Any manufacturer has many types of vendors. Some vendors provide some services, while others provide materials. In some industries like automobile, the manufacturer does the assembly work while its vendors make and supply automobile parts. The manufacturer in this scenario is entirely dependent on its vendors for getting parts at the right time. Any delay of even some hours can stop the assembly line. In this scenario, the manufacturer establishes a tight integration of supply chain with its vendors. This arrangement is accomplished in SAP through a scheduling agreement. Let us see how this works.
The manufacturer creates a special type of purchase order. This purchase order contains a header, many line items and each line items contains many schedule lines. The header contains general information like vendor, purchase organization, purchasing group, purchase order number etc. Each line item contains information such as material number, price, quantity, account assignment, item category, plant, storage location etc. Each schedule line contains information such as delivery date, material quantity etc. But the most important information in the scheduling line is the time zone information.
This time zone information is about status of the material requirement urgency. The entire material requirement quantity for the agreement is mentioned at the line item level. This material quantity is broken into small material quantity and put in each schedule line. The expected material requirement dates are also mentioned on the schedule lines. the MRP controller who is responsible for providing exact date of material requirement at manufacturing plant keeps updating these expected dates. he initially puts the expected dates from running forecast of material requirements. As the material required is firmed he updates this date on the respective schedule line in the agreement.
Whenever any updates in the agreement are done, an email is sent to the vendor. The vendor plans his/her own purchasing or production of material as per these updates. This arrangement ensures that the vendor does not default in dispatching requited material to the manufacturer at right time.
There are 3 time zones defined for delivery dates. Zone 1 is when the material must be delivered to the manufacturer on the committed date. If the vendor fails then he will pay the entire cost of the material as penalty. If the manufacturer fails and does not receive the material already made and dispatched by the vendor then the manufacturer will pay cost of raw material purchase by the vendor as well as the production cost of the vendor.
When a schedule line is in Zone 2 then if the manufacturer does not want the material on the date mentioned on the schedule line, then he/she will have to pay the raw material purchase cost to the vendor but not te production cost.
If a schedule line is in Zone 3 then the required material on this date is a forecast quantity and there is no firmed requirement for this material from the manufacturer. If the manufacturer makes any updates in the required date then there will be no penalty to be paid by the manufacturer.
this arrangement ensures a tight relationship between the manufacturer and the vendor.