the data as below:

Fig-12

Field Name Description R/O/C/D User Action and Values

Validity start Date as of which services R Enter the validity start date
can be performed or
materials delivered
Validity end Date up to which services R Enter the validity end date
can be performed or
materials delivered
Targ. val. Total value of all materials R Enter the value
to be released against the
contract
Incoterms (part1) Commonly-used trading O Enter the incoterms (part1)
terms that comply with the
standards established by
the International Chamber
of Commerce
Incoterms (part2) Additional information for O Enter the incoterms (part2)
the primary incoterms

Press “ENTER” to branch to ‘Item

Overview’ View of the Outline
Agreement
Legend: R = Required, O = Optional, C = Conditional, D = Display

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2.4. On “Create Contract : Item Overview” screen, fill in the data as below:

Fig-13

Field Name Description R/O/C/D User Action and Values

I (Item category Key defining how the O Enter the item category
in purchasing procurement of a material
document) or service item is
controlled
A (Account Specifies whether O Enter the account assignment
assignment accounting for an item is to category
category) be effected via an auxiliary
account
Material Uniquely identifies a O Enter the material number
material

Short text Short description of the O Enter the short text

material

Targ. qty. (Target Total quantity that can be O Enter the target quantity
quantity) released or scheduled
against the relevant
agreement
Oun (Order Unit) Specifies the unit of O Enter the order unit
measure in which the
material is ordered
Net price Net price per price unit O Enter the net price

Per Specifies how many units O Enter the price unit

of the purchase order price
unit the price is valid for

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Field Name Description R/O/C/D User Action and Values

OPUn (Order Indicates the unit of O Enter the order price unit
price unit) measurement to which the
purchase order price
relates
Matl group Key that you use to group O Enter the material group
(Material group) together several materials
or services with the same
attributes, and to assign
them to a particular
material group
Sloc (Storage Number of the storage O Enter the storage location number
location) location at which the
material is stored
Item Item starting from which O Enter the item number
the document is to be
displayed
Select the contract line item and
click on icon
Legend: R = Required, O = Optional, C = Conditional, D = Display

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2.5. On “Create Contract : Item XXXXX” screen, fill in the data as below:

Fig-14

Field Name Description R/O/C/D User Action and Values

AcctAssCat Specifies whether O Enter the account assignment
(Account accounting for an item is to category
assignment be effected via an auxiliary
category) account
Determines whether the O Select the indicator
purchasing document is to
be acknowledged by the
vendor
Stor. loc. Number of the storage O Enter the storage location number
(Storage location at which the
location) material is stored.
ConfContrk Determines which O Enter the confirmation control key
(Confirmation confirmation categories
Control Key) are expected for a PO item
Acknowl. No Number of the vendor’s O Enter the order acknowledgement
(Order order acknowledgement number
acknowledgemen
t number)
TrackingNo Number that facilitates the O Enter the requirement tracking
(Requirement monitoring of the number
tracking number procurement of require
materials or services

Click on icon

Legend: R = Required, O = Optional, C = Conditional, D = Display

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2.6. On “Create Contract : Item XXXXX Additional Data” screen, maintain information as
specified in the table below:

Fig-15

Field Name Description R/O/C/D User Action and Values

Click on icon to return to the
‘Item Overview’ View of the
Contract
Legend: R = Required, O = Optional, C = Conditional, D = Display

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2.7. On “Create Contract : Item Overview” screen, maintain information as specified in the
table below:

Fig-16

Field Name Description R/O/C/D User Action and Values

Click on icon to save the
Contract
Legend: R = Required, O = Optional, C = Conditional, D = Display

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Fig-17

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