Purchase Contracts

The Purchase Contracts feature enables purchasing managers and buyers to use contracted terms, pricing, and delivery schedules when purchasing materials for a company. Buyers can automatically take advantage of quantity-based terms and discounts based on an annual volume of goods or services purchased.

To ensure the best pricing, buyers can use contracts to specify the detailed negotiated terms, pricing, and delivery schedules for purchases within a defined period. Then, purchase orders that identify a vendor contract automatically include the contracted terms and pricing based on the effectivity period of the contract. This can reduce errors resulting from manually determining correct pricing. Ongoing purchases using contracts are tracked for reporting and analytical purposes. Purchase contracts maintain tiered pricing with potential total purchase amount discounts.

This can be useful, for example, if your sourcing group that negotiates contracts is distinct from your team of buyers. The sourcing group can input the negotiated contract information and then purchase orders entered by the buyers automatically show the correct negotiated rates and information. This can help reduce procurement spending and improve buyer efficiency and accuracy. Pre-negotiated rates and terms assigned to items do not require renegotiation with vendors. Purchasers use the best pricing through the time horizon set by the contract.

The purchasing management benefits of using purchase contracts include the following:

Reduce procurement spending by taking advantage of quantity discounts.
Manage company spending by requiring purchases to be made only through contracted vendors.
Improve buyer efficiency and accuracy to reduce effort and errors that can be associated with numerous vendor communications for each purchase. Pricing is automatic instead of manual and based on sporadic negotiation.

To use purchase contracts, you must enable both the Purchase Orders feature and the Purchase Contracts feature. For more information, see Enabling the Purchase Contracts Feature.

After the feature is enabled you can set up purchase contracts based on rates you have negotiated with your vendors. For example, you may have contracted with vendors for the following:

Tiered discounts based on quantity price breaks
Discounts for purchases above a set currency amount during a set time frame
Discounts per line, per order, or across all purchase orders applied to one contract

You can set up a contract record for each contract that specifies terms and pricing. The purchase contract record tracks all linked orders and items applied against the contract and pricing is reflected accordingly. For more information, see Creating Purchase Contracts.

Purchase contracts can be selected on a purchase order to apply the appropriate pricing for items on that order as per the contract. This lets a buyer entering a purchase order view the tiered pricing structure and take advantage of quantity discounts when the order is placed. For more information, see Using Purchase Contracts on Purchase Orders.

Using purchase contracts, buyers can be alerted for the following:

When contracts need to be renewed
When the expiration date is close and minimum has not been met
When purchases get close to the contract maximum amount

Note:

Expenses cannot be included on purchase contracts because tiered pricing is not applicable to expenses, even when the Allow Expenses on Purchases preference is enabled.

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