Use SAP Quantity Contracts to Optimize Your Procure-to-Pay Process

  • by Yogesh Lohiya, Senior Consultant, Infosys Ltd.
  • December 2, 2011
Learn why using a quantity contract is a smarter option than individual purchase orders, and how quantity contracts can help optimize your company’s procurement business process. Understand how quantity contracts can improve efficiency in your planning and purchasing departments.
Key Concept
A quantity contract is a long-term purchasing agreement with an external supplier in which the supplier agrees to provide a specific quantity of one or more materials over a certain period of time. This agreement contains basic quantity and price data without any specific delivery dates. When the material mentioned in the contract is needed by the production and planning departments, a purchase order (also called a contract release order) is created against the quantity contract.

I was involved in an SAP ERP Central Component (SAP ECC) global rollout for a large manufacturing company that has offices and purchasing departments located in multiple countries. The company’s planning department needed many plant maintenance spare parts to keep machines running and meet its production target. To accomplish its goal, it had to go through a long process of entering the spare part requirement in the SAP system (in the form of a purchase requisition) and getting the final material at the plant production shop. Moving from the use of discrete purchase orders (POs) to quantity contracts helped streamline the company’s procurement process. I explain how contracts are different from POs, what types of contracts are available in SAP ECC, and how you can take advantage of quantity contracts to simplify your orders and remove the multiple PO approval process completely.

Both contracts and POs are forms of purchasing documents that are sent to a supplier to request materials or services. A PO is effective immediately, whereas a contract is a longer-term agreement with the supplier. In a contract, you detail the quantity of material and the purchase price for a vendor over a specified period (e.g., six months or a year, although a contract can be created for any period).

In an SAP system, there are two types of contracts — a quantity contract (SAP document type MK) and a value contract (SAP document type WK). The major differences between these contracts are their use and functionality. In a quantity contract, the purchasing buyer defines the target quantity (total quantity for the whole term of the contract) and unit price, whereas in a value contract, the purchasing buyer defines the total cost for the whole term of the contract. I focus on the use of quantity contracts.

Yogesh Lohiya

Yogesh Lohiya is a senior SAP MM consultant with Infosys. He is currently working on a large data migration project for a Fortune 500 client. He has more than nine years of consulting experience. He also has worked on various SAP global rollouts and data migration projects in the materials management area.

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