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SAP Solution in Detail

mySAP Supplier Relationship Management

CONTRACT MANAGEMENT WITH


mySAP SUPPLIER RELATIONSHIP
MANAGEMENT

Copyright 2005 SAP AG. All rights reserved.


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CONTENTS
Executive Summary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Contract Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Contract Execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Contract Monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Features in Detail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Developing Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Create Contracts Manually . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Maintain Tight Control with Authorization Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Track Changes and Versions for Complete Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Create Contracts from RFQs or Reverse Auctions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Create Contracts from the Sourcing Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Upload Contract Data from mySAP ERP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Automate a First-Article Evaluation Process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Modify Contracts Offline. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Make Mass Changes Online. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Configure Business Partners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Centralize Attachments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Manage and Maintain Global Contracts Centrally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Executing Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Group Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Base Rebates on Released Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Predefine Quotas According to Purchasing Strategy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Maintain Contract Hierarchies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Release Contracts and Keep Them Under Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Select the Best Suppliers for Your Specific Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Monitoring Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Tame Maverick Spending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Monitor Contracts Closely . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

EXECUTIVE SUMMARY
According to some estimates, 80% of all procurement is contract
based. The few solutions available for contract management
usually focus on either preparing and negotiating contracts
before they are signed or fulfilling and monitoring them after
they are signed. The mySAP Supplier Relationship Management
(mySAP SRM) solution addresses both these issues, providing
control over the complete contract management life cycle.
Contract Renewal

Prepare

Negotiate

Fulfill

Monitor

Workflow

Create

draft contract
Templates
Search
Versions

Enable workflow
Review
Rights
Approval

Collaborate

on contract with
suppliers
Sharing
contract for
negotiation
Integrating
with
quotation
process
Tracking
change
process

Use contract for Monitor


sourcing
Creating PO
against
contract
Complex
prices
Distributing
contract to
back end
Quota
arrangements

contracts
Collecting
call-offs
Tracking calloff volume
against
contracted
quantities
Tracking
maverick
spend
Generating
alerts and
renewal
process
Status control

Figure 1: The Contract Management Life Cycle

For many companies, contract management virtually stops


once the contract is signed. Most contracts simply sit in file
cabinets until they expire, providing little or no opportunity
for enterprise-wide reuse of the knowledge and content that
went into them. As a result, local units are often left to reinvent
the wheel for each new business situation. In addition, once a
contract is finalized, the means of enforcing compliance are
rudimentary at best.

Worse still, many automatically renewing contracts contain


built-in price hikes that are triggered if the renegotiation date
is allowed to expire. Without proper contract monitoring, its
easy for companies to find themselves obligated to honor
less-than-favorable conditions.
mySAP SRM addresses these issues by supporting centralized
contract management, empowering you to develop global
contracts that help increase compliance throughout your
enterprise. Stored electronically for easy access, all units and
subsidiaries can tap into these contracts to secure the most
favorable terms and conditions. At the same time, this approach
provides the necessary flexibility for storing local exceptions,
modifications, and conditions as requirements demand.
This mix of centralized support and local flexibility frees
individual business units from many of the burdens of contract
management, boosting productivity in the process. Fully
integrated into corresponding processes such as bidding
and material resource planning runs in back-end systems
mySAP SRM helps you gain control over all of your contracts.
Better management of contracts throughout their life cycle
results in more efficiently negotiated terms, cross-enterprise
contract visibility, higher compliance, and reduced administrative costs.
mySAP SRM workflows allow you to follow an organized and
efficient method of handling contracts during the preparation
and negotiation phase by monitoring and tracking all changes
to ensure consistency.

INTRODUCTION
Contract Development

mySAP SRM facilitates the reuse of organizational knowledge


so that you dont have to start from scratch when you write
new contracts. You can search for contracts based on different
attributes, use free-text searches for attachments and long
text fields, and copy information from existing contracts or
predefined templates into new contracts. This saves time and
ensures compliance with external regulations and adherence
to internal business rules and best practices.
mySAP SRM supports the entire contract development process.
It also provides an authorization concept, a rule-based approval
workflow, and contract release strategy for security. The creation
process is fast, easy, and efficient and includes offline editing
and control over contract accessibility and visibility. You can
easily collect and analyze historical data, which helps in the
decision-making process. Predefined reports can quickly reveal
a vendors key indicators, as well as other important information, such as spend analyses on different products and suppliers.
The end result is a vastly streamlined contract development
process that does not have to start from scratch every time
the purchasing department needs to write up a new contract.
Contract Execution

mySAP SRM streamlines the contract creation process with


centralized distribution and control of scheduling agreements.
It offers contract compliance and support for lean business
processes without a purchase order (PO). With mySAP SRM,
you have real-time rebate calculations and the ability to
maintain product catalogs quickly and easily.
Your purchasing organization can negotiate ideal terms and
conditions with a supplier and then formalize this agreement
in a signed, legally binding contract that can be embedded in a
complex contract hierarchy structure. And you can successfully
communicate the contract to the rest of your organization to
make the most of the time and effort that went into reaching
the agreement.

Based on the materials or services required, the solution identifies


the optimal contract to fill the need while taking into consideration such factors as price, delivery times, and plant location.
mySAP SRM can also account for different types of discounts,
such as value discounts, quantity-based stepladder discounts,
group discounts, or rebates based on released values. These
powerful functions combine to provide automated contract
compliance, helping you extract the most value out of expertly
negotiated agreements.
mySAP SRM is the only solution that supports the distribution
and full control of contracts from a central contract repository
to back-end systems for execution. After distribution and release,
the released values are transferred back to mySAP SRM. Approval
workflows and version control functions ensure that the proper
version of a contract is released, enhancing your purchasing
departments ability to enforce contract compliance and
promoting contract reuse.
Contract Monitoring

mySAP SRM constantly monitors all active contracts, providing


up-to-the-minute information on contract status and usage.
It also helps you track vendor performance and oversee internal
contract compliance. Decision makers receive alerts when
contracts are about to expire and when suppliers should
be contacted. The alert notification can be triggered by the
contracts expiration date or by exceeding the contracts target
release value. If supplier performance has degraded or if
marketplace changes warrant new terms and conditions,
authorized purchasing professionals can recommend contract
renegotiation. This helps you maintain a base of contracts that
are always optimized to meet the overall business objectives
of your enterprise.

FEATURES IN DETAIL
Developing Contracts

As a central procurement platform, mySAP SRM enables you


to create cross-plant contracts and then use them as sources of
supply for operative purchasing processes. During the preparation
phase, you can create contracts for services, for direct materials,
and for maintenance, repair, and overhaul (MRO) materials.
You can create contracts manually from a request for quotation
(RFQ), reverse auction, or the sourcing application, or you can
upload an existing contract from the mySAP ERP solution as
an initial upload. You can then either continue working in
mySAP SRM or download your contract to another program,
such as Microsoft Excel. When you have finished working
offline, you can upload the revised contract to mySAP SRM.
Once you approve the contract via a workflow, online or offline,
the preparation phase is complete.
Create Contracts Manually

You can create contracts for products, product categories, and


catalog items. You can also copy them from sample contracts
and existing templates. If your company has negotiated special
conditions for products, you can add conditions based on the
release value or release quantity. You can also maintain details,
such as price scaling, validity, location, specific conditions, and
absolute and percentage discounts in different currencies. You
can manually attach documents and notes, and different
versions can be attached to a contract in mySAP SRM.

mySAP SRM provides single authorization sections for the contract header, pricing data, attachments, and contract authorization (that is, it allows you to authorize other users).
Track Changes and Versions for Complete Control

mySAP SRM tracks both changes and previous contract versions.


You can determine who changed what and when for complete
control of contract creation and maintenance.
Create Contracts from RFQs or Reverse Auctions

The mySAP SRM bidding engine transfers information, such


as product description, quantity, gross price, and supplier data,
to the mySAP SRM contract management functions when you
create a contract via a winning bid of an RFQ. When drawn
from an RFQ or auction, a contract can be created locally or
in the back-end system. Once the contract is completed, the
software triggers an approval workflow. If the contract is not
approved, releases cant be generated on the contract.
Create Contracts from the Sourcing Application

With mySAP SRM, you can create contracts based on requirements in the sourcing application. Once transferred into
mySAP SRM, you can determine the source of supply for
those requisitions. Subsequently, you can create a PO against
that contract in either mySAP SRM or in the back-end system.
Upload Contract Data from mySAP ERP

Maintain Tight Control with Authorization Management

mySAP SRM contracts have extensive authorization management


because SAP recognizes that contracts can be very sensitive
documents. Authorizations can be specific to roles, individuals,
or organizational entities. With mySAP SRM, you can set:
The contract sections that can be viewed or changed and
by whom those operations can be performed
Overall rights to view or change confidential contracts
Rights by user or role for a single contract
The contract as confidential, allowing you to control
who can access it

You can speed up the initial implementation of mySAP SRM by


uploading existing contracts in mySAP ERP into mySAP SRM.
Automate a First-Article Evaluation Process

New supplier products are often tested and inspected with


a special product evaluation procedure before they are used
for production. With mySAP SRM, you can conduct these
evaluations and make sure that the tests are successful before
approving products for company-wide use. The central contract
management system locks a product out of normal ordering
until the evaluation is finished to prevent unsanctioned use.

mySAP SRM also ensures that new contracts are available as


soon as possible because it eliminates the time lag between the
end of the product test and the availability of the new supplier
products.
With mySAP SRM, strategic purchasers can mark contract line
items that are almost ready for regular purchase for a first-article
evaluation process. You order a specified quantity for testing
purposes first. Once the tests, which are controlled by an approval
workflow, are successful, the contract status changes, allowing
additional items to be ordered.
Modify Contracts Offline

Once you have created a contract, you can download it, modify
it, and upload the revised contract into mySAP SRM. This can
be especially helpful when contract modifications have to be
done offline, for example, on a flight to visit a supplier where
no system connection is available or when you need to make
a price change across multiple contracts without any specific
pattern. You can also upload several contracts at a time handy
for transferring contracts from a previously used file system or
for exchanging contracts with a supplier.
Make Mass Changes Online

Using the online mass change functionality of mySAP SRM, you


can modify multiple contracts independent or hierarchical
in a single transaction. It is easy to make online mass changes
with mySAP SRM:
Search for and select the contracts
Determine your single or multiple change parameters
Simulate the change to make sure the result will be what
you intended
Execute or cancel the mass change
The mass change functionality can trigger approval workflows
or not, depending on your preference.

Configure Business Partners

Contracts are generally created as part of a collaborative


process that involves multiple internal and external parties.
mySAP SRM maintains all the data for relevant business
partners to ensure that your communications with your
contract partners are safe and consistent.
Centralize Attachments

mySAP SRM can serve as a central repository for all attachments


associated with contracts, including Microsoft Word files, e-mails,
and drawings. It also gives you complete control over these
attachments. You can:
Upload and link attachments to local contracts and global
outline agreements
Track attachments by version to make sure that everyone is
using the latest version and has easy access to the historical
versions
Modify attachments through check-in/check-out functionality
Search for key words or specific identifiers like supplier
product numbers using the full text search function
Archive attachments for a complete historical record
Use the configurable text schema to structure your text
elements
Manage access rights to attachments to ensure data security
The mySAP SRM contract distribution interface includes
attachments so that when contracts are distributed to a system
with mySAP ERP, the attachment is added to the corresponding
mySAP ERP contracts.
Manage and Maintain Global Contracts Centrally

A global outline agreement in mySAP SRM is a deployment


function in which contracts can be managed and maintained
centrally for a global base.
Once the purchasing manager approves the release of a global
outline agreement, contracts are automatically distributed to
different back-end systems. After distribution, contracts are

available locally in the back end. Once the contract is created in


the back-end system, POs created locally in mySAP ERP can be
issued against the operational back-end contracts. The release
values are posted against the local contract and against the
global outline agreement.
The complete procurement process takes place in mySAP ERP.
The global outline agreement in mySAP SRM is the master
contract, and changes to the agreement in mySAP SRM affect
the distributed local contracts that are stored in the different
back-end systems.
Executing Contracts

Maintain Contract Hierarchies

Contracts with hierarchical relationships are commonplace. An


example of this is a global contract with a global supplier linked
to several local contracts that include specific local terms and
conditions between the suppliers and buyers local subsidiaries.
With mySAP SRM, you can maintain contract hierarchies to
model real-world relationships.
Using the hierarchical contract information, you can create
reports. For example, you can create a report on the complete
contract use of a contract tree or a report about specific branches.
With mySAP SRM, you can also calculate global rebates across
hierarchical contracts.

Group Conditions

Group conditions allow more flexible pricing options within


purchasing contracts, for example, to derive better prices
when similar products are ordered together within one PO.
With mySAP SRM, you can group and link contract conditions
on the line item level in the sourcing application. The values
or volumes of PO line items are summed up, and the group
condition applies to that sum.

mySAP SRM lets you manage large, complex contract trees.


You can structure your contracts into overall global parts
(including general terms and conditions) and local parts (which
have terms and conditions specific to a region or product). The
ability to report through a complete tree creates ad hoc visibility
to ensure that your businesss overall procurement strategies
and objectives are fulfilled.

Base Rebates on Released Value

The mass change functionality of mySAP SRM ensures


consistency over a complete contract tree or across multiple
independent contracts. It also prevents the problems caused by
missing the local angle when a corporate contract is updated
or modified.

Because rebates are not always calculated based on a single PO,


mySAP SRM enables you to negotiate and execute rebates
based on purchases made within a specific period of time, on
merchandise value or volume, or on scale (for example, the
aggregated release value or volume of all previous releases).
Predefine Quotas According to Purchasing Strategy

Companies often use multiple vendors for a specific product


or product category to reduce the risk of dependency on a
single supplier and to increase leverage in negotiations. With
the help of predefined quotas, mySAP SRM makes sure that
order quantities or values are distributed among suppliers
according to your overall purchasing strategy.

mySAP SRM also provides supplier and product category


hierarchies multilevel hierarchy trees that enhance the reporting
functionality of the contract management application. It offers
reporting functionality similar to contract hierarchy, but without discounts.
Release Contracts and Keep Them Under Control

A completed contract can be released after it has been approved


and all relevant data concerning the contract has been entered
into mySAP SRM. During this fulfillment phase, all contract

items become available as sources of supply. From there, you


can distribute them to back-end purchasing organizations, or
back-end purchasing organizations can research existing contracts
and register for them. Back-end purchasing organizations can
also be informed via e-mail that a new contract exists; they
receive a link that directs them to the search contract
functionality.
You can output contracts that are designated as complete. You
can print and fax the contracts, send the documents to your
suppliers, or send the data via XML.

mySAP SRM automatically determines existing sources of supply


for requirements in the sourcing application. You can then
assign the sources proposed by the solution to the items. The
solution determines contracts and vendor-specific prices.
POs can be generated by manually assigning sources of supply.
When an order is generated, the release value is calculated from
the corresponding contract. You can view released values in
mySAP SRM and by using predefined SAP NetWeaver BI reports.
Monitoring Contracts
Tame Maverick Spending

Select the Best Suppliers for Your Specific Needs

As part of sourcing, mySAP SRM verifies whether purchase


contracts exist for requested items. If a requirement matches
existing contracts, the solution proposes one or more contracts
as a possible source of supply. This helps you select the best
source of supply at a specific moment and ensures contract
monitoring.
You can use contracts as sources of supply for requirements from
shopping carts via self-service procurement and plan-driven
systems, such as plant maintenance, project system, production
planning, the SAP Advanced Planning & Optimization (SAP APO)
component, or non-SAP planning systems via the sourcing
application.

One of the main goals of central purchasing departments is to


prevent or minimize maverick spending spending that is not
based on prenegotiated contracts. This often occurs with travel
expenses and maintenance services.
mySAP SRM handles non-PO invoices, so you can ensure
contract compliance for spending driven by orders that come
in through telephone calls or faxes, rather than by PO. You can
post an invoice directly against a contract by manually entering
contract and item numbers on the invoice item. mySAP SRM
updates the total release values and quantities according to the
invoice. The solution can switch the source determination on
or off in cases of non-PO invoices.
Monitor Contracts Closely

Contract releases are closely monitored quantities, and values


that have been ordered with reference to the contract are
displayed in the contract. The releases of central contracts are
monitored in the central contract management system, as well
as in the SAP NetWeaver Business Intelligence (SAP NetWeaver
BI) component.

SAP NetWeaver BI allows you to monitor contracts by providing


overview reports and by sending alerts for expiring contracts as
soon as the contracts achieve a critical limit. You can then create an RFQ out of the expiring contract to find new suppliers or
negotiate better prices. The reports inform you when contracts
have been used and when maverick buying has occurred.

When you implement mySAP SRM, you can define whether a


PO is to be generated directly in mySAP SRM based on an existing
source of supply or if a requirement is to be transferred into the
sourcing application of mySAP SRM.

For more information about this or other SAP offerings,


please contact your SAP customer engagement manager.
You can also send an e-mail with your contact information to
SAP.AmericaOSA@exchange.SAP.corp, visit us online at
www.sap.com/services/consulting, or call us at +1 888-727-2955.

www.sap.com /contactsap

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