Pricing Options in Microsoft Dynamics AX

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

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

Option 1 – Storing the purchase price on the item master

On the Purchase tab page of the Released product form, a 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 unit’ field. The unit is the one specified in the ‘Unit’ field. Usually the price unit would be 1, unless it is a situation where the price per unit is very small. AX 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. 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 to be each $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 (CAD).

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.

  • 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. These 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 be very easily 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. There is then 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 then the company’s reporting currency, the system will automatically use the most recent exchange rate. It will 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 journals

Price journals in Microsoft Dynamics AX are a sophisticated price engine and users can define several 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 many more identifying factors for price/discount journals such as the warehouse/site it is purchased/delivered to. These are discussed in detail in a previous blog post, ‘Price Journals – a Powerful Price Engine in Microsoft Dynamics AX’.

When is it advantageous to use this option:

  • When items are not purchased from one main vendor, but each and every time items could be purchased from a different source. The vendor is only identified on the purchase order level; therefore the system has to apply the different prices accordingly.
  • When prices are not necessarily defined in the company’s reporting currency (CAD) or they are also defined 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 finding the most specific and appropriate price / discount option.

Potential problems with this setup:

As with any sophisticated functionalities, the original setup and eventual 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 / Journals / Price Discount Agreement Journals.

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

Option 3 – Setting up purchase agreement and creating release orders

Purchase agreements in Dynamics AX 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 purchase agreements in the system under Procurement and Sourcing / Common / Purchase Orders / 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 price/discount functionality. The main reason one would decide to use them is more operational. It allows us to enter a legally binding agreement with our vendor for a certain quantity for a certain price over a certain period of time without having to create one blanket type PO for a huge quantity. This would ultimately confuse MRP and would not give the purchasers the option to have a clear view of what has actually been purchased, and when 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 vendor and the company from which we can, with a click of a button, spin off ‘Release purchase orders’. 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 such as when a vendor offers special prices for an item we already have a price agreement (journal) in place for. An example of this would be if we buy coffee in bulk for a particular price from the vendor and we have a price/discount journal in place for the whole year. If they have a batch that’s shelf life date is approaching, they offer a special price for a quantity of a 1000 kg in the months 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 of the how to create and use purchase agreements in Microsoft Dynamics AX is NOT included in this blog post, you are encouraged to consult your Microsoft Dynamics training manuals and videos.

For more information about pricing options and creating and using purchase agreements, please contact us to speak to one of our expert Microsoft Dynamics AX consultants.

CONTACT US 

 

, , ,

No comments yet.

Leave a Reply