Pricing Options in Dynamics 365 for Finance and Operations

There are several different ways to enter pricing of a particular material in Dynamics 365 Finance and Operations, depending on the client’s nature of business. In this blog post, I will list three of them that are outside of a manufacturing environment and margin based pricing, along with their drawbacks and benefits.

I will demonstrate it through a purchasing price example, but all three options are available for sales prices and have the exact same pros and cons for each of them.

Option 1 – Storing the purchase price on the item master

On the Purchase tab page of the Released product form, user can specify the purchase price / purchase unit.

The purchase price specified in the ‘Price’ field is the price for the number of units specified in the ‘Price quantity’ field. The unit is the one specified in the ‘Unit’ field. Usually the price quantity would be 1, unless it is a situation where the price per unit is very small. Dynamics 365 Finance and Operations does not allow the user to enter more than 2 decimals for prices, however behind the scenes it is actually calculating and working with many more. So if we enter a higher price unit, we instruct the system to do the math for us.

A good example would be when a company is buying bolts and nuts and the price is specified by the vendor per each to be $0.05. We can set the price here to be 50 and the price unit to be 1000.

When is it advantageous to use this option:

• When items are purchased from one main vendor the majority of the time and the vendor is identified on the item master.
• When prices are defined in the company’s reporting currency.

The price identified on the item master will always be read in the reporting currency of the company and it will auto-default to a purchase order for this item regardless of the vendor selected.

So for companies working with one primary vendor for each item most of the time and purchasing in their company’s reporting currency, this setup provides automated prices on the purchase order lines, which only have to be manually adjusted if the vendor is not the primary or the currency of the particular PO differs from the company’s reporting currency.

Advantages of this setup:

The data is stored on the item master and it can very easily be maintained.

Potential problems with this setup:

• When a PO is set up for a vendor different from the primary vendor, the price will still default to the PO and nothing will warn the user to adjust if necessary – this has the possibility of overlooking the price and sending out a PO with the wrong price.
• When a PO is set up in a different currency than the company’s reporting currency, the system will automatically use the most recent exchange rate and calculate the purchase price based on the price on the item master and the exchange rate. The user will not be warned and if the PO is sent out for the same item to the same vendor on two different days, the prices can differ based on changing exchange rates.

Option 2 – Setting up purchase price type Trade agreement journals

Trade agreement journals in Dynamics 365 Finance and Operations are a sophisticated price engine with which users can define a lot of different purchase prices for the same item based on variables. By maintaining price journals we make sure the system will automatically pick the right price on every purchase order.

We can set up price journals based on the following variables:

• Purchase price for item per vendor -> if we buy the same item from several different vendors, for different prices.
• Purchase price for item per vendor group -> if we have a group of vendors who provide the item for the same price.
• Purchase price by currency -> we can set up a CAD and a USD price and depending on the currency of the PO, the system will apply the proper price.
• Seasonal prices –> we can set up prices with any of the combination of the above variables for a period of time, which will automatically be applied to a PO during that period of time only.

There are a lot more identifying factors for price/discount journals, such as the warehouse/site it is purchased/delivered to, etc. Keep your eyes peeled for another blog post about these details coming soon!

When is it advantageous to use this option:

• When items are not purchased from one main vendor, but each and every time could be purchased from a different source, and the vendor is only identified on the purchase order level, so the system has to apply the different prices accordingly.
• When prices are not necessarily defined in the company’s reporting currency or they are defined also in additional currencies.
• When the company receives different prices, possibly even from the same vendor depending on certain factors, such as quantity, delivery warehouse, seasonality, etc.
• When the company receives discounts from its vendors that apply on top of base prices received; especially if the discounts are volume or any other criteria based.

Advantages of this setup:

The price engine using these journals is very sophisticated and is capable of prioritizing and always finding the most specific and appropriate price / discount option.

Potential problems with this setup:

As with any sophisticated functionalities, the original setups and then maintenance of data requires much more time and effort than simply storing prices on the item master.

You can set up purchase price journals in the system under Procurement and sourcing / Prices and discounts / Trade agreement journals.

Please note again that the details of the how to create and user price/discount journals in D365 is NOT included in this post.

Option 3 – Setting up purchase agreement and creating release orders

Purchase agreements in Dynamics 365 Finance and Operations are meant to represent longer term agreements with vendors, not necessarily just for prices but also quantitative commitments. In its original purpose, the purchase agreement is a contract that commits an organization to buy a product in a certain quantity or amount over a period of time in exchange for special prices and discounts. The prices and discounts of the purchase agreement overrule any prices and discounts stated in any price/discount agreements that exist.

You can set up a purchase agreements in the system under Procurement and sourcing / Purchase agreements / Purchase agreements

When is it advantageous to use this option:

The agreements are not necessarily considered a tool to maintain prices as they do not offer anything extra over the trade agreement functionality. The main reason one would decide to use them is more operational. It allows us to get into a legally binding agreement with our vendor for a certain quantity for a certain price over a certain period without having to create one blanket type PO for a huge quantity – which would completely confuse MRP and would not give the purchasers the option to have a clear view of what has actually been purchased yet and when do they need to issue another release of quantity from the blanket PO. It would also mean manual monitoring of when a partial shipment of that inventory is needed.

Note: in previous versions of AX (in its ‘Axapta’ stages) there was a PO type called ‘blanket purchase order, but it has been replaced with the purchase agreement starting in AX2012.

Advantages of this setup:

It allows an agreement between the vendor and the company which enables users to spin off ‘Release purchase orders’ with a click of a button. These orders will automatically inherit all information from the agreement (prices, vendor, delivery addresses, etc) but the quantity would be defined by the user creating the release orders. These POs will be grouped against the agreement and a clear picture will emerge about outstanding vs released amounts. Each and every PO will be handled separately (received, invoiced, paid for) and MRP will suggest ordering off of the agreement when the item is low on stock or is on demand for a job.

It also could be the appropriate way to handle situations where a vendor offers special prices for an item we already have a price agreement (journal) in place for. For example we buy an item in bulk for a particular price from the vendor and have a price/discount journal in place for the whole year, but they have a batch thats shelf life date is approaching, so they offer a special price for a quantity of a 1000 kg in the month of May. Note that this scenario could also be handled with price/discount journals but the operation advantages listed above would prompt the user to work with agreements in most cases.

Again please note that the details for how to create and use purchase agreements in AX is NOT included in this blog post, you are encouraged to consult your Microsoft Dynamics training manuals and videos. Please connect with us if you have any questions about Dynamics 365 for Finance and Operations.