Introducing Contracts in SAP S/4HANA

It is important to establish long-term relationships with preferred suppliers. In this lesson, we look at how using contracts and SAP S/4HANA can help achieve that goal.​

Contracts can be created with or without reference to the following: ​

• A purchase requisition​
• An outline agreement requisition​
• A request for quotation (RFQ)​
• Another contract

The following types of contract exist:​

A contract consists of a header and an item level. At the item level, we can use various item categories to differentiate different business processes. The item category influences the document business process and field control.​

Depending on the type of item, data must be created as follows:​

• If the contract item is a stock material, purchasing and accounting data must have been created in the relevant material master record.​
• ​If the contract item is a consumable material, the account assignment data may already be stored in the contract. Alternatively, you can use the account assignment category U (Unknown), which indicates that the account assignment data must not be specified before creating the contract release order.​

By assigning the appropriate item category to each item in a contract, businesses can ensure that the correct business process is followed to procure the material.

Contracts can be created based on the business scenario and how goods or services are purchased. One important aspect of creating contracts is determining the item category.​

The following item categories are possible:​

• ​Standard​

  This item category is recommended for the standard contract, which is used when purchasing goods or services directly from a supplier. ​

• Consignment (K).

  This item category is recommended for consignment processing, the supplier provides materials and stores them on your premises. The supplier remains the legal owner of the material until you withdraw materials from the consignment stores. Only then does the supplier require payment. The invoice is due at set periods of time, for example, monthly. In addition, you can also arrange with the supplier that you take over ownership of the remaining consignment material after a certain period.​

• Material Group (W).​

  This item category is recommended for materials belonging to the same material group, but with different prices. When you create an item for a purchasing document, you enter the short text (description) and material group; however, you cannot mention the price. The price and material number cannot be specified until a release order is created against the purchasing document. ​

  Additional information on material groups is provided later in this course.​

• ​Subcontracting (L).​

  This item category is a form of procurement where the required product is manufactured by a supplier (in this case the subcontractor) to whom you provide certain components. You can provide these components either directly from one of your plants, or indirectly through one of your suppliers. Using the provided components, the subcontractor completes the manufacturing process and delivers the required product to the ordering party.

• Material Unknown (M).​

  This item category is recommended for situations where the exact material or product to be supplied is not known when the contract is created. With this item category, you can create a contract without initially specifying the specific materials. Instead, you can define the contract terms, such as pricing, delivery dates, and conditions, without referencing specific materials. By utilizing the Material Unknown (M) item category in SAP, you can effectively manage and track contracts where the specific materials are not known in advance.

In addition to the item category, there is a second field that might be required. If you want to procure a material as a consumable, you must specify an account assignment category and additional account assignment data in the document item of the purchase requisition or purchasing document (contract)​.

​The following account assignment categories are supported:​

• Sales Order (C)​.
• Cost Center (K)​.
• Project (P).​
• Third-Party (S)​.
• Unknown (U)​.
• Network (N)​.
• Asset (A).​
• Order (F).

The release documentation for a contract item is updated for each purchase order item created with reference to a contract.​

The system provides the following data for each release order:​

• Purchase order number and relevant item number​
• Order date​
• Order quantity​
• Order value

The release documentation also includes the following:​

• Quantity or value already released​
• A comparison between the target quantity and the still open quantity or between the target value and the still open value​​

​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. For value contracts, the target value is updated at the header level. For quantity contracts, the target quantity is updated at the line item level.