6 Contract Overview

This chapter deals with the different types of contracts that can be created and maintained in Merchandising.

Contract Types

A contract is a legally binding agreement with a supplier to supply items at a negotiated price, which is assumed to be the lowest cost price of the item. In Merchandising, the contracting functions fit closely with the replenishment and ordering functions. The contract functionality enables the retailer to ensure consistent cost and timing of the purchases along with determination of early margin figures and thereby eliminating risk. It also facilitates improved supplier relationships by helping suppliers plan their production in advance. When a contract is created, the retailer can choose to source from the best contract by replenishment according to pre-defined logic. Also, since the balance of the contract is decreased when an order is written against it, commitment tracking improves. Additionally, the contract functionality assures the retailer that the cost remains consistent. Contracts can be used to create orders via replenishment or manually. Contracts can also contain items above transaction level if the 'Soft Contracting' option is enabled in the system options.

The following four contract types can be created in Merchandising with varying characteristics and different levels of flexibility:

  • Type A (Plan/Availability): This type of contract contains a plan of manufacturing quantity by ready date. Supplier availability is matched against the plan as declared. These contracts are closed contracts, as there is a defined start and end date, and the contract is for a total purchase quantity of items. Orders are raised against the plan as suggested by replenishment requirements, provided there is sufficient supplier availability. Manual orders can also be raised.

  • Type B (Plan/No Availability): This type of contract contains a plan of manufacturing quantity by delivery due date and dispatch-to location or locations. There can be one or more ready dates, which is the date that the items are due at the dispatch-to location. Item cost is defined and supplier availability is not required. These contracts are closed contracts, as there is defined a start and end date, and the contract is for total purchase quantity of items. Orders are raised automatically from the contract based on ready dates.

  • Type C (No Plan/No Availability): This type of contract is an open contract with no production schedule or supplier availability declared. The contract lists the items that will be used to satisfy a total commitment cost. Orders are raised against the contract based on replenishment requirements. The user can also raise manual orders.

  • Type D (No Plan/Availability): The type of contract is an open contract with no production schedule. The supplier declares availability as stock is ready. The contract lists the items that will be used to satisfy a total commitment cost. Orders are raised against the contract, based on replenishment requirements and supplier availability. The user can also raise manual orders.

More information can be found in these related topics: