Contract, Pipeline, Third-Party, Subcontract, Consignment

Explain in summary the meaning of contract, pipeline, third-party, sub-contract, consignment.

In Summary:


It just an agreements between the customer and company based on quantity, value  etc.  Say we have a contract for the house for a period of one year.

When you enter into an agreement with some parties for some reason, it may be called as contract which would be valid for a specified period wherein, conditions to be adhered to, would be listed and should be agreed by both the parties.

Customer contracts are outline customer agreements that display when sales materials or services are sold within a certain time period.  E.g.: Quantity contract, Value contract, Service contract.

Long-term agreement against which products or services are released (ordered, or called off) over a certain time frame.


If you asked about Pipe line Material: Material that flows directly into the production process from a pipeline, a pipe, power transmission lines, or similar.  E.g.: oil, tap water, or electricity

In automobile industry, this is very famous.  A pipeline consists of a chain of processing elements arranged so that the output of each element is the input of the next.  If any work is stopped in between these element, the entire production would come to standstill.  This plays a vital role in major manufacturing industries.

Third Party

Trading with goods which are not handled by the warehouse but rather delivered directly from the vendor to the customer.

In third-party order processing, your company does not deliver the items requested by a customer. Instead, you pass the order along to a third-party vendor who then ships the goods directly to the customer and bills you. A sales order may consist partly or wholly of third-party items. Occasionally, you may need to let a vendor deliver items you would normally deliver yourself.


In the SAP System, the processing, by an external supplier, of materials provided by a customer. The result of this processing is the manufacture by the supplier (subcontractor) of an ordered material or product, or the performance by the supplier of an ordered service.

In  manufacturing industries, it is highly impossible to carry out all operations.  Wherever sensitive operations involved, it will be done in-house and rest they will have couple of vendors to do that particular operation.  For that particular operation of a component, whatever the vendor incurs, company will pay the money.


Consignment goods are goods which are stored at the customer location but which are owned by your company. The customer is not obliged to pay for these goods until they remove them from consignment stock. Otherwise, the customer can usually return consignment goods which are not required.

In case of sales to OEMs (Original Equipment Manufacturers), this plays a major role.  OEMs like Maruti, Suzuki will not place order as and when they require.  Instead, they will release an open order which will be valid for two three years.  Based on this open order, they just release schedules regularly.  What manufacturer should do is to appoint a warehouse agent nearer to the OEMs region and stock the goods ordered by OEMs.  As and when it is required by these OEMs, it will be dispatched from these warehouses.

See also

Get help for your SAP MM problems
SAP MM Forums - Do you have a SAP MM Question?

SAP MM Books
SAP Material Management Certification, Interview and Configuration Reference Books

SAP Material Management Tips
SAP MM Configuration Tips and Materials Management Discussion Forum

Main Index
SAP ERP Modules, Basis, ABAP and Other IMG Stuff

All the site contents are Copyright © and the content authors. All rights reserved.
All product names are trademarks of their respective companies.  The site is in no way affiliated with SAP AG.
Every effort is made to ensure the content integrity.  Information used on this site is at your own risk.
 The content on this site may not be reproduced or redistributed without the express written permission of or the content authors.