What is Outline Agreements in SAP MM

What is Outline Agreements in SAP MM: In SAP MM (Materials Management), an Outline Agreement is a long-term purchasing agreement with a vendor that defines the terms and conditions for future procurement of materials or services. It serves as a framework for subsequent procurement activities, reducing the need to repeatedly negotiate terms for individual purchase orders. Outline agreements are commonly used in procurement processes to streamline purchasing and ensure consistency.

There are two main types of outline agreements in SAP MM

Contract

• A contract is a general agreement with a vendor for the supply of materials or services over a period of time.
• It specifies terms like pricing, delivery schedules, and validity periods but does not include specific delivery dates or quantities.
• Contracts are used when the exact delivery schedule or quantities are not known in advance.
• Types of Contracts:
  • Quantity Contract: Specifies the total quantity to be procured over the contract period.
  • Value Contract: Specifies the total value of materials or services to be procured over the contract period.
• Release Orders: Individual purchase orders (called “release orders”) are created against the contract when materials or services are needed.

Also Read: How to Procure Non-Material stock

Scheduling Agreement

• A scheduling agreement is a more detailed outline agreement that includes specific delivery dates and quantities.
• It is commonly used in industries with just-in-time (JIT) delivery requirements, such as automotive or manufacturing.
• The vendor receives a schedule of planned deliveries, and the agreement is updated as requirements change.
• Delivery Schedules: The buyer sends delivery schedules to the vendor, specifying exact quantities and delivery dates.
• Goods Receipts: Goods are received against the scheduling agreement, and invoices are matched to the agreement.

Key Features of Outline Agreements:

• Validity Period: Outline agreements have a defined start and end date.
• Pricing and Terms: They include agreed-upon pricing, payment terms, and delivery conditions.
• Reduced Administrative Effort: They eliminate the need to negotiate terms for each purchase order.
• Flexibility: Contracts allow for flexibility in quantities and delivery schedules, while scheduling agreements provide precise delivery planning.

Benefits of Using Outline Agreements

1. Streamlined Procurement: Reduces the time and effort required for creating individual purchase orders.
2. Cost Control: Ensures consistent pricing and terms over the agreement period.
3. Improved Vendor Relationships: Establishes long-term partnerships with vendors.
4. Better Planning: Helps in forecasting and planning material requirements.

How Outline Agreements Work in SAP MM:

1. Creation: An outline agreement (contract or scheduling agreement) is created in SAP with the vendor.
2. Release: For contracts, release orders are created as needed. For scheduling agreements, delivery schedules are sent to the vendor.
3. Goods Receipt: Goods or services are received against the agreement.
4. Invoice Verification: Invoices are matched to the outline agreement for payment.

Transaction Codes in SAP MM for Outline Agreements:

• Create Contract: ME31K
• Create Scheduling Agreement: ME31L
• Display/Change Contract: ME33K / ME32K
• Display/Change Scheduling Agreement: ME33L / ME32L
• Release Order Against Contract: ME21N

Outline agreements are a critical component of SAP MM for efficient procurement and supply chain management.

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