Work with trade agreements

• 15 minutes

Trade agreements are fixed price or discount agreements that are set up for one or more customers or vendors for the sale or purchase of single or multiple products.

Trade agreements can apply to the following:

• A specific customer, a vendor, or a product
• Groups of customers, vendors, or items
• All customers, all vendors, or all items

Sometimes with certain business activities, complimentary or supplementary items are required when a product is ordered. In finance and operations, these are known as supplementary sales.

Activate trade agreements

To use trade agreements on purchase orders, sales orders, sales quotations, and purchase requisitions, you must activate the combinations of price agreements.

Supply Chain Management contains control structures to activate these pricing and discount structures. You can activate trade agreements so that each organization can activate relevant structures and deactivate structures that are irrelevant to the company's business processes. This feature provides more control for sales and purchase order processing.

To access the Activate price/discount page:

• For sales orders, open Sales and marketing > Setup > Prices and discounts > Activate price/discount.
• For purchase orders, open Procurement and sourcing > Setup > Prices and discounts > Activate price/discount.

When you open the Activate price/discount page from the Sales and marketing module, each tab displays check boxes for the possible combinations of Customer, Customer group, or All customers and Items, Item discount groups, or All items.

You can select these check boxes for access to the various combinations of trade agreements. However, not all combinations are available for selection.

• Price can only be activated for specific items.
• Line discount can be activated for items, item line discount groups, or all items.
• Multiline discount can be activated for item multiline discount groups or all items.
• Total discount can only be activated for all items.

Set up trade agreements

Trade agreements are created in the Price/discount agreement journal page. You can open this page by using one of the following locations:

• Price/discount groups are created from the Sales and marketing, Procurement and sourcing, and the Inventory and warehouse management modules.
• Directly from the Action Pane on the Customer, Vendor, or Released products pages.
• The Price/discount agreement journals page.

Price and discount information, availability, and its effect are as follows:

• Customer discount group
  • On the Customers page, on the Sales order details FastTab, in the Discount field group, the customer is included in the Price/discount group that is selected.
  • On the sales order header view, on the Price and discount FastTab, in the Discount or Charges field group, the sales order is included in the Price/discount group that is selected.
• Vendor discount group
  • On the Vendors page, on the Purchase order defaults FastTab, in the fields that are available in the Discount field group, the vendor is included in the Price/discount group that is selected.
  • On the purchase order header view, on the Price and discount FastTab, in the Discount or Charges field group, the highlighted purchase order is included in the Price/discount group that is selected.
• Item discount group - On the Released products page, on the Purchase and sales FastTabs, in the Line discount and Multiline discount fields in the Discount field group, the highlighted item is included in the Price/discount groups that are selected.

Trade agreement journals

You can use trade agreement journals to create and maintain trade agreements.

You can create new agreements manually or by copying and modifying existing agreements. This is helpful if a new company is starting without any agreements specified. You can enter all agreements from the Trade agreement journal.

You can use existing agreements to retrieve or modify a change that occurs, for example, in price or delivery days. Also, you can copy, change prices, and keep existing agreements to use as historical information so you have a record of the transactions with prior prices.

You can create trade agreements and modify them in a journal to post and update at a future time, for example, if the journals must be approved before they are posted.

Price

Two types of trade agreements relating to price are used for special pricing on sales and purchase order transactions.

• Sales price agreements - Used for certain items, customers, groups of customers, or all customers.
• Purchase price agreements - Used for certain items, vendors, groups of vendors, or all vendors.

When you set up a trade agreement that relates to price, you need to specify specific prices that apply to purchases of specific amounts of the item(s) in, for example, defined time periods. Trade agreements that are related to price are also used to specify individual item delivery times for each customer.

For example, if multiple customers are allowed the same pricing, the Price/discounts group supports entering one instance of their agreed prices under a specific group. Then, you can attach this group to each customer or customer group to allow for automatic pricing across the group for every order to each of those customers.

Line discounts

Line discount agreements are a discount percentage or a discount amount that can be applied if the quantity on the sales or purchase order line meets the minimum quantity and maximum quantity that is required by the agreement.

The following scenario explains how percentages are calculated on a sales order.

The LCD Television HD Black 42 inches item costs USD 2000.00. The minimum quantity for a line discount is 10, the Discount is set at USD 2.00, Percent 1 is set to 10 percent, and Percent 2 is set to 2 percent.

If a customer orders 10 pieces, the cost for each item is USD 2000.00 minus USD 2.00, which equals USD 1998.00 for each item. This gives a line total of USD 19,980.00.

The discount percentages 1 and 2 are applied to the line amount. First, the system subtracts 10 percent (Discount percentage 1) from USD 19,980.00, which equals USD 17,982.00. Then, the system subtracts 2 percent (Discount percentage 2) from USD 17,982.00, which equals the final cost of USD 17,622.36 for 10 pieces of the LCD Television HD Black 42 inches item.

When you create a sales order for 10 pieces of the LCD Television HD Black 42 inches for customer 2001, Waterfall Hotel, the discount is calculated to 11.80 percent and is transferred to the order line in the Disc. pct. field. The fixed discount amount is transferred to the Discount field of the sales order line. The same information can be viewed from the Price/discount tab of the sales order line.

Multiline discounts

The multiline discount can be applied when one or more sales order lines that are added together meet the discount requirement. The items must be in the same multiline discount group. This kind of discount is used when, for instance, a company wants to give a discount if a customer orders over 10 items in the item discount group.

Total discounts

Total discounts are applied on the total value of the sales or purchase order. This kind of discount is used when, for example, a company wants to give a discount when a single sales order includes a minimum of USD 3000.00 worth of items.

Total discounts are only applied to items that have the Total discounts check box selected on the Released product page in the Purchase or Sell FastTabs.

Generic currency

Generic currency allows for trade agreements to be set up for one currency; however, it can be used for all currencies. The default generic currency is defined in Accounts receivable > Setup > Account receivable parameters > Prices. The parameters on this page also allow for you to select the exchange rate type that will be used with generic currency and indicate whether to apply smart rounding after currency conversion has occurred.

If the generic currency is selected on a sales price trade agreement, then the price that is specified by the trade agreement will be in a generic currency. This trade agreement is valid for all currencies where the price and price charges can be translated into any currency that is defined by using exchange rates.

Generic currency can be used for the following trade agreements:

• Sales price
• Sales line discount
• Sales multiline discount
• Sales total discount

Smart rounding

The smart rounding concept that supports psychological pricing can also be thought of as a "price ending," based on the marketing theory that prices have a psychological effect on people. It relates to prices expressed as odd prices that are presented as slightly less than a round number, such as using USD 19.99 instead of USD 20.00.

The smart rounding rules are static and rarely change. They are also currency-dependent. This means that one currency can follow one set of rules and another currency can follow another set of rules.

You can apply smart rounding after a bulk adjustment of trade agreements, or automatically apply it after a unit price is calculated, based on a generic currency and an exchange rate.

Scenario

The Marketing department has decided on smart rounding rules that they hope will make the market more ready to buy their products.

For example, all products for USD end with 99 cents, and all products for Pound Sterling (GBP) end with 95 pence.

The Marketing manager, wants to set up the smart rounding rules and group these so that they can apply one set of rules to each currency that is used for sales order and sales quotations.

Trade agreement parameters

Trade agreement parameters describe the trade agreement discount options that can be selected in the Accounts receivable and Procurement and sourcing parameters. The parameters pages are located in:

• Accounts receivable > Setup > Accounts receivable parameters on the Prices tab
• Procurement and sourcing > Setup > Procurement and sourcing parameters on the Prices tab

Discount fields

To access discount fields go to Procurement and sourcing > Setup >Procurement and sourcing parameters > Prices

The Discount field determines how discounts are handled for lines of a specific sales or purchase order, when both Line and Multiline discount agreements apply to the sales order line. This is the only parameter setting that directly applies to customer and vendor trade agreements.

Consider the following options when you are setting up discount fields:

• Line - Only a line discount is applied to the line.
• Multiline - Only a multiline discount is applied to the line.
• MAX (Line, Multiline) - The system considers both the calculated line discount and the multiline discount and applies only the better of the discounts.
• MIN (Line, Multiline) - The system considers both the calculated line discount and the multiline discount and applies only the lesser of the discounts.
• Line + Multiline - The discount applied to the order line is the sum of both the line discount and multiline discount. The two discounts are added and then the discount is calculated.
• Line Multiline - The discount applied to the order line is the value of the Line discount added to the value of the Multiline discount that is calculated based on the price minus the Line discount. Notice that the multiline discount is calculated after the line discount is deducted from the list price.

Example

The LCD Television HD Black 42 inches item has a list price of USD 2000. A Line discount is available of 1 percent and a Multiline discount of 2 percent for all customers.

• Line - (2000.00 * 1%) = USD 20.00 discount allocated.

• Multiline - (2000.00 * 2%) = USD 40.00 discount allocated.

• MAX (Line, Multiline) - (2000.00 * 1%) = USD 20.00 and (2000.00 * 2%) = USD 40.00. Take the larger of the two so that USD 40.00 is the discount allocated.

• MIN (Line, Multiline) - (2000.00 * 1%) = USD 20.00 and (2000.00 * 2%) = USD 40.00. Take the smaller of the two so that USD 20.00 is the discount allocated.

• Line + Multiline - ((1% + 2%) * 2000.00) = (3% * 2000.00) = USD 60.00 discount allocated.

• Line * Multiline - ((2000.00 * 1%) + ((2000.00-(2000.00 * 1%)) * 2%)) = (20.00 + 39.60) = USD 59.60 discount allocated.

Supplementary items

When a product is ordered, complimentary or supplementary items are frequently required. In Supply Chain Management, these are known as supplementary sales.

For example, if the customer orders a home theater system, a supplementary, and possibly a required, item would be a DVD player. Similarly, additional sales can be made if the sales representative receives a list of item numbers to be suggested for purchase together with a product that the customer orders.

Supplementary item groups

Supplementary item groups are used so that companies can take advantage of selling opportunities.

For example, a supplementary item for a home theater system is a DVD player. When an order processor at the Contoso company enters an order for item 1201 (Home Theater System 2.1 Channel Model 01), the supplementary item 1701 (Standard DVD Player - Black) is suggested.

Supplementary customer groups

Supplementary customer groups are used so that companies can set up supplementary items for customer groups, based on the buying history of those customer groups.

For example, the Contoso company's sales manager has noticed that customers in Customer group 20 (Major customer) who purchase item 1000 (LCD Television HD Black 42 inches) consistently purchase item 1209 (Home Theater System 5.1 Channel Model 04) as well. By using supplementary customer groups, order processors can immediately suggest the home theater to customers in the major group.

Supplementary sales items

Supplementary sales items are set up in the Inventory and warehouse management module and the Sales and marketing module. Supplementary purchase items are set up in the Inventory and warehouse management module and the Procurement and sourcing module:

• Supplementary items are associated with individual items and are set up from the Released products page on the Sell and Purchase FastTabs of the Action Pane. Select Supplementary sales item or Supplementary purchase item on the Related information group. This type has a one-to-one relationship between the item ordered and a supplementary item offering.
• Supplementary item groups, supplementary vendor groups, and supplementary customer groups are set up in Inventory management > Setup > Supplementary items.
• Supplementary item groups and supplementary vendor groups can also be set up from Procurement and sourcing > Setup > Supplementary items.
• Supplementary item groups and supplementary customer groups can also be set up from Sales and marketing > Setup > Items > Supplementary item - item groups and Sales and marketing > Setup > Items > Supplementary item - customer groups.

If a trade agreement journal is posted that includes the products that have these base prices, the trade agreement will be used instead of the base price.

If you change price and discount conditions, prices and discounts could be recalculated and overwritten. You could also initiate a dialog. The dialog helps you decide whether to keep the current price or discount if the price or discount is inherited from an external source. Add the types of external sources that should initiate this dialog.