Procurement Pricing Options in Dynamics 365 Finance & Operations

For buyers and planners, there are 3 main ways to enter the pricing of a particular material in Dynamics 365 Finance & Operations. Each option is best for different situations, and it can be difficult to understand the implications of each one.

As part of my work as an Encore solution specialist for Finance & Operations, I often provide consultation and training for users in procurement and sourcing to help them understand which of these 3 options is right for their specific needs.

Table of Contents

• Option A: Default Purchase Price on Item Master
  • Use Case
  • Benefits and Drawbacks
  • Note: Latest Cost Price
• Option B: Purchase Price Type Trade Agreement Journals
  • Use Case
  • Benefits and Drawbacks
• Option C: Purchase Agreements
  • Use Case
  • Benefits and Drawbacks

Note: Even though most customers, commentators, and consultants still call it Dynamics 365 Finance & Operations or D365FO, Microsoft now technically licenses it as Dynamics 365 Finance and Supply Chain Management.

Option A: Set the Default Purchase Price on the Item Master

The user can specify the default purchase price and the purchase unit on the Purchase tab page of the Released product form.

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 the price per unit is very small.

Dynamics 365 Finance & Operations allows at most 2 decimals for prices, however behind the scenes, the system calculates with many more. So if we enter a higher price unit, the system can do the math for us.

For instance, if your company purchases bolts and nuts at a vendor-specified price of $0.05 each, you could set the price unit to 1000 and the price to 50. (1000 x $0.05 = $50)

Use Cases for Setting the Default Purchase Price on the Item Master

The option of setting the default purchase price on the item master is often the best choice when:

• The items are usually purchased from a certain vendor, and the item masters identify that vendor.
• The 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.

If your company usually works with a single vendor for each item, and you purchase in your reporting currency, this approach provides automated prices on the purchase order lines. Then, you’ll only have to manually adjust your purchase order lines if you use a different vendor (or there’s a different currency on the particular PO).

Benefit of Setting the Default Purchase Price on the Item Master

The main benefit of this option is that the data is stored on the item master and it can very easily be maintained.

Drawbacks of Setting the Default Purchase Price on the Item Master

• 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 check it or adjust if necessary. The user could accidentally overlook the price and send 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.

Note: Latest Cost Price

The latest cost price option inside the item master lets you keep up with vendors that have frequent price changes on an item. I sometimes get questions from users about what exactly this function does. It’s important to understand that this option changes the price on the item master for each purchase order created and invoiced.

Below, you can see where this can be turned on within the item master in the purchase tab. Each time this product is purchased, and the price is different from a previous purchase, the price field highlighted in green below will be updated.

If you want to see the history of the fluctuation in purchase prices, you need to enable Last price history.

Steps to enable Last price history:

Step 1. Navigate to the Inventory and warehouse management tab.

Step 2. Select the inventory accounting tab and enable the Last price history toggle.

Benefits of the Latest Cost Price

• The system handles the update of purchase prices for you.
• You can get a clearer picture on the financial side, especially with landed costs.

Drawback of Latest Cost Price

• It can lead to inconsistent pricing of items for your customers when the price is changing on a frequent basis.

Option B: Purchase Price Type Trade Agreement Journals

Trade agreement journals in Dynamics 365 Finance and Operations let you define multiple different purchase prices for the same item based on variables. Keeping price journals ensures that the system automatically selects the correct price for each purchase order.

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

• Vendor: Use if you buy the same item from several different vendors, for different prices.
• Vendor Group: If we have a group of vendors who provide the item for the same price.
• 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: We can set up prices with any combination of the above variables for a period of time, which will automatically apply to a PO during that period only.

There are a lot more identifying factors for price/discount journals, such as the warehouse/site it is purchased/delivered to, etc.

Use Cases for Purchase Price Type Trade Agreement Journals

Using trade agreement journals in this way to set purchase prices is a good option when:

• Items may be purchased from a different vendor every time.
• The vendor is only identified at the purchase order level, so the system has to apply the different prices accordingly.
• Prices are defined in currencies other than your reporting currency.
• The prices vary, either between vendors or even from the same vendor depending on, for instance, quantity, delivery warehouse, time of year, etc.
• You receive discounts from vendors that apply on top of base prices received; especially if the discounts are based on volume or other criteria.

Benefit of Purchase Price Type Trade Agreement Journals

The pricing engine that utilizes these journals is highly advanced. It can prioritize and consistently identify the most specific and suitable price or discount option.

Drawback of Purchase Price Type Trade Agreement Journals

As with any sophisticated functionality, the original setup and the 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.

Option C: Purchase Agreements

The purchase agreement is a contract that commits you to buy a product in a certain quantity or amount over a period of time in exchange for special prices and discounts. In Finance & Operations, the prices and discounts of the purchase agreement overrule any prices and discounts stated in any price/discount agreements.

You can create a purchase agreement under Procurement and sourcing > Purchase agreements > Purchase agreements

Having a purchase agreement in the system 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 will be defined by the user creating the release order.

These POs will be grouped against the agreement, enabling clear visibility into 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.

Use Cases for Purchase Agreements

Purchase agreements in Dynamics 365 Finance and Operations are meant to represent longer term agreements with vendors, including commitments to buy/sell certain quantities.

They can also be used to handle situations where a vendor offers special prices for an item we already have a price agreement (journal) in place for.

For instance, if we buy an item in bulk for a particular price from the vendor, we may have a price/discount journal in place for the whole year. But if the vendor has a batch that is reaching the end of its shelf life, they may offer a special price for a certain quantity in a given month. Note that this scenario could also be handled with price/discount journals, but the operational advantages listed below may make it better to use the purchase agreement.

Benefit of Purchase Agreements

The main advantage of purchase agreements is operational: they enable us to establish a legally binding contract with our vendor for a specific quantity at a set price over a defined period.

The purchase agreement approach avoids the need for a single large blanket purchase order, which could complicate MRP processes and obscure the actual purchases made. It also eliminates the need for manual tracking of partial inventory shipments.

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