Building Blocks of SAP - Framework & Service Orders

I'm almost done with the Purchase to Pay (P2P) components of this Building Blocks of SAP Series. My topic today kind of bridges purchasing and asset management.

Picture this - a red faced and stressed out manager jets into my office one day telling me the Plants only mobile crane has blown a hydraulic pump. The box culverts it was loading (which can't be loaded any other way) are due on the truck for shipping tonight. True story.

No wonder he was swearing - I swore too! It was a major production run for a very important customer and there was very little (read none) margin for error on the delivery times.

I had to fix two problems real fast:

1. Find some locally based mechanical handling equipment (MHE) that could handle the load out and keep the customer happy.
2. Initiate the repair on our crane. ?

None of the local repair suppliers were certified to conduct THAT repair on THAT crane. My only option was to pull in a suitably certified mechanic from Newcastle. Big job, no notice, high priority = big $ - right? Catastrophic interruption to the outload capability = big panic - right?

Nope.

All it took was two phone calls - one to my crane mechanic and one to my forklift hire supplier.

"Both of those jobs are high value spends without fixed quotes (you say) - aren't you bending the purchasing rules just a teensy bit engaging the services without a purchase order?"

If I had to find a supplier, source quotes and gain approval before sending out a purchase order I would have been in a world of hurt (and I would have been in complete breach of purchasing policy engaging without a purchase order) - but I already had it sorted.

I had Framework (or Service) Orders in place for both service providers.?

So what are Framework/Service Orders and how do they work?

Your ordinary purchase order is one-time use - you get a quote, place the order, get the goods and pay. It is fixed value and can't be re-used so it is clunky and inefficient for asset maintenance purposes - especially on high value time critical OPEX spends like a high impact catastrophic breakdown.

Framework and Service orders aren't technically exactly the same but they behave in more or less the same way - so I'm going to talk about them together.

Basically - you can get pre-approval for spend on your entire annual maintenance budget with a specified supplier on a single Framework/Service order. Rates and Terms & Conditions are negotiated by your Buyer once a year and fixed into a service contract. What that means is that you have the flexibility to engage any repairs and routine maintenance up to the total dollar value limit of the Framework Order without having to go through the approval process every time.

Supplier invoicing, goods receipting and invoice payment work fundamentally the same way as ordinary purchase orders.

Depending on your company policy Framework Orders can be used for any service (in this case crane repair & MHE hire). Best practice suggests that Framework Orders are not best used for purchase of stocked items of finished goods - you use Scheduling Agreements or Purchase Orders for that.

I am an unashamed advocate of the use of Framework and Service Orders wherever possible. I was pretty much known as the Queen of the Framework Orders in my company. Eventually I had around 80% of the Plant annual maintenance spend accounted for in Framework and Service Orders - right down to the gardening contractor. Ideally you want to be able to predict 100% of your maintenance costs - but we live in the real world. I had all of the routine maintenance spend covered and locked in - my only unknowns (of course) were unplanned catastrophic breakdowns. I planned for them but the allowance was never intended to cover the entire cost.

You are right to question how I could possibly know what those costs were. Simple - old fashioned eyeball predictive analytics using the data I collected in SAP - and the odd Excel spreadsheet. My budgets were calculated to run out in early November every year - forcing review, reassessment and re-approval before the end of the budgeting year for the company. After all - in P2P there should never be such a thing as a bottomless pot of gold.

The shop floor got the gain in terms of flexibility, response time and reduced manufacturing downtime. The business got the gain in terms of visibility in the P&L and the planned vs actual spend analytics - almost total asset routine maintenance cost capture/prediction up front. I got the gain in a less stressful workplace and the satisfaction of being totally prepared for every foreseeable contingency.

I still haven't seen any downsides to the use of Framework and Service Orders. ?