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Framework order vs contract

1,576

Hello,

I would like to understand what is the difference between contract and framework PO (FO document type) in terms of functionality. As far as I know, both have a start and end date, the difference is that in reference to the contract, you can create release orders, and in case of framework order, you have only one PO, which you use later for receiving invoices. Is this correct?


Apart from this, what are other differences? Why would I pick one over the other? Client is currently using framework orders that have an invoicing plan in the background for re-occuring services. Can it be done through contracts and release orders, or it’s better to do it using framework orders? That’s just one example.


Thank you

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Oscar_DC
Active Contributor

There are many factors that impact this, so this is a loaded question

The use that your client has for a framework PO is considered standard.

Regularly framework PO's are used in three different scenarios:

  1. Low value procurement - If whatever you're buying is just not worth going through a requisition and PO creation, just do it in a framework. Normally you just receive an invoice.
  2. Integration with maintenance plans and service entry sheets - For maintenance plans you can integrate your framework po's, so that service entry sheets are automatically created. These service entry sheets can be routed for approval and then an invoice can be posted against them. In this case you have a service entry sheet, but it was automatically created.
  3. With invoicing plans - This is what your customer is doing

Purchasing with a framework order is "fast", but it is NOT controlled and you really can't do a good job of reporting what you bought . All you will know is which invoices got posted to a PO item and which accounting information they had. Unfortunately framework orders often get abused and you end up with folks buying things that they should not buy using those types of orders.

In service organizations you regularly use contracts and not many scheduling agreements (at least in my experience). When you use a contract, normally you still have to create a requisition, PO and Service Entry Sheet or Goods Receipt.

You normally use contracts for:

  • Material purchases (whether they're stock or non-stock) where you have an agreement with specific conditions for certain amount of time
  • For services which are provided often for which you have specific conditions pre-set

After the contract is created, most folks use it to ensure that they are procuring items and services at the right price from the right vendor. Outline agreements also take part of the vendor determination process. If you don't have a quota arrangement or a source list, the next thing that SAP will look at is your outline agreements.

You can combine the use of Framework Orders and Outline Agreements - Here's an example.

If you have unplanned services which are performed by a specific vendor in multiple work orders, you won't have enough time to create a requisition, create a PO, create the SES & post the invoice.. In this cases you can use a framework order with item category D, Account assignment U and specify a contract in the contract limits tab. This way you won't have to create a purchase requisition every time you need the service. Esentially all you must do is process a service entry sheet and include the order in the accounting information. If you get a long with your vendor quite well -- you could even do ERS, so that you create the invoice on behalf of the vendor just based on whatever is on your service entry sheet !

Keep in mind that in standard SAP ECC you can only workflow requisitions, purchase orders and service entry sheets. Some companies workflow invoices, but this is custom or part of a different product - such as VIM- but it is not part of the standard SAP offering

You can look into scheduling agreements too .. I've never had to use them, but they can be used mostly for stock material which is delivered on a specific time frame. I'm guessing production guys use them the most.

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Thank you for a detailed comment Oscar!

I am using material master type “SERV” for procuring services, so won’t be using item category “D” in the purchasing. If I have contract with a vendor for a specific service, and want to create a framework order that has an invoicing plan in the background, could I use the contract in source determination inside of a PR to give the suggestion for a vendor, and then create a framework order from that PR?


Thanks

Oscar_DC
Active Contributor
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I've never seen invoicing plans reference a contract. You probably could ... but I've not tried it. Thanks!