Explaining Pricing Basics

Pricing is used to determine prices in sales and purchase documents. With pricing set up using various conditions customers can be invoiced correctly. In purchasing you can use pricing for purchasing decisions and also to verify vendor invoices.

The condition technique refers to the method by which the system determines prices from information stored in condition records

The following elements are used in the Condition Technique:

Condition types: A condition type is set up for each kind of price, discount or surcharge which could occur within a business transaction. Some examples are: PR00 - price, K004 - material discount etc.

Condition tables: A condition table defines the combination of fields (the key) that identifies an individual condition record. A condition record is how the system stores the specific condition data that is entered in the system. For example, when the price for a product or a special discount for a good customer in the system, it creates individual condition records.

Access sequences: An access sequence is a search strategy that the system uses to find valid data for a particular condition type. It determines the sequence in which the system searches for data. The sequence of the accesses establishes which condition records have priority over others.

Pricing Procedures: The pricing procedure defines the group of conditions that are to be read in a particular sequence. In addition, it also determines:

• Which sub-totals appear during pricing.
• To what extent pricing can be processed manually.
• Which method the system uses to calculate percentage discounts and surcharges.
• Which requirements for a particular condition type must be fulfilled before the system takes the condition into account.

Pricing in sales orders is determined with the help of a pricing procedure and an associated calculation scheme.

These are defined in customizing as well as the various condition types which are typically used in price calculation.

The pricing procedure is determined by the customer master, the document type and the sales area.

Most conditions will use a more or less complex access sequence, that is one or more steps which are checked by the system top to bottom to find a value. In the example above the most specific way to find a price is individually for a customer. Less specific is a price that is relevant for a group of customers while a price on Material level can be considered to be quite generic.

In the example above the three level access sequence is used by the pricing procedure until a valid condition record is found. There is no record for the combination customer / Material but for the combination customer group / Material a record with the value 100€ is determined. Access sequences in pricing are typically defined to stop searching after the first hit and therefore the Material price of 120€ is not access. For another sales order where the customer does not belong to this customer group the 120€ might be relevant.

Condition values can also be maintained manually if the condition type is set up accordingly.

Prices are generally calculated on item level but conditions can also be defined for the order header level, a typical example would be a freight cost that applies for the total order.

It is possible to include the Material cost into the calculation in order to calculate a margin.

The purchase price calculation schema is used to calculate the purchase price for merchandise procured from an external supplier. The purchase price calculation schema assigned to a pricing item is determined using the schema group of the vendor and the schema group of the purchasing organization.

Conditions are terms of payment that are negotiated with vendors or customers (for example - surcharges, discounts and cash discounts). These can refer to individual materials, groups of materials or vendor sub-ranges. They are generally housed within the system as purchase info records, or if specified and valid for a defined period of time, also as purchasing contracts. Condition values are assigned to different condition types at different data retention levels and for different periods.

As a rule, conditions are negotiated and maintained individually by each purchasing organization. However, in certain situations, the conditions can also be made available to other purchase organizations (via the reference purchase organizations). Conditions can be either time-dependent or time independent.

In the case of purchase orders, the system searches for conditions in info records and/or contracts. If no conditions are found, but the last PO is noted in the info record, the system then adopts the conditions from this PO. In the automatic price determination process, the price is generally calculated on the document date of the PO.