Contracts in SAP MM Process

What is Contract:

In the MM Purchasing element, 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. (In the literature and in practice, similar concepts may also be referred to by a number of other terms, such as "systems contract", "blanket order agreement", "blanket contract", and "period contract".)

A contract is an agreement between the vendor and the customer for the vendor to supply material to the customer at an agreed price over a specified period of time.

Structure on Contract in SAP MM:

The contract consists of items defining the individual materials, material groups, or services with prices and in many cases quantities.

An item is assigned to an item category, which defines the type of procurement (e.g. item category K for consignment, or L for subcontracting).

An item of the procurement type "external service" contains a set of service specifications. Such specifications may be hierarchically structured. The summary view of such a hierarchical structure is termed an "outline", and the individual levels of the hierarchy are referred to as "outline levels". Quantities are specified in service lines. Services can be released (ordered, or called off against the contract) at item level or at the level of the service line.

Costs can be apportioned among various Controlling objects via the account assignment.

Release orders issued against the contract (see below) are logged in the release documentation.

Contracts can take the following forms:

Quantity contracts (MK):
Use this type of contract if the total quantity to be ordered during the validity period of the contract is known in advance. The contract is regarded as fulfilled when release orders totaling a given quantity have been issued.

Value contracts (WK):
Use this type of contract if the total value of all release orders issued against the contract is not to exceed a certain predefined value. The contract is regarded as fulfilled when release orders totaling a given value have been issued.

You can also set up corporate buying contracts with your vendors. These are valid for all plants and company codes within a client (see Centrally Agreed Contract - DC).

Over the contract validity period, certain quantities of the materials or services covered are released (called off) against the contract as and when required through the issue of purchase orders referencing the latter. Such purchase orders are thus termed "contract release orders" or simply "release orders". (Outside SAP, particularly in the UK; they may also be referred to as "call-off orders".)