In my previous post i discussed about consignment process. Today i will discuss about scheduling agreement.
A manufacturer engages with its vendors in many ways depending on the requirements for kind of procurement needed. A manufacturer in industries like automobile, electronics, computers etc. does not make all the parts required for final assembly for creating the finished product. Some manufacturers in fact do not manufacture any parts at all. They just procure all the parts from vendors, assemble them and ship them to customers. One such example is Dell computers. Dell does not make any computer parts at all but procures them from its vendors. They also do not keep any inventory. For companies like Dell the time to get the procured parts to its assembly plant is very crucial. After a consumer orders a computer from Dell, the actual procurement for computer parts begin. At the time of order booking, Dell may have committed a delivery time of 3 business days to the consumer. This mean all required parts should be delivered to the Dell plant, assembly done and finished product shipped so that it reaches the consumer only in these 3 business days. How this business scenarios can be achieved with perfection?
The answer lies in having a scheduling agreement with the vendors. In this kind of procurement arrangement, the manufacturer has a tight scheduling arrangement for the required parts so that the vendor makes sure that they reach at manufacturer’s plant at exactly the same time committed by the vendor. If the vendor fails to do so then he will have to pay a penalty to the manufacturer. If on the other hand the manufacturer cancels delivery of a committed scheduled part then the manufacturer will pay penalty. This kind of no delays allowed set up makes sure that the manufacturer gets required parts always on time.
To make a better visibility into the expected volume of business transactions in the future, the manufacturer shares its forecast of expected business volumes with the vendor. The vendor thus knows about kind of demand expected in future and gears its own manufacturing and procurement activities accordingly.
In SAP, scheduling agreements have a 2 tiered structure. The header level of the agreement document contains a broad business agreement without specific and exact business volumes. The document also contains a scheduling part where a number of scheduling lines in the agreement document are created and maintained. Each scheduling line defines which parts in what quantities at what price and on what time is required at the manufacturer plant. As demand forecast is also maintained in this same area, this area is divided into 2 or 3 parts. First the forecasted scheduling lines are entered with a long time window in the future. As the time window nears the immediate future and into the exact requirement for procurement, the scheduling lines are firmed. When the firmed scheduling lines are actually delivered then the next scheduling lines which are next in line for delivery come into the firm zone. This process keep running unless the vendor or the manufacturer changes the schedule date.
The scheduling agreement does not require much maintenance. Mostly it is automatic. Whenever new scheduling lines are created in the agreement by the manufacturer, they are transmitted to the vendor through EDI or the internet. Whenever any changes are made to the scheduling lines either by the vendor or the manufacturer then again these changes are transmitted through EDI or the internet.
Scheduling agreements indeed provide a tremendous business benefit both to the vendor and the manufacturer.
In my next post, I will discuss inventory management.