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Introduction to Contract Management Solution in SAP ERP

This Document describes the Contract Management Solution in SAP ERP based on Netweaver Folder Management module created by a team of FITCON LLC (Russia, Moscow).

Why Contract Management?

Even in today’s digital age, legally binding contracts between business entities usually are in paper, require approvals, signatures and represent value. They have periods of validities, require explicit action for renewals or cancellations – usually with a thought given ahead of time of action. It is all about compliance!

SAP stores contracts related to the various business processes within their specific modules: SD, MM, RE-FX or with financial transactions, in TRM. They are disparate in the sense of: There is no central registry for contracts within SAP – contracts are “islands of information”.

As a conclusion:

  • There is no unified Contract object in SAP ERP – one cannot have an “all-contracts” registry in a report to action on.
  • There are different user interfaces of objects related to Contracts in SAP ERP modules – users have to learn to work with different interfaces, screens and data.
  • There are non-unified approaches to contracts data management and contracts approval – every business process (MM or SD) has different checks and steps to take. Many steps are needed to be programmed – there is no common workflow for approval.

Our solution is different. It takes into consideration, that contracts should be managed centrally and in accordance with records management requirements:

  • A one unified Object in SAP ERP for Contracts data that is linked to relevant objects in other SAP ERP modules helping to support standard functionality and business processes. It will provide the possibility of building necessary Reports on Contracts based on one Object, where contract data is stored in one place in database.
  • A unified user interface for this new Contract object allowing users will work in a simple and coherent user-friendly interface which doesn’t differ in a great way depending on the kind of business process.
  • A preconfigured functionality to cover all needs of basic steps of Contract Management business process:
    • Initiation
    • Approval
    • Negotiation
    • Execution and Maintenance
    • Renewal and Termination
  • A solution that provides the following possibilities:
    • Easy customizing of predefined checks and functions;
    • Easy extending and setting up ad-hoc checks and functions;
    • Control of Contract interface, functions and checks available according to:
      • Contract type
      • Contract status
      • User authorities in SAP ERP System
      • Flexible workflow with all necessary possibilities of common Workflow and Document Management Solutions
      • Tight integration with standard SAP ERP Objects and processes related to Contract Management.
      • Centralized storage and organization according to the principles of managing records.

Figure 1. Example of User’s Workspace: a Menu on the left, a Contract Card in View Mode (showing linked documents)

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Figure 2. Linked SAP ERP documents for a Contract: Purchase Order, Invoice and Payment

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FITCON has built, implemented and enhanced this solution over the past ten years. It is sound and stable, inspired by business requirements and tailored to meet them. Successful implementations with clients in Russia, such as Transneft, Sberbank, Bashneft, IES Holding are a proven track record.

Contract Management Lifecycle

Scheme of typical contract lifecycle which is covered in our Solution is following:

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Initiation

Basic tasks on the Initiation stage include:

  • Creating a Contract card with relevant data
  • Preparation of Contract draft in MS Word
  • Preparation of other relevant additions for a Contract:
    • Specification of materials or services;
    • Price-lists, etc.

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As we want in our Solution to closely integrate Contracts with other SAP ERP Objects, we suggest also to create MM or SD objects like Purchase Orders or Client orders at this stage. What is more important, we suggest to create these objects right from a Contract card, so some data (like Business Partner, dates of validity, types of contract) could be copied to relevant SAP ERP Object. Also one of the results of this operation is a connection between, for example, a Purchase Order and a Contract.

Approval

When everything is ready, it’s time to determine a route of Contract approval and start a workflow. We think that it’s more convenient not just to enter a route according to some manuals, but to determine it automatically by looking up some key data in our Contract card (see Library of Approval Routes section).

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But before starting workflow we still have some things to check. Basically, it’s something like:

  • Are all necessary documents attached to a Contract card?
  • Does Approval route comply to Contract data?
  • Are all of approval participants determined correctly and exist and active in SAP ERP system?

Our Solution has an ability to customize and extend these checks by simply implementing and setting up Your own checks. And it’s simple as it sounds: You code Your own checks using our template for checks and set up in our settings, which are provided with the Solution.
Also, it is worth mentioning that as we have a Purchase Order (PO) linked to our Contract, as soon as we set a Contract’s status to a “On approval” value, a PO status should be changed too. And we do it automatically – we block PO so it is impossible to change its data during the approval process. For making changes if necessary, a Contract Card should be sent back on revision to a responsible User. New status “On revision” also automatically opens up a linked PO for changes.

Negotiation

Some steps of Contract Lifecycle are still more often to be carried out not in SAP ERP system, but in the most common way – using E-mail and delivery services. One of these steps is the Negotiation stage which includes following tasks:

  • PrintingYour approved version of a Contract from SAP ERP system.
  • Getting it signed in Your Company and by Your Business Partner.
  • Getting it registered in Legal Department (or Department that is responsible for allocation of registration number to a Contract).
  • Scanning Your Contract and attaching it to a Contract Card.

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Nevertheless, this actions can also be carried out from SAP ERP if there is an integrated EDI solution (in this case, Contract Data will be represented by a XML-file and a Contract will be signed digitally).

Speaking of our linked Purchase Order (PO), at the very moment when status of our Contract will become “Signed” or “Registered” our PO will be released automatically.

Execution and Maintenance

Execution stage consists of operations which are carried out during steps of common business-processes in MM, SD or FI:

  • Incoming/Outgoing delivery
  • Incoming/Outgoing invoices
  • Down request payments, request payments
  • Bank statements

What is different – as we have SAP ERP Objects linked with out Contract Card, all these operations can be seen in a Contract Card – as a new linked objects or as a special in-contract report about incoming deliveries or outgoing payments. It’s all was made possible via extensions which we have made in Open-FI and MM, SD.

As a part of Contract Maintenance, we have done such things as:

  • Automatic notifications about Contract dates of validity – so User gets notified when it’s less than a month left (customizable);
  • Functions for changing a responsible User in a Contract (due to User’s leave or dismissal).

And as I have mentioned before, all this stuff can be extended by Your own functions and checks using ad-hoc settings in our Solution.

Renewal and Termination

We have decided to have two preconfigured approaches of carrying out operations of Contract’s Renewal or Termination:

  • An “easy” one – just switching statuses and entering relevant data (new dates, reasons of Termination, etc.)
  • A “complex” one – having a whole procedure with workflow inside.

In this document I will cover only a “complex” approach. According to this approach, a User, responsible for a Contract termination, for example, has to create a new Card from a Contract card which is called “Request for approval” (or simply, Request).

This Card looks almost like a Contract Card, but of course, they are different in attributes. The attribute list of a Request is much smaller and consists only of following attributes:

  • Linked Contract id (filled automatically)
  • Type of Request (Termination, Renewal)
  • Date of Request
  • Responsible for Request
  • Company Code (if necessary, copied from a Contract Card)

Then the process is almost similar to a Contract approval:

  • An approval route should be automatically defined by means of a Request’s type.
  • Relevant documents should be attached to a Request Card.
  • Some checks should be carried out before starting workflow.

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When all responsible participants make up their minds with necessary decisions and enter them in the Request Card, the state of the Request card will be changed (respectively to the decisions made):

  • If the Request is submitted, then its status will be changed to “Submitted” and relevant changes will occur in our linked Contract Card. As we looked through the process of termination, then Contract’s status will become “Terminated” and all liked SAP ERP Objects like Purchase order will be blocked for further processing.
  • If the Request is denied, the its status will be changed to “Denied” and nothing really changes in our Contract Card.
  • Nevertheless, in both cases, all relevant Users are notified about the final resolution on out Request.

User Interface and Transactions

Workplace

As the Contract Management solution is based on SAP Folders Management module, the main user transaction is SCASEPS and it looks like this:

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This is a main workplace for a User, responsible for Contract Management. Here he can execute following functions:

  • Search for a Contract
  • Create a New Contract
  • Edit a Contract
  • Edit and View recently managed Contracts

Contract interface

A Contract is a card (or case) in SAP ERP which looks like this:

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A card has following elements, which will be described further:

  • Functions – a toolbar at the top of the card where various functions are placed. This functions allow Users to undertake certain actions according to a business process flow. For example, a User can create a Purchase Order for a new Contract or initiate a process of Contract renewal.

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  • Attributes – a tree of attributes is displayed in the middle sections of the card. It gives a brief overview of key attributes of a Contract. For attributes maintenance there is an ad-hoc function which will be described in section “Contract attributes”.

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  • Subcomponents – a toolbar at the bottom of the card is called Toolbar of Subcomponents. A subcomponent is a Tab which holds additional data related to Contract which is impossible or unreasonable to save as attributes in the card.

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Contract functions

Contract functions are the actions available depending on a current state of a Contract. These actions can be carried out by aUser (if he has necessary authorities). For example:

  • Functions related to SAP ERP Objects:
    • Create a linked Purchase Order
    • Create a linked Client Order
    • Create a Financial Transaction
    • Create a Real Estate Contract, etc.
  • Functions related to Contract Management:
    • Create an Appendix for a signed Contract.
    • Initiate Contract Renewal or Contract Termination.
    • Show Contracts Registry and many more.

In our Solution this actions are dependent on current state of a Contract card and User’s authorities hence some buttons are made invisible to a User. As an example, the Function “Create an Appendix” is available on a toolbar only if a Contract Card has the status “Signed” or “Registered”, or the Function “Initiate Contract Renewal” is visible only to User who has the rights of performing further activities for the Contract.

In order to avoid a bulky interface, many functions are organized as separate Menu Buttons like “Actions”, “Decisions” and so on. It’s a standard functionality of NWFM module of SAP ERP.

Contract attributes

Contract Attributes have two viewing options:

  • As a tree:

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  • As a dialog screen:

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To open attributes in Screen mode one can use the Function “Show Attributes”, located on the toolbar of functions. All attributes that represent contract data are grouped and organized by tabs:

  • Main Data – a basic Contract data like dates, system and contract ids, company code, contract classification data.
  • Partner – a data about Partner (Customer or Vendor) and his Bank details.
  • Home Bank Details – a data about home bank account for a Contract.
  • Amounts & Currencies – a data about currencies of a Contract, amounts, taxes.
  • Responsible Employees – a data about user and his department that are responsible for a Contract maintenance.
  • Terms – a terms of payments for a Contract.
  • Templates – a data about templates for preparation of a draft for a Contract (another our solution provides Template card and settings for creating a MS Word document from Contract card data).
  • Status – a data about current status of a Contract in system (and switches that block operations in related SAP ERP objects).
  • Technical data – technical data about a Contract card – date of creation and when it was last modified, who created and who modified, etc.).

Some more details about attributes:

  • Each attribute has a description text, which is shown on the rights side and is recalculated after User hits “Enter”.
  • Each attribute visibility is linked to Contract type, status and User authority (ad-hoc setting is created to provide this behavior). So one attribute can be:
    • mandatory when a Contract is created;
    • visible when Contract is signed;
    • hidden when Contract type doesn’t require it to be filled in.
  • Each attribute has its own Search Help.

Contracts subcomponents

A Subcomponent is an additional Tab in Contract which is used to show or maintain some additional data for the Contract. For example:

  • Linked Objects – a links to SAP ERP objects (like Purchase Order, Invoices, etc.) related to a Contract.
  • Documents – a links to documents which were attached to a Contract by a User: draft of contract, scanned copy of signed contract, other documents.
  • Schedule of Payment – a list of payments which are to be carried out according to the terms of Contract. This list has data about payments types, dates, amounts, currencies, budget addresses (commitment items, funds centers).
  • Specification – a list of items from Purchase Order or Sales Order. This data helps User to view what the Contract is really about.
  • Route of Approval – a route of contract approval, which consists of sequential and parallel steps.
  • Log – history of changes made in Contract by Users in system.

Library of Approval Routes

It’s obvious that every contract has its own approval route depending on its terms and additional clauses. For example, approval of a contract with great value (>> 1 mil. USD) requires top management resolution, or approval of a contract with new Vendor requires security checks and resolutions from security office.

In order to avoid manual construction of approval route for each new contract we have come up with idea of having a whole Library of Approval Routes, where routes could be maintained and assigned to each business case according to a special key attributes.

The transaction for maintaining the Library looks like this:

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In the top we have a list of routes and their basic data (including heading text and key attributes). In the bottom we have an overview of one of the routes (as it looks like in Contract and how workflow goes during Approval stage).

Selection of route in Contract is carried out in subcomponent “Route Of Approval” by pressing button “Load Template”:

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If the system is unable to determine the only one route of approval for current Contract (according to its data) then the system will show a list of possible routes, that are the closest match.

SAP Business Workplace

This standard User transaction is used for Contract Approval. Here User can overview how many approval tasks he has and can also execute them:

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Execution of task opens a Contract card with new function available – “User Resolution”, which is user to Approve or Reject document.

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A participant of Contract Approval can’t reject a document without creating a note with reasons of his resolution.
Each resolution and created notes will be displayed in Subcomponent “Path”:

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Also, in this Subcomponent user will see a history of approval as this process, in common, can have many iterations and systems saves details of each iteration. So it’s possible to view participants and their resolutions on every round of approval.

Reports. Contracts Registry

Transaction SCASEPS is a quite convenient place to manage and maintain Contracts in SAP ERP, but all we know, that many other ERP users are also interested in viewing contracts data. So, we have created a transaction for such users called “Contracts Registry”, which allowed them to select and view Contracts according to their authorizations in ERP system.

This transaction has a wide range of selection criteria to search for Contracts in the system and it shows results of the search as a list of matched Contracts.

Search criteria:

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List of results:

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A User can drill-down into selected Contract and view it as if he was in SCASEPS.

For some projects Contracts Registry, of course, had some extensions. For example, it had Favorites Lists or even was used as an entry point for Contracts – on the toolbar of the transaction a few buttons were placed:

  • Create a New Contract
  • Edit a selected Contract
  • View a selected Contract
  • Create a New Appendix for Contract

User used this transaction as his main workplace to manage and maintain Contracts he was responsible for.

How are Contracts linked with other ERP objects?

It’s essential for an ERP system to have processes and all objects within this processes to be linked to each other. For example, a Purchase Order is linked with Invoice and Invoice is Linked to a Payment. Contract is the object, which could be used to consolidate all data existing within ERP system and related to a particular contract: orders, deliveries, invoices, requests for payment, payments. In order to provide this approach, a Contract from Folders Management has to be linked with other ERP objects.

Table 1. List of SAP ERP business objects linked to Contracts

SAP ERP Object

Type of Link

Comment

Purchase Order

Documents, Data and Status

This link is used to integrate Contract Management Solution with Procurement. Available actions:

  • Create Purchase Order from Contract
  • Block PO when Contract is on approval
  • Release PO when Contract is signed

Further operations like Inbound Delivery, Incoming Invoice Posting are possible only after the Contract is signed.

Sales Order

Documents, Data and Status

This link is used to integrate Contract Management Solution with Sales. Available actions:

  • Create Sales Order from Contract
  • Block SO when Contract is on approval
  • Release SO when Contract is signed

All further operations are possible only after the Contract is signed.

Financial Transaction

Documents, Data and Status

This link is used to integrate Contract Management Solution with Loans, Credits, Deposits. Available actions:

  • Create Financial Transaction from Contract
  • Block FT when Contract is on approval
  • Settle FT after Contract is signed

All further operations are possible only after the Contract is signed.

Funds Reservations

Documents only

This link is used to provide Contract Management Solution with possibility of maintaining payment schedules for contracts and carrying out budget control.

Accounts Payable

Documents only

This link is used in Contract Management Solution to consolidate all accounting documents for Contract and to analyze the execution of a Contract.

Using Open-FI Events to link accounting documents during posting “on-air” and to unlink documents during reversal.

Accounts Receivable

Documents only

This link is used in Contract Management Solution to consolidate all accounting documents for Contract and to analyze the execution of a Contract.

Using Open-FI Events to link accounting documents during posting “on-air” and to unlink documents during reversal..

It’s worth mentioning that every SAP object from the table above has additional Generic Object Services to:

  • Drill down into Contract Card;
  • View Contract attachments (linked documents).

It’s also possible to change the “master” or “primary” object and start creating Contract Cards from SAP objects (for example, from Purchase Order) – it depends on specific requirements and demands of business-process.

P.S. If You want some more details or have any questions, feel free to ask me.

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