How to Optimize Your Customer Contract Administration Using Master Contract Functionalities

  • by Patrick Imhen, Business Analyst and Senior SAP MM/SD/PM Functional Consultant, ZOCODE Limited
  • June 9, 2017
Learn how to configure and use SAP master contract referencing requirements and copy rules to optimize the administration of customer contracts in SAP sales and distribution (SD). Discover how to resolve some related customer contract issues.
Learning Objectives

By reading this article, you will learn:

  • How master contract functionality in SAP sales and distribution (SD) can optimize the administration of customer contracts, explained with a relevant business scenario
  • How to configure the contract referencing requirement fields from some SD tables
  • How to set up the relevant settings in the master contract and customer contracts document types.
  • How to create the master contract and link lower-level customer contracts
  • How to resolve some related implementation issues
Key Concept
The SAP master contract functionality makes it possible for the values in certain defined fields in an upper-level contract (master contract) to be copied into lower-level customer contracts assigned to the master contract. The copying of values from certain fields in the master contract to lower-level customer contracts is based on defined referencing requirement fields assigned for the master contract from some SAP sales and distribution (SD) tables. It is used in grouping contracts for effective administration that can help organizations get better contract visibility, enhance transaction integrity and monitoring of contract performance, save cost, and reduce risk (because poor contract administration can lead to significant loss of revenue and serious legal penalties). The SAP customer contract is under Sales Outline Agreements, which is part of the Sales sub-module of the SD module.

Organizations use contracts to keep long-term sales relationships with their customers and sustain consistent patronage of their products and services. This makes a contract a vital part of a business. The efficient management of it can eliminate inconsistencies in delivering contract terms, inadequate visibility of contract performance, and disputes with customers due to wrong execution of a contract because of poor data integrity and other issues. In the SAP sales and distribution (SD) module, some functionality has been provided to improve administration of customer contracts. One example is the use of a master contract to optimize the creation and administration of a group of relevant contracts (such as quantity, value, and service contracts).

With the functionalities of the referencing requirement fields and copy rules, the use of master contract functionality enhances data consistency, transaction integrity, and visibility of customer contracts. This leads to better contract performance and saves organizations the cost of poor contract execution. This is relevant especially for organizations that transact with a large volume of sensitive contracts. The SAP system uses standard application logic to determine how data is copied from the master contract to assigned customer contracts (lower-level contracts).

Referencing requirement fields are contract document type fields assigned in a referencing requirement procedure to enable the copy functionality of copying or referencing the contract document type field’s values from the master contract to the lower-level customer contracts.

I explain how to configure the referencing requirements for a master contract and how I resolved some implementation issues I encountered.

How a Master Contract in SD Can Optimize the Administration of Contracts with a Business Scenario

The core of most business relationships with customers is based on contracts; it is a major factor for a company’s competitive advantage. On average, about 75 percent of business transactions and relationships are based on contractual agreements, and therefore, it is a critical business practice to ensure optimal administration of contracts in an organization. As stated earlier, SAP has provided functionalities to help organizations manage their customer contracts. The concept of using a master contract is one of them. A master contract in SD is used as a higher-level contract to administer a group of lower-level customer contracts simultaneously, whereby data maintained in the master contract is automatically copied uniformly into the assigned lower-level customer contracts.

Here are some reasons why I usually recommend a master contract for organizations with a largenumber of customer contracts:

  • Better organization: Customer contracts are grouped under a master contract based on defined criteria by an organization. This grouping facilitates the effort to identify and locate customer contracts because each master contract has a description and an overview list of all lower-level customer contracts linked to it. The master contract also enables the uniform update of a group of contracts with ease.
  • Better visibility: With the master contract overview list of all linked lower-level contracts, a contract administrator can easily see the performance of all assigned lower-level contracts because their validity dates are visible and the contract details can be accessed directly from the master contract.
  • Data integrity: With the referencing requirement fields and copy rules, sensitive data can be maintained at the master contract (single point of entry) and enforced on all assigned lower-level contracts so that users cannot make changes to such data in the lower-level contracts.
  • Save cost: The cost of resolving customer disputes and the cost of wrongly executing a contract and fines can be largely reduced by using the SAP master contract.
  • Reduce risk: The risk of losing unsatisfied customers and the risk of legal issues due to breach of contract can also be greatly reduced.

Patrick Imhen

Patrick Imhen is a business analyst and a certified SAP ERP consultant with proficient knowledge, skills, and experience in Materials Management (MM), Sales and Distribution (SD) and Plant Maintenance (PM) gathered from successful SAP implementations projects, support, training, business process analysis, modeling, unit testing, and integration testing. He has profound understanding of the supply chain process across industries and helps organizations cut the cost of operation and improve process optimization. He has more than 10 years’ experience in the business environment and six years’ experience in the SAP domain.

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