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Author's profile photo Lincy Thankachan Elizabeth

SAP S/4HANA for Central Procurement – Central Purchase Contracts Hierarchy

Central purchase contracts are global long-term agreements negotiated between an organization and a supplier. This helps in getting the best rates and conditions while bundling purchasing volume across multiple subsidiaries. These contracts are typically negotiated by the central purchasing organization, mostly at the headquarters, and used for globally driving operational efficiency, reduced cost while complying with regulations across multiple subsidiaries.

The central purchase contract, created at the headquarters, can be distributed to subsidiaries to generate local contracts or scheduling agreements. The splitting of distributions into outline agreements in the connected system is based on the split criteria which comprises of the following attributes:

  • Purchasing Document Category (Contract or Scheduling agreement)
  • Purchasing Document Type
  • Purchasing Organization
  • Connected Company Code
  • Connected System
  • Connected Plant
  • Purchasing Group
  • Document Currency
  • Payment Terms

Once outline agreements are created in the connected systems, subsidiaries can then continue with the operational procurement in a seamless manner by leveraging this local contract or scheduling agreement. Central monitoring of contract consumption across subsidiaries and renewal of expiring contracts is easily managed by the headquarters.

 

This feature of creating central purchase contracts is available through the FIORI application Manage Central Purchase Contracts (link to documentation in help.sap.com) delivered as part of SAP S/4HANA for Central Procurement.

Check out the video accessible through the below link for a quick overview on central contracts, their distribution, follow on processes in the connected systems and subsequent consumption monitoring of the operational outline agreements at the hub system:

Central Purchase Contracts – At a Glance

In this blog post, we will discuss in detail a new feature in the Manage Central Purchase Contracts FIORI application that enables the creation of Central Purchase Contract Hierarchy – central contracts with a level of hierarchy.

  • As a configuration expert, it is possible to group company codes into groups such that each group represents a subsidiary/location/branch etc. This group configuration can then be used for creation of central purchase contract hierarchies in the Manage Central Purchase Contracts FIORI app.

Configuration%20to%20Define%20groups

Configuration to Define groups

Configuration%20to%20assign%20company%20codes%20to%20groups

Configuration to assign company codes to groups

  • Central Purchase Contract Hierarchy documents can be created, updated and viewed in the FIORI application “Manage Central Purchase Contracts” under the tab “Central Purchase Contract Hierarchy”.

       Separate%20tab%20for%20Central%20Purchase%20Contract%20Hierarchy%20documents Separate tab for Central Purchase Contract Hierarchy documents

 

  • Distributions can be maintained for different company codes at the header and item level of the document. The company code groups are automatically populated on the distributions based on the above configuration.

Image%203%20%3A%20Maintaining%20Header%20Distributions%20on%A0%20Contract%20Hierarchy

Maintaining Header Distributions on Central Purchase Contract Hierarchy

Image%204%20%3A%20Maintain%20Item%20Distributions%20on%20Contract%20Hierarchy

Maintaining Item Distributions on Central Purchase Contract Hierarchy

  • On approval of the central purchase contract hierarchy, subordinate central contracts are created for company code groups that have one or more distributions maintained in the hierarchy document. Subordinate Central Contracts section shows the central contracts that are created from the hierarchy document.

Image%205%20%3A%20Navigable%20links%20to%20the%20Subordinate%20Central%20Contracts%20created%20from%20a%20contract%20hierarchy

Navigable links to Subordinate Central Contracts of a Central Contract Hierarchy

  • Distribution Overview section lists the unique distributions maintained across the multiple connected systems based on the split criteria.

Distribution%20overview%20-%20unique%20distributions%20in%20Contract%20Hierarchy%20based%20on%20split%20criteria

Distribution overview – unique distributions in Central Contract Hierarchy

  • The subordinate central contracts, after approval, get distributed resulting in creation of outline agreements in the connected systems.

Navigable%20links%20to%20the%20outline%20agreement%20created%20on%20approval%20of%20subordinate%20central%20contracts

Navigable links to distributed outline agreement of a Subordinate Central Contract

  • Let’s look at a hypothetical example to visualize how company codes across connected systems can be grouped to enable the creation of central purchase contract hierarchies:
Connected System Connected Company Code Company Code Group Distribution
CONNSYS1 CC1 GRP1 DISTR1
CONNSYS1 CC2 GRP1 DISTR2
CONNSYS2 CC3 GRP1 DISTR3
CONNSYS3 CC4 GRP2 DISTR4
CONNSYS3 CC5 GRP2 DISTR5
  • Assume that a central purchase contract hierarchy is created with distributions for all the company codes CC1, CC2, CC3, CC4 and CC5. On approval of the hierarchy document, two subordinate central purchase contracts will be created, one each for GRP1 and and GRP2.
  • The subordinate central contract created for GRP1 will have the distributions corresponding to GRP1 and similarly the distributions corresponding to GRP2 will be present on the subordinate central contract created for GRP2
Company Code Group Subordinate Central Contract
GRP1 SUBORDCCTR1
GRP2 SUBORDCCTR2
  • Assume that the distributions are maintained such that based on the split criteria, the distributions 1 and 2 can be grouped into a single outline agreement, while all other distribution are grouped into separate outline agreements as depicted below:
Subordinate Central Contract Distributions Connected System Outline Agreement
SUBORDCCTR1 DISTR1, DISTR2 CONNSYS1 OUTLAGRM1
SUBORDCCTR1 DISTR3 CONNSYS2 OUTLAGRM2
SUBORDCCTR2 DISTR4 CONNSYS3 OUTLAGRM3
SUBORDCCTR2 DISTR5 CONNSYS3 OUTLAGRM4
  • For the above example, the final view of the documents across systems would be as below:

Example%20%u2013%20A%20contract%20hierarchy%2C%20its%20subordinate%20central%20contracts%20and%20the%20corresponding%20outline%20agreements%20created%20in%20the%20connected%20systems

Example – A Central Purchase Contract Hierarchy, its Subordinate Central Contracts and the corresponding Outline Agreements created in the connected systems

  • The outline agreements in the connected system can then be used for operational procurement
  • The release information for the operational documents can be pulled to the hub system using the Schedule Import of Release Orders app
  • The consumption details (release information) of the outline agreements can be seen in the subordinate central contracts

Release%20Documentation%20on%20the%20Subordinate%20Central%20Contract

Release Documentation on the Subordinate Central Contract

  • The accumulated consumption percentages of the distributions and the items can be seen in the hierarchy document at the items and distribution levels.

Consumption%20Percentages%20at%20the%20Central%20Contract%20Hierarchy%20Item

Consumption Percentages at the Central Purchase Contract Hierarchy Item

Consumption%20Percentages%20at%20the%20Central%20Contract%20Hierarchy%20Distribution

Consumption Percentages at the Central Purchase Contract Hierarchy Distribution

This is a brief overview of the Central Purchase Contract Hierarchy feature available with SAP S/4HANA for Central Procurement from 2005 CE. You can go through the below video to get familiar with this feature.

Hope you found this blog post insightful. Share your feedback and thoughts in the comments section and in case of further questions, please post them in the Central Procurement community page using the link below:

Central Procurement Community Page – Ask a question

For more information on SAP S/4HANA for Central Procurement, check out the below links:

SAP Help Portal Product page

Central Procurement Community Page

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      9 Comments
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      Author's profile photo Arun Pregash S
      Arun Pregash S

      Great Job Lincy!! Wonderfully articulated and structured

      Author's profile photo Roshni Menezes
      Roshni Menezes

      Good job Lincy! Very well written

      Author's profile photo Amit Choubey
      Amit Choubey

      Well structured overview of Hierarchy !! Thanks Lincy

      Author's profile photo Hallgrimur Matthiasson
      Hallgrimur Matthiasson

      Hallo Lincy,

      thanks a lot for a great article.

      I have a problem with the distribution of contracts when I use workflow. Even after the release the contract is not distributed. Do you know any who is using central contracts and flexible workflow?

       

      Best regards

      Halli

      Author's profile photo Lincy Thankachan Elizabeth
      Lincy Thankachan Elizabeth
      Blog Post Author

      Hi Hallgrimur Matthiasson,

      Thanks for the feedback.

      Regarding your question with respect to central contracts with flexible workflow – Yes, central contracts are enabled for flexible workflow and the details for the same can be found in the following links:

      For S/4HANA On-Premise as Hub:

      For S/4HANA Cloud as Hub:

      The status of the distribution (whether “In Distribution” or “Error” and corresponding error messages) can be seen in the “Distributed Outline Agreements” facet of the Central Contract.

      If the status for the outline agreement is “In Distribution” even with the Document Status as “Approved”, the issue could be with respect to the system set up for the communication with the connected system.

      For more information on the set-up instructions and other details, see the SAP Best Practices Explorer at https://rapid.sap.com/bp/.

      For S/4HANA On-Premise:

      Navigate to SAP S/4HANA > On-Premise > SAP Best Practices for SAP S/4HANA (on premise)‎ > Sourcing and Procurement > Central Procurement > Central Purchase Contracts (2ME).

      For S/4HANA Cloud:

      Navigate to SAP S/4HANA > Cloud > SAP Best Practices for SAP S/4HANA Cloud > Sourcing and Procurement > Central Procurement > Central Purchase Contracts (2ME).

       

      Hope this information helps.

      Best Regards,

      Lincy

      Author's profile photo anusha sangireddy
      anusha sangireddy

      Hi Lincy,

       

      Thank you for Article. Can you help me with issue we are encountering when executing Central Purchase Contract Hierarchy.

      Per SAP Blogs , when we chose Contract Type in the General Information , contract type should auto-populate in the Subordinate Central Contracts, this is missing in our scenario execution and this is causing error .

      • Item category not allowed with document type
      • Enter Document Type

       

      Author's profile photo Lincy Thankachan Elizabeth
      Lincy Thankachan Elizabeth
      Blog Post Author

      Hi Anusha,

      Could you please clarify where you are seeing these errors? Maybe screenshots of this would help me guide you further on this.

      Regards,

      Lincy

      Author's profile photo anusha sangireddy
      anusha sangireddy

      Hi Lincy,

       

      Attached is the screen shot , We are able to create CP Central contract Hierarchy but not no subordinate contract is getting created . Contract type is not auto determined in subordinate contract and error encountered.

       

      Regards,

      Anusha

       

      Author's profile photo Lincy Thankachan Elizabeth
      Lincy Thankachan Elizabeth
      Blog Post Author

      Thanks Anusha for the screenshot. This appears to be an issue with the document type not being determined at the time of subordinate central contract draft creation itself. On following the steps as shown in the link, this should not be happening. If you notice at 8:45 in the video, you will see that the "Contract Type" is determined as "HSMK" in the Suborinate Central Contracts facet. Please check if the same is not determined in your case (before saving the document).

      If you are still facing the issue, please raise an incident on teh component MM-PUR-HUB-HRC, the team would look into the same and revert to you.

      Hope this helps.

      Regards,

      Lincy