nsqo 

Issue

Syensqo may be able to lower prices or improve supplier performance if it uses Purchase Scheduling Agreements to integrate more closely with some suppliers.

Purchase Scheduling Agreements (PSAs) are a Purchasing document type in SAP that combine elements of contracts and Purchase Orders. They send many months worth of predicted demand (from MRP) to the supplier to help them plan their production more efficiently. They can streamline procurement processes and reduce administrative overhead in the right circumstances -  normally with long-term suppliers where you expect to make regular, predictable purchases over an extended period. The greater integration of the supplier into the supply chain can lead to lower prices or improved supplier performance.

Currently PSAs are not considered in Syensqo and so there may be opportunity to reduce costs and improve performance if they are implemented.

This document evaluates whether Syensqo should review the use of PSAs as an additional procurement tool or just continue to use Purchase Orders.

Recommendation

SAt this point we are not able to identify a large amount of vendors/materials where the expected benefits of using PSAs make the extra implementation complexity (configuration, testing, supplier outreach etc) worthwhile.

So we recommend that at the current stage Syensqo do not utilise PSAs 

Background & Context

Syensqo is seeking ways to streamline their procurement processes, reduce costs, and improve supplier relationships. One approach is the use of purchasing scheduling agreements (PSAs). These PSAs are long-term agreements between a buyer and a supplier that outline the terms and conditions for the purchase of specific goods or services over an extended period. Unlike traditional purchase orders, which are one-time transactions, PSAs establish a framework for recurring purchases, allowing for better planning, forecasting, and inventory management. The potential benefits of implementing PSAs include:

• Reduced administrative overhead: By consolidating multiple purchase orders into a single agreement, Syensqo can significantly reduce the administrative burden associated with processing individual orders, such as creating and approving requisitions, issuing POs, and managing invoices.
• Improved supplier relationships: PSAs foster closer collaboration and communication between buyers and suppliers, as both parties have a clear understanding of the expected demand and delivery schedules. This can lead to better supplier performance, reduced lead times, and improved overall supply chain efficiency.
• Cost savings: With PSAs, Syensqo can negotiate better pricing and terms by committing to larger volumes or longer-term agreements. Additionally, the reduced administrative overhead can translate into cost savings for both parties.
• Inventory optimization: By having a better understanding of future demand, Syensqo can optimize their inventory levels, reducing the risk of stockouts or excess inventory, which can lead to cost savings and improved customer service.
• Increased operational efficiency: PSAs can streamline the procurement process by eliminating the need for frequent purchase order creation and approval, allowing procurement to focus on more strategic activities.

However, it is important to consider potential drawbacks or challenges associated with implementing PSAs:

• This will create a second procurement process/option for MRP driven demand.
• MRP Demand can be fulfilled with a series of Purchase Orders, or with a PSA with ongoing releases.
• Its a new type of document and transaction/Fiori App 
• The PSA can be created from Ariba the same way that contracts are.
• It can interface to the same Ariba Network cXML Orders document htat POs use
• Invoices can be matched to it as if it was a single, long term PO.

• Demand variability: If Syensqo's demand for certain materials or products is highly variable or unpredictable, PSAs may not be as effective, as they rely on accurate forecasting and planning.
• Supplier dependency: By committing to long-term agreements with specific suppliers, the organization may become overly dependent on a limited number of suppliers, potentially reducing its negotiating power or ability to switch suppliers if needed.
• Inflexibility: PSAs can be less flexible than traditional purchase orders, as they typically have predefined terms and conditions that may not accommodate sudden changes in demand or supply.
• Implementation and integration challenges: Implementing PSAs may require changes to existing procurement processes, systems, and integrations, which can be time-consuming and resource-intensive.
• Supplier performance monitoring: While PSAs can foster closer supplier relationships, they also require more robust supplier performance monitoring and management to ensure compliance with the agreed-upon terms and conditions.

Assumptions

The following assumptions are made in the preparation of this document:

• Syensqo has a stable and long-term relationship with its key suppliers.
• Syensqo has a consistent predictable demand for certain materials or products from these suppliers.
• Syensqo is open to exploring new procurement strategies to improve efficiency and cost-effectiveness.
• The items that will be used for PSAs will be planned using MRP, as the MRP data is what will be passed to the suppliers.

Constraints

The PSA process will need to be factored into the Contracting process as a separate process from PO creation and transmission.

Where Syensqo wishes to deploy PSAs the Suppliers would also need to be willing to use them and be integrated to Syensqo in some way (eg AN).

The most efficient way to generate the future demand send to the suppliers is through automated tools like MRP

Impacts

Process Changes

MRP can create the PSA release automatically bypassing PRs and POs and the need for procurement intervention. The Release can then be validated / approved by Procurement and then transmitted manually or automatically.

Transmission to Supplier

PDF/Email and IDoc options are available as standard but it works most efficiently with integrated suppliers and uses the standard IDocs and cXML formats so can run on Ariba Network.

Legacy Data

As it’s a new tool there is no legacy data to be copied over – the PSAs will be created like contacts and then the demand (release data) will be created by the MRP settings during the MRP run.

Change Management for Syensqo

This is a new process so would require training and set up. The PSA is owned by Procurement like a contract but the releases are populated by SCP/MRP so coordination of these groups is important (mainly for order checking and contract expiry).

The data used by MRP and setup for the supplier needs to be aligned and maintained – eg Unit of Measures, lot sizes, rounding profiles, fixed periods etc.

Change Management for Suppliers

Suppliers that already use PSAs for their customers should be simple to integrate to but if the concept is new to a supplier then setup and integration may take longer and require more testing.

Implementation

To activate SLAs as part of the project would require additional configuration to active the document types, outputs and flows, additional testing to validate the solution, integration with suppliers in order to get both sides working with the PSA and creation/validation of interfaces for PSA transmission and invoicing.

Business Rules

If the business elects to use PSAs as a Procurement tool then they will need to define when they should be considered. The rule would be that any contract/supplier that fulfills the following criteria should consider the use pf PSAs

• Long-term agreements with supplier
• Predictable demand and pricing
• arrangement is for specific goods or services over an extended period
• Items demand is planned by MRP (so that the forward demand is automatically created)
• The supplier is able to use PSAs
• The use of PSAs will enable lower prices or improved supplier performance

Options considered

Given the potential benefits and challenges associated with implementing PSAs, Syensqo should carefully evaluate its specific procurement needs, supplier relationships, and operational requirements to determine the most appropriate solution.

Option 1: Maintain the Current Purchase Order only approach

Syensqo maintains its current procurement process based on traditional purchase orders. This option would involve no significant changes to existing systems, processes, or supplier relationships.

Advantages:

• No disruption to current operations or need for process changes.
• Flexibility to adjust purchase quantities and suppliers as needed.
• Familiarity with the existing purchase order process for both internal teams and suppliers.
• No project impact - no additional configuration, testing, interfaces, supplier outreach etc 

Disadvantages:

• Continued administrative overhead and inefficiencies associated with processing individual purchase orders.
• Potential missed opportunities for cost savings and improved supplier relationships through long-term agreements.
• Limited visibility into future demand and potential challenges with inventory management and planning.

Option 2: Review if PSAs offer advantages for appropriate suppliers/materials 

Syensqo review if implementing PSAs for materials or products with stable and predictable demand is worth it, while maintaining traditional purchase orders for items with variable or unpredictable demand.

Advantages:

• Captures the benefits of PSAs for suitable materials or products with stable demand.
• Maintains flexibility for variable demand items through traditional purchase orders.
• Allows for a gradual transition and implementation of PSAs, minimizing disruption to existing processes
• Impact on Project due to additional configuration, testing, interfaces, supplier outreach etc 

Disadvantages:

• Effort to implement & integrate with existing systems and processes.
• Reduced flexibility to adjust purchase quantities or switch suppliers in the short term.
• Requirement for robust supplier performance monitoring and management.
• Potential complexity in managing multiple procurement processes (PSAs and POs) simultaneously.

Evaluation

Based on the evaluation of the solution options, it is recommended that Syensqo does not implement purchasing scheduling agreements (PSAs) at this phase of hte project as the expected volume of materials with Long term suppliers with stable demand and pricing scenarios where it could bring benefits are not sufficient to justify the additional effort.

This can be reviewed again at a later stage to see if the business benefits make deploying PSAs worthwhile.

See also

Change log

Workflow history