Business Requirements
Purpose
Contract Management is carried out
- to record terms and conditions agreed with a supplier, identified for a product or service through the Sourcing exercise, and
- to ensure that every purchase of the said product or service within the validity period of such contract, happens from the contracted source
Basic Process
Input
- Accepted Quotations at the conclusion of the Sourcing exercise provide all relevant inputs for Contracts
- Business Roles Purchaser/ Buyer, Sourcing Manager
Process Flow
- Following information from the accepted Quotation is used to generate a Contract
- supplier information like code, name, address, supply locations etc.
- product or service information like code, description, unit of measure etc.
- agreed terms like price, rebate, quantity limits, value limits, validity dates etc.
- schedule information like quantity, delivery locations, dates etc.
- Upon creation, Contracts may be put up for approval from different stakeholders, predominantly from the procurement and finance departments and occasionally from the user department
- Some contractual negotiations with the supplier may also happen at this stage and thereafter, approved Contracts are released for usage for operational procurement
- Business Roles Purchaser/ Buyer, Sourcing Manager, Financial Controller
Output
Contract Management leads to approved Contracts being used as sources of supply for all subsequent purchases
Business Capabilities
Supplier Negotiation Management
- Ability to prepare for the negotiation of contract terms with the supplier, to manage the negotiation process and record discussions and decisions, and to finalize negotiation and collect approvals
Operational Procurement Contract Management
- Ability to manage the data from contracts necessary to process requisitions and create purchase orders, including supplier identification, products and services, price conditions, quantities, locations, etc
- Includes contract compliance ability to comply with contracted prices and terms automatically across all operational procurement activities
- For commodity related contracts, it includes flexible pricing rules based on different dimensions like market prices, qualities, quantities and locations
Purchase Price Management
- Ability to manage purchasing cost, discounts and surcharges for products and services procured from a supplier
- This includes the maintenance of purchase prices as well as the purchase price calculation in a specific context, for example in a purchase order or in an invoice
- It also includes determination of commodity formulas linking to market prices
Purchasing Rebate Management
- Ability to plan, monitor, and settle rebates in order to reduce purchase costs through the partial refunding of purchase prices
- Includes the ability to determine the actual cost of purchasing rebate agreements with suppliers
Procurement Scheduling Agreement Management
- Ability to create the schedule agreement and to initiate the delivery of a product from a supplier based on a schedule agreement, using dates and quantities as defined in the agreement
Supplier Catalog Management
- Ability to allow supplier-initiated uploads of product and service catalogs
- This typically involves catalog items that include product- and service-rich descriptions with category-specific characteristics, pictures, pricing conditions, and other related information
Procurement Contract Collaboration
- Ability to collaborate, communicate, and work with suppliers throughout the contract lifecycle process
Commodity Risk Management
- Ability to identify, quantify and manage commodity price risks
- Includes dedicated commodity price risk reporting and the ability of managing hedging transactions
- Covers accounting for the related financial transactions and positions according to international standards, including hedge accounting according to IFRS9
Legal Contract Lifecycle Management
- Ability to manage the full lifecycle of contracts, from requesting contracts, to creating contracts, and storing, tracking, and searching for information from contracts
Distribution of Business Capabilities in the Contract Management Process
Solution Options
- SAP Ariba Sourcing
- SAP Ariba Procurement
- SAP Integration Suite, Managed Gateway for Spend Management
- SAP Business Network for Procurement (formerly Ariba Network)
- SAP S/4HANA (private and public cloud)
- SAP S/4 HANA for Supplier Quotation Management (S/4HANA SupQM)
- SAP Fieldglass Vendor Management System (Fieldglass VMS)
- SAP S/4 HANA for Central Procurement
- SAP Procurement Intelligence
- SAP Broker Reconciliation for Commodity Derivatives
- Icertis Contract Intelligence for SAP Ariba Solutions
- SAP Signature Management by DocuSign
Characterization of the Solution Options
Common Process Variants
Collaborative Contract Management with Suppliers
For more information, please refer to the best practice Contract Management with SAP Ariba Contracts (4AZ).
Event Based Collaborative Sourcing and Contract Management
For more information, please refer to the best practice Direct Material Sourcing (4RD), Preferred Supplier List (4RI) and Central Purchasing (2XT).
External Workforce and Service Procurement Contract Management
For more information, please refer to the topic “Workflow for SAP Ariba Contracts and SAP Fieldglass Integration” on help.sap.com.
Basic Contract Management
For more information, please refer to the best practice Purchase Contract (BMD).
Central Purchase Contracts without Collaboration
For more information, please refer to the best practice Central Purchase Contracts (2ME).
Central Purchase Contracts with Collaboration
For more information, please refer to the best practice Contract for Central Procurement with SAP Ariba Contracts (4B0).
Capability Distribution Across E2E Process Variants
Criteria to determine the most suitable target solution
Solution Capability Based
Collaborative Contract Management with Suppliers
Event Based Collaborative Contract Management
Catalog and External Workforce
Commodities
Business Process/ IT Parameter Based
Additionally, the following business and IT considerations may also be applied in certain cases, to arrive at the most appropriate solution :
- Are there any regulatory/ strategic need to collaboratively manage negotiation with prospective suppliers for most purchases, e.g. for government/ public sectors?
- Is there a strong need to manage contract lifecycle within the system?
- Are collaborative negotiations limited largely to events like projects or marketing campaigns?
- Are there frequent occasions where the suppliers upload information about catalog items directly into the customer’s system?
- Is there large scale external workforce contract management?
- Is there significant procurement of commodity derivatives through brokers?
- Are contracts mostly required as an offline execution tool to manage supplier choice, quantity and value without the need for collaboration?
- Does the organization’s landscape consist of multiple ERPs from where specific items are chosen for centralized contracting?
Decision Tree
The architectural decision with the listed solution(s) are complementary and not mutually exclusive. Since the same set of business capabilities are sometimes enabled by multiple solution capabilities, the choice of application is tied more to the addressable business process variants than differential capabilities of the products.
Accordingly, the following 6 major E2E process variants (A – F) and 3 minor variants (G – I) discussed in the previous two sections may be used to arrive at application decisions :
- Collaborative Contract Management with Suppliers
- Event Based Collaborative Contract Management
- Basic Contract Management
- Central Purchase Contracts with Collaboration
- Central Purchase Contracts without Collaboration
- External Workforce Contract Management
- Supplier Catalog Collaboration
- Commodity Derivative Procurement
- Contract Lifecycle Management
Conclusion
- For Basic Contract Management capabilities with no collaboration, SAP S/4HANA will suffice
- For Event Based Sourcing and Contract Management, a combination of SAP S/4HANA, SAP S/4HANA Supplier Quotation Management, SAP Procurement Intelligence and SAP Business Network for Procurement can work
- For addressing full blown Collaborative Contract Management capabilities, a combination of SAP S/4HANA, SAP Ariba Sourcing, SAP Business Networks for Procurement and SAP Integration Suite Managed Gateway for Spend Management will be required
- SAP S/4HANA Central Procurement will be required additionally, if Central Procurement capabilities are required, i.e. a central procurement hub procuring on behalf of connected back end ERP systems
- For extensive External Workforce Procurement, SAP Fieldglass Vendor Management System will be required on top of the applications required to enable Collaborative Contract Management capabilities
- For Catalog Collaboration with Suppliers, especially for indirect products and services, SAP Ariba Procurement will be needed
- In addition to SAP S/4HANA Commodity Risk Management capabilities, for Commodity Derivative Procurement scenarios, SAP Broker Reconciliation for Commodity Derivatives should be used
- If there is a need for managing contract lifecycle within the system, a combination of Ariba Sourcing, Icertis Contract Intelligence and Signature Management by DocuSign may be deployed
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