How to determine/choose between Scheduling Agreement Vs Contract in the Procurement Process in SAP S/4HANA?

November 20, 2022
Sara Sampaio
Technical Articles

Introduction:

In this blog, Steps are outlined on “how to determine/choose between Scheduling agreement Vs Contract” in the procurement process in S/4HANA. it helps the Category Manager/Buyer to negotiate and decide the right type of Contract with external Suppliers.

Pre-requisite:

Identification of Materials and Volume of the Procurement as part of Contract Management
Identify the right approved Suppliers and maintain them in S/4HANA

What is a Scheduling Agreement?:

A Scheduling agreement is a form of outline purchase agreement under which materials are procured on predetermined dates within a certain time period. Delivery of the total quantity of material specified in a scheduling agreement item is spread over a certain period in a delivery schedule, consisting of lines indicating the individual quantities with their corresponding planned delivery dates. Details of the delivery date and quantity are communicated to the vendor in the form of the delivery schedule. There are two types of SA (without release documentation (LP) and with release documentation (LPA))

What is Purchasing Contract?

A Contract is a type of outline purchase agreement against which release orders (releases) can be issued for agreed materials or services as and when required during a certain overall time frame. It can cover one or more products and product categories, they do not include delivery dates for the material. Contracts are based on value or quantity.

Purchasing contracts are created for materials that are often purchased from suppliers with whom a long-term relationship is anticipated. After negotiation, a contract will be created for the best price or discount on the purchased materials. It allows companies to reduce their operational costs and gain greater control over spending and supplier performance by managing their contract renewals.

How to determine/Choose between Scheduling agreement Vs Contract in the Procurement Process?

Scheduling agreements can shorten processing time and reduce the paperwork/documents. One Delivery schedule will replace a large number of contract release orders (Purchase orders)
A scheduling agreement (SA) will be created to ensure that vendor will supply the required quantity in a particular time frame as forecasted, whereas a Contract will be selected If we cannot forecast exact delivery quantities and timeframe (date and time) for the material in question
When you know the exact requirement dates and quantities, you can use a scheduling agreement, which will reduce the ordering cost, as you need not create a PO separately for each requirement. Also, the prices here in scheduling agreements are time-dependent. When you don’t know the exact requirements in terms of dates and quantities, you can use contracts to negotiate better prices. You need to create the PO with reference to the contract every time you got the requirement
Contracts are based on value or quantity, the period does not matter much. I.e. if you mention that a quantity of 5000 Boxes should be procured by the end of 2023. You can procure all of that quantity now or at any point before the end of 2023. Time makes a big difference in Scheduling agreement i.e. considering the same example above you can have the 5000 boxes split up into an estimated number of deliveries each month or a quarter or a year, so you have a definite amount that you initially predicted by the end of that estimated period
The main difference between contract and scheduling agreement is the volume of documents generated would be higher in contract since every time you need to make a PO regarding the contract only which is time-consuming whereas scheduling agreement can be integrated with MRP such that it automatically creates delivery schedules during MRP run provided if there is a requirement.
Specific periods are considered for SA vs Overall time is considered for Contracts

Conclusion: