Introducing Service Contract Management

Objectives

After completing this lesson, you will be able to:

  • Describe the process steps, prerequisites, and business roles for Service Contract Management

An Overview of Service Contract Management

Introduction

This solution process describes the creation of service contracts in SAP S/4HANA Cloud Public Edition along with additional capabilities.

The aim of this solution process is to:

  • Understand and increase profitability by using service contracts.
  • Increase service margin with reduced revenue leakage through long-term agreements with customers.
  • Increase service revenue through strong long-term relationships with important customers.

The key capabilities of this solution process are:

  • Create or change service contracts in SAP S/4HANA Cloud Public Edition.
  • Monitor, cancel, and release service contracts and service contract items.
  • Automatically execute periodic billing to manage recurring revenue streams based on service contracts.

A service contract can be created using the UI or using an external interface (using OData APIs). Price agreements (like gross price and/or discounts) specific to a customer can be defined separately using service contracts. Service contract determination is then available for service orders. Service orders can be created with reference to a service contract; in this case, contract and price details from the determined service contract are copied to the service order.

You can also automatically renew an expiring service contract by a predefined period at a predefined date, if the service contract has not been canceled. You can also create a credit memo based on the invoice of a service contract

The link between a service order and a service contract is also available for reporting purposes.

Price adaptation for service contract items is another important option provided in scope item 3MO. This means that a certain item doesn't maintain its price over the whole duration of the contract, but that adaptation of this price is possible for that specific (price adaptation) item. Price adaptation items use a special item category in a service contract. Price adaptation can also be defined via settlement rules in a billing plan. The price to be considered can then be maintained manually on billing request line level.

The app Manage Service Contracts is used to create and manage all service contracts. It is part of the space called Service Management, and can be found within the section Service Contract Management.

Documentation

Complete the following steps to access and download all the documentation that is available from SAP for scope item Service Contract Management (3MO):

  1. Navigate to the list of solution processes on the SAP Signavio Process Navigator website and log in. Use URL https://me.sap.com/processnavigator and choose Solution Process. You can now see a list of all available solution processes.

  2. Using the Search in SAP Signavio Process Navigator field (in the top right corner of your screen), search for solution process 3MO.
  3. In the resulting list, select the entry for the current (i.e. the most recent) version of the solution process for solution scenario Best Practices for SAP S/4HANA Cloud. You can now see the details for the solution process.
  4. Choose Accelerators.
  5. Choose Test Script to download the test script as a Microsoft Word file, and open this file.
  6. If available, choose Set-up instructions to open the set-up instructions for the solution process.

Key Process Flow

  1. Create a service contract by using the UI or an external interface.
    • Define a customer-specific price agreement. You can also do this on header level in the contract: use condition type DSC3.
    • Release a service contract without errors.
  2. Create a service order and select a service contract by using contract determination functionality.
    • Confirm a service contract: price and service contract details are considered.
    • Adapt a price manually, if needed (for a price adaptation item, on billing request line level, and adjust the settlement rules in a billing plan); the manual price is considered (as defined in the date rule) and the price is considered for billing.
  3. Enable auto renewal based on a predefined time frame, on a predefined date.
    • Yo do this for expiring contracts not canceled within the time frame.
    • View expiring contracts and the top five contracts in analytics.
  4. View details of both a service order and a service contract in reporting.
  5. Create a credit memo against the invoice for a service contract.

Business Benefits

To summarize:

  • You can create a service contract from the user interface (UI) and also using an external interface.
  • If needed, various price adaptation possibilities are available in service contracts.
  • Price agreements (like gross price and discounts) in service contracts are available. Both on header and on item level.
  • Service contract determination is available in service orders.
  • Auto-renewals for service contracts is available.

The Process Steps for Solution Process Service Contract Management

Main Process Steps for Service Contract Management (3MO)

Create a service contract

A customer service manager initiates the Manage Service Contracts app through SAP Fiori's launchpad, then creates a new service contract inputting all necessary details.

Maintain price agreements

A customer service manager or pricing specialist administers the customer's product price agreement. When a new service order is assigned to an existing service contract this price agreement is applied to the service order. Optionally, the DSC3 (discount for service contract) condition type can be used to apply a discount to all the items covered by the service contract. If required, the tax destination country, normally derived from the ship-to party, can be altered under the Billing header.

Monitor and release service contracts

Using the Manage Service Contracts app, the customer service manager filters and views service contracts that contain errors, offering them a comprehensive error report. After identifying a contract containing an error, they notify the appropriate party to address the missing details (e.g. missing master data), then manually release the service contract. The release of a service contract often leads to other actions in related process solutions such as Service Order Management (3D2), Event-Based Revenue Recognition (3M3), and Account Receivables (J59), among others.

Manage billing document requests

A billing clerk uses the Manage Billing Document Requests app on SAP Fiori to identify specific service contracts and check if a billing document request has been made.

Create invoices

A billing clerk uses the Create Billing Documents app to create an invoice for a billing document request referencing a specific service contract. After the invoice is created, a background operation can commence that handles the necessary revenue recognition activities. If necessary, the invoice can also be canceled, which removes it from revenue recognition consideration.

Analyze service contracts

A customer service manager uses the SAP Fiori app Service Management Overview to evaluate the financial performance of the service process via service contracts. This app allows them to take a comprehensive view of the status and performance of the service management process. For instance, they can analyze expiring service contracts or see all service contract values.

TaskCustomer Service ManagerPricing SpecialistBilling Clerk
Create a service contract  
Maintain price agreements  
Monitor and release service contracts  
Manage billing document requests  
Create invoices  
Analyze service contracts  
Note

Further insights regarding the processes that 3MO supports:

  1. If billing document request generation performance does not satisfy the business requirements, there are parallel processing parameters available that can improve the performance of the system by leveraging more system hardware resources.

    An example: a Parallel Processing checkbox is available for the app, with which a billing document request (BDR) creation job can be scheduled.

  2. Service contract invoicing and revenue recognition (see also scope item 3M3):
    • Once an invoice for a service contract item is created, a background job can be run that will process all required revenue recognition activities. It doesn't matter for this whether the service contract item has a released or a completed status.

    • The invoice can later also be canceled again and if this happens, revenue recognition will not consider this invoice anymore.

    • Credit memos are not included in the billing plan (for the service contract item) and this means that they are also not part of revenue calculation per period. They will be included in the profit and loss statement (P&L) when the service contract item is technically completed. If credit memos need to be posted directly in Finance which should not lead to deferred postings in Event-Based Revenue Recognition (EBRR), revenue accounts need to be used which aren't a source in EBRR content.

  3. Negative quantities for items in service contracts are not allowed.
    • Example scenario: A customer wants to reduce the quantity of an item in a service contract from 10 to 9. The net value for a quantity of 10 is 10.000,00 EUR, and the adjusted net value should become 9.000 EUR.
      • Incorrect: Insert a new item with a quantity of -1 to reduce the total quantity from 10 to 9, so the net value will be adjusted to 9.000,00 EUR.
      • The suggestion is to use a negative price with a positive quantity. An extra item needs to be added to the service contract with a quantity of 1 and a price of -1.000 EUR.
    • See also the SAP knowledge base article with number 3109795 for this example.

SEPA Mandates

SEPA mandates are also supported in service contracts. A SEPA Direct Debit mandate is a document that allows the owner of a bank account to give their creditor a direct debit notice. In other words, it allows a creditor to withdraw the amount of money that is due directly from the debtor's bank account.

A customer service manager can enter payment terms, a SEPA mandate and a payment method in a service contract, so that the billing document(s) that are created for the service contract item(s) can be paid through a SEPA mandate.

To prevent certain billing request lines from being invoiced (for whatever reason), a billing block needs to be set for those billing request lines.

The billing status of a service contract item has no relationship with a possible credit memo for this contract item. A credit memo is a separate billing document in the system. The billing status of a service contract item is based on the net value and the cumulative invoiced value. If the cumulative invoiced value is equal to or larger than the service contract item net value, then the service contract item is fully billed.

A service contract item's net value is the cumulative value of all billing request lines. Invoiced billing request lines cannot be deleted or changed. Even if later on item prices are changed in the service contract, this won't affect the already created invoices. Also: it is not possible to change the price of a completely billed service contract.

Optional Steps

There are also several optional steps that are part of scope item 3MO. The following are examples of these optional steps:

  • Create a credit memo with reference to an invoice created for a service contract.
  • Cancel a service contract.
  • Monitoring the automatic renewal of a service contract item.
  • Create a condition record to maintain pricing information in the system.

A Credit Status field is also available on header level of a service contract (in the Processing Data group). The value of this credit status is calculated based on all item level credit check statuses.

On service contract header level, a button named Simulate Credit Check is also available to allow the end-user to process a credit check simulation during service contract maintenance.

Two options are allowed to simulate a credit check:

  • Simulate all items
  • Simulate released items

Another feature is that when an equipment is added into the service contract object list, and if this equipment has a serial number, this serial number is taken over into the service contract.

Relevant Organizational Structure and Master Data Elements

The following organizational structure and master data objects are required for the Service Contract Management processes that are implemented using this scope item:

  • Organizational structure: sales organization
  • Master data objects:
    • Business partner representing the customer
    • Employee master
    • Service (using a material master record)

The main organizational element that needs to be set up for the Service Contract Management (3MO) scope item is the sales organization. A sales organization in SAP is linked to exactly one company code. As the company code is the level on which a general ledger administration is run, using this link allows the system to know to which general ledger the accounting postings must be posted. An example of such an accounting posting is the customer invoice that is generated based on the billing request document.

In terms of master data records, for the customer for whom one or more service contracts are created, a business partner with the customer role is required. An employee master is needed for the (internal) employees for whom hours are posted to the service contracts. The services delivered are created as material master records with a special material type for services (known as service products or materials).

Flexible Configuration of Output Relevance

In SAP S/4HANA Cloud Public Edition, service, there is a flexible way of defining whether a service contract, a service quotation, and/or a service order is relevant for output. Rules can be defined for each type of document individually. As an example, the figure shows rules set up for a service order. This can be done in a similar way for a service contract and/or a service quotation.

The fields Error Status, Cancellation Status, Release Status and Open are available as columns in the decision table used to set up the output relevance for a service order. For a service contract, the field Error Status is available to do this. For a service quotation, the field Release Status can be used.

Output management for service contracts also supports XML as the output type for service contracts (in the Manage Service Contracts app.

Note

This is very similar to the way this is set-up for service quotations. This topic is also covered in the course material for service quotations and for service orders. See also solution processes Service Quotation (4GA) and Service Order Management and Monitoring (3D2).

Service Contract Performance Dashboard

In the area of analytics for service contracts, the so called Service Contract Performance Dashboard is available. See the unit about solution process Service Monitoring and Analytics (43B) in this course for more details.

Business Roles for Service Contract Management

If you want to test and use the functionality that is provided with solution process Service Contract Management (3MO), you need to assign business roles to your individual test users based on the following template roles:

Business roleBusiness role ID as delivered by SAP
Customer Service ManagerSAP_BR_CUSTOMER_SRVC_MGR
Billing ClerkSAP_BR_BILLING_CLERK
Pricing SpecialistSAP_BR_PRICING_SPECIALIST
Configuration Expert - Business Process ConfigurationSAP_BR_BPC_EXPERT

The above table provides an overview of all the standard business roles that are used when testing and executing solution process Service Contract Management (3MO).

Note

This information is based on the test script for scope item Service Contract Management (3MO), which can be found on and downloaded from the SAP Signavio Process Navigator, via https://me.sap.com/processnavigator.

These roles are provided by SAP as example roles. You can use these example roles as templates to create your own roles.

Simulation of the Main Process Steps for Service Contract Management (3MO)

You can use the following simulations to work your way through the main process steps for scope item 3MO:

Log in to track your progress & complete quizzes