Pricing and Costing – Rajawali Adikarya

What Is?

What Is Pricing?

A price is the value of the payment asked by one party from another in return for goods and services provided.

When determining prices, organizations need to consider the overall marketing mix – product, price, place/distribution, discounts and promotion – in order to achieve a profitable return on investment. The company must aim to make a profit, yet its pricing objectives must also be competitive to attract customers.

Prices are quoted to customers in local or foreign currency. When determining foreign currency prices, businesses must take into account the effects of currency fluctuations on the local currency value they will receive for the product.

What Are Discounts?
A discount is the difference between the asking price of a product or service and what the customer ultimately pays for that product or service, and is usually stated in terms of a value or percentage. There are many types of discount incentives and they are implemented by companies for a variety of reasons.

Discounts given at the time of sale include:

• Cash discount: a reduction offered in the asking price of a product or service if the customer pays cash at the time of receiving the goods; it is part of a company’s strategy to improve cash flow.

• Trade discount: a reduction in the selling price of a product or service resulting in a wholesale or bulk price; it is part of a seller’s pricing strategy to encourage retailers and resellers to buy and remain loyal to the seller’s products.

• Sales discount: a reduction in the retail price of a product or service; it is part of a seller’s pricing strategy to encourage the public at large to buy the seller’s product, often so as to move stock quickly.

Discounts given on account payments:
• Terms discount (also known as settlement discount) is a reduction offered to account customers who pay their outstanding invoices within a specified time. It usually takes the form of a percentage or value reduction on the face value of outstanding invoices and is part of a company’s strategy to improve cash flow by encouraging early payment.

Note: The processing of terms discounts is an accounts receivable function that does not have a direct impact on pricing and sales figures and will therefore not be covered in this guide.

What Is Contract Pricing?
Contract pricing refers to an agreed-upon amount that a customer pays to a seller in accordance with legally binding contract terms and conditions. The agreed amount is most likely to be a discounted price for goods or services provided over an extended period of time.

By entering into a contract with a customer and providing an agreed-upon price, companies are able to build customer relationships.

What Are Trade Promotions?
Trade promotions refers to the management and control of various company-specific rules concerning pricing, promotions, special offers and rebates which are extended by sellers to customers within a supply chain, as well as retail customers.

The main aim of trade promotions is to increase sales in the short term by using promotional schemes that effectively decrease the cost of an item to the consumer. Additional aims include introducing a new product, creating brand equity, positioning a product in the market and responding to competition.

Promotions of many forms are routinely offered. Some are temporary price reductions subtracted from the invoice. Others are accrued for later redemption by the customer (possibly against future expenditure according to agreements, such as advertising bill-backs).

Still another type is free goods, such as buy-one-get-one-free programs. An individual line item on an order may have multiple promotions attached. There may also be lump sum fees that are paid to the customer in exchange for promoting the seller’s products.

One way that promotions are paid is through invoice deductions. At specific intervals, usually monthly, accruals and deductions are reviewed and processed by either accepting the transactions or rejecting them with a reason. The customer typically deducts the cost of promotions and lump sum fees from the seller’s invoice. Line items on the remittance advice may contain some information about the deduction taken, but often do not. The process of cash application is often tedious and time consuming for the seller. Furthermore, the deductions taken may be unrelated to the invoice against which they are applied to (e.g. A check may come from the corporate headquarters of a retail chain. A deduction taken against an invoice for an advertising bill-back for one store may be applied against an invoice for another store in a different chain).

A seller will negotiate trading terms, including promotions and discounts, with its customers. Once agreed these will become standard within their trading relationship and should apply whenever a transaction—a sales (promotion, discount and accrual) or payment (deduction)—takes place between the seller and its customer. In addition, credit limits can be agreed between the seller and a customer for all companies within the customer’s enterprise, thus providing an automatic process of credit checking at multiple levels within the customer’s enterprise.

Because of the volumes of transactions typically involved in trade promotions processing, it is essential for the seller to be able to easily apply any promotions that are available to a customer, and to manage any deductions that the customer may take.

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SYSPRO Solution

The SYSPRO Pricing solution is designed to provide manual or fully automated pricing for sales transactions. The global base pricing system includes a choice of one of three methods designed to give you the flexibility to implement customer– and stock-code based pricing models. In addition, SYSPRO offers contract and trade promotions pricing.

Within SYSPRO, you define your global base pricing method at company level as either Manual, Simple or Extended. The company pricing method selected would typically reflect whether the company uses manual or automatic pricing and whether the pricing strategy is more customer– or stock-code– centric.

The company base pricing method determines which price is used and which discounts are applied to sales order lines and to the total merchandise value in the absence of contract pricing and trade promotions pricing. The automated pricing methods of Simple and Extended provide the tools to ensure that each customer is charged the correct price for an item without operator intervention, while Manual pricing allows any price to be entered and is therefore more prone to entry errors.

In addition to the base pricing method, you can use the:
• contract pricing system to record and implement contracts that you have negotiated with customers to provide them with inventory items at a specified price for a specified period of time. You can create pricing contracts for specific customers, or groups of customers and each customer can belong to more than one buying group.
• trade promotions system to apply promotional pricing techniques to your stock items in an effort to increase sales, build customer relationships or create awareness of products.

Global Base Pricing Methods

Manual Pricing
When this method of pricing is used, a price and selling unit of measure must be entered manually on the sales order line along with any discount value or percentage.

Simple Pricing
When this method of pricing is used, pricing is determined by the Automatic price code selection assigned to the customer, together with the Pricing method assigned to the stock item. In the case of the Quantity Discounted method, however, the quantity of the stock code purchased by the customer determines the price code used rather than the customer’s Automatic price code selection.

Customers are categorized according to the price they receive for
• a specific price code for coded stock items, and
• a specific discount code across discounted stock items.

Each stock code can be classified according to one of three pricing methods:

1. Coded – indicates that the stock code pricing method is coded. In order to establish the correct selling price, the system:
• obtains the customer’s price code from the Auto price code selection field in the Customers table; and
• searches for the matching price code for the stock code in the Inventory Selling Prices or Inventory Foreign Selling Prices table.

Simple Coded Pricing Flowchart

Pricing Simple.png

2. Discounted – indicates that the stock code pricing method is discounted. In order to
establish the selling price, the system:
• obtains the customer’s price code from the Auto price code selection field in the Customers table;
• searches for the matching Discount Code in the AR Invoice Discounts table;
and
• from the Discount Code entry, determines whether the discount is applicable to the
• List price in the Inventory Selling Prices or Inventory Foreign Selling Prices table;
• the Current cost (mark-up) in the Inventory Warehouse table; or
• a stated price code in the Inventory Selling Prices or Inventory Foreign Selling Prices table;
and applies the discount accordingly.

Simple Discounted Pricing Flowchart

Pricing Discounted.png

3. Quantity Discounted – indicates that the stock code pricing method is quantity discounted. In order to establish the selling price, the system
• compares the Order quantity for the stock code on the sales order line to the quantity breaks in the Inventory Quantity Discounts table;
• selects the price code against the relevant quantity break; and
• searches for the matching price in the Inventory Selling Prices or Inventory Foreign Selling Prices table.

Simple Quantity Discounted Flowchart

Pricing Qty Discounted.png

Extended Pricing
When this method of pricing is used, the normal stock code Pricing method of Coded, Discounted and Quantity Discounted still applies, but for the Coded and Discounted methods, pricing is determined according to a matrix based on the stock code’s Pricing category and the customer’s Price Category/Code Table.

In the case of the Quantity Discounted method, the quantity of the stock code purchased by the customer determines the price code used rather than the customer’s Pricing Category/Code table.

The stock codes are categorized into up to 26 groups for pricing purposes using category labels A to Z. So a stock code is assigned a single Pricing category selected from categories A to Z.

In the customer file, the positions in the Price Category/Code Table are labeled A to Z as shown in the first row of the following table:

A	B	C	D	E	F	G	H	I	etc.
1	X	4

Any price or discount code can be entered in each position as shown above; for example, price code 1 could be in position A, price code X in position B, discount code 4 in position C. etc.

The system finds the code in the position corresponding to the stock code’s Pricing category and depending on the stock code’s Pricing method, matches it to the applicable price in the Inventory Selling Prices, or Foreign Selling Prices table, or the discount code in the AR Invoice Discounts table.

So for Pricing method
1. Coded, the system
• obtains the stock code’s pricing category from the Price Category field in the Stock Codes table;
• locates the code in the matching position in the customer’s Price Category/Code Table; and
• uses the code in that position to find the matching price code in the Inventory Selling Prices or Inventory Foreign Selling Prices table.

Extended Coded Pricing Flowchart

Pricing Extended Coded.png

2. Discounted, the system

• obtains the stock code’s pricing category from the Price Category field in the Stock Codes table;
• locates the code in the matching position in the customer’s Price Category/Code Table; and
• uses the code in that position to find the matching price code in the AR Invoice Discounts table; and
• from the Discount Code entry, determines whether the discount is applicable to the
• List price in the Inventory Selling Prices or Inventory Foreign Selling Prices table;
• the Current cost (mark-up) in the Inventory Warehouse table; or
• a stated price code in the Inventory Selling Prices or Inventory Foreign Selling Prices table;
and applies the discount accordingly.

Extended Discounted Pricing Flowchart

Pricing Extended Discounted.png

3. Quantity Discounted, the system
• compares the Order quantity for the stock code on the sales order line to the quantity breaks in the Inventory Quantity Discounts table;
• selects the price code against the relevant quantity break; and
• searches for the matching price in the Inventory Selling Prices or Inventory Foreign Selling Prices table.

Extended Quantity Discounted Pricing Flowchart

Pricing Extended Qty Discounted.png

Note: Contract pricing and Trade Promotions pricing can be used in conjunction with the other pricing methods. If a valid contract exists, the contract price always takes precedence over the other pricing methods including any Trade Promotions price. If no contract exists but a valid Trade Promotions price break exists, this overwrites the price retrieved for the stock code.

In situations where the pricing mechanisms must be overridden, the operator may enter a special price. This action is recorded against the detail order line and may be reported on.

Process Flow

Discount Types
SYSPRO offers numerous configurations of sales discounts within the system:
• Invoice Discounts
You use the AR Invoice Discounts program to define discount codes, with up to three chained discount percentages. You specify which price must be used to calculate the discount in the AR Customer Maintenance program. These codes are used to define discounts for each sales order entry line, or for the total invoice amount for each customer.

The discounts defined here can be used when either the Simple or Extended pricing method is in use and the stock item’s Pricing method is classified as Discounted. Also, these discount codes can be assigned to a customer so that they are automatically applied to invoice totals, or to invoice lines when the base pricing method is anything other than Discounted.

• Line Discounts
Line discounts can be applied in a number of ways:
1. Manual line discounts: you can enter a manual line discount when you add a line in the Sales Order Entry program. You can enter up to three chained discount percentages, a total discount value, or a unit discount value.
2. Automatic line discounts coded against the customer account: you can enter a discount code at the Line discount code field against each customer. This discount is then applied automatically to all sales order lines for the customer where the pricing method is anything other than Discounted.
3. Automatic line discounts applied via the Simple and Extended pricing methods: see the Simple and Extended Discounted pricing methods in the Global base pricing methods section of this guide.

• Quantity Discounts
This indicates that the quantity ordered determines the price retrieved.

Customers who sell stock in large volumes and who offer “more for less” buying opportunities use this method.

These quantity breaks are applied if the stock code has a pricing method of Quantity discounted.

Example: If you enter a Price code A for a quantity of 10 and Price code B for a quantity of 50, it means that Price code A applies to quantities from 1-10 and Price code B applies to quantities of 11-50. There is no price code specified for 51 or more items, which means that the system determines the price code according to the pricing method, in the Stock Code Maintenance program against the stock item.

Only if the order quantity exceeds all the quantity breaks does the system revert to determining the price based on the pricing method configured for the company.

You use the Stock Code Quantity Discounts program to maintain the quantity discount breaks that you want to assign to selected stock items.

The Stock Code Quantity Discounts program can be accessed by selecting the Quantity Discounts option from the Pricing for a Stock Code program.

• Customer Discounts
You use the AR Customer Maintenance program to indicate which customers have been assigned contracts, or which customers belong to buying groups that qualify for special discounts. This is covered in more detail in the Contract Pricing section. You also set up the sales discounts that apply to your customer, using the AR Customer Maintenance program.

• Discount Codes
1. Enter a discount code (from the AR Invoice Discounts table) at the Invoice discount code field in AR Customer Maintenance to allow a discount on the invoice total for the customer.
2. Enter a discount code (from the AR Invoice Discount table) at the Line discount code field in AR Customer Maintenance to allow a discount on a sales order line for the customer.

• Order Discount Breaks
1. Select Calculate order discount based on order value/quantity in AR Customer Maintenance to allow order discount breaks on an invoice total.
2. Select Calculate order line discounts according to product class sold in AR Customer Maintenance to allow order discount breaks on each sales order line.
3. Calculating invoice discount after line discount at company level – from the AR Customer Maintenance program
• select Calculate invoice discount after line discount if you want the system to subtract line discounts from the total merchandise value of a sales order before it calculates the invoice discount. This applies to all sales orders.
• Deselect Calculate invoice discount after line discount if you want the system to calculate line discounts and invoice discounts on the total merchandise value of the sales order. This applies to all sales orders.

• Order Discount Breaks
You use the S/O Order Value Discounts program to define percentage discount breaks which enable you to vary prices according to the quantity or value of items on a sales order.

You base an order discount break on the value or the quantity of the stocked and non-stocked items on an order processed within the Sales Order Entry program. Freight and miscellaneous charge lines are excluded when calculating order discount breaks.

Contract Pricing
SYSPRO’s Contract Pricing system enables you to
• flag customers as contract pricing customers.
• create buying groups in order to group customers for contract pricing purposes.
• assign up to five buying groups to each contract pricing customer.
• define contracts for specific customers and/or buying groups where you have negotiated the sale of inventory items at a fixed price configuration over a specific period of time. The following available contract types are discussed in more detail later in this guide:
• Flat price
• Coded
• Quantity discount breaks
• List price less percentage
• List price less chain discount
• Coded less chain discount
• Mark-up cost
• Coded less unit discount
• print a list of customers attached to a range of buying groups.
• print a list of selected contracts for a range of buying groups and customers.
• purge invalid price contracts, or price contracts that have expired by a specified cut-off date.

Note:
• During sales order entry, a valid contract takes precedence over all other pricing systems. If an inventory item is included in more than one buying group or customer contract, the lowest contract price is applied.
• For a foreign currency customer, you can only use the Flat price, Coded price and Quantity discount breaks contract pricing methods.
• No automatic line discount is held against a contract pricing customer; however, you will be able to manually enter a discount.
• If trade promotions exist but a valid contract price is defined for a customer and a valid contract exists, then trade promotions pricing is not applied.

You can also use Contract Pricing for pricing methods not catered for by the other pricing systems.

Trade Promotions
SYSPRO’s comprehensive Trade Promotions functionality provides increased control and efficient management of your promotions, thereby reducing time-consuming reconciliations and improving accuracy and profitability. Furthermore, SYSPRO provides clear visibility to Pareto, forecasting, inventory and sales data thereby enabling the quick identification of suitable items for promotion, such as new, re-branded and seasonal items, slow movers or those nearing expiry date.

Trade Promotion features enable efficient implementation and management of the many types of trade promotions that are routinely offered, such as temporary price reductions off invoice, accruals for later redemption, special offers and free goods combinations. Promotions can be applied across groups of items based on quantity, mass or volume, and for various customer and location groupings. Multiple promotions can be configured to be applied either automatically or by review, at order entry or import time.

The Trade Promotions system enables you to manage and control promotions, special offers, rebates, etc., by providing facilities that include
• Complex promotions pricing
• Promotions types
• Off-invoice
• Free Goods
• Accruals
• Accrual deduction processing
• Multi-tiered credit checking

The system maintains the different forms of promotion separately; generates charges off the invoice and tracks accruals and customer deductions. Accounting transactions are generated at each stage.

You use the Promotion Codes program to view details of the promotions used in the Trade Promotions module.

Promotion codes are used to define the rules for applying both line and global promotions to a sales order. Line promotions are applied per order line while global promotions apply to the whole order.

You use the Promotion Code Maintenance program to maintain details of the promotions used in the Trade Promotions module.

Promotions can be defined for a single stock item or a group of stock items and can then be applied to different customers, customer classes, buying groups, branches or geographic locations. Promotion qualification thresholds can be based on the quantity, mass or volume of the promotional item sold. You can define a time frame (start and end date) for which a promotion is valid and the start and end dates can be based on either the cusomer request date or the order date.

During sales order entry, promotional prices are calculated automatically using threshold quantities from multiple line items. Multiple promotions can be applied to an individual line item on an order. Qualifying promotions are applied at the time of ending a sales order and can be applied automatically to the sales order or presented to the operator for selection as line items are added or changed.

Promotions can be applied independently of trade promotions complex pricing. Accounting transactions relating to promotions are generated automatically.

The following types of promotions can be defined and applied:
• Off invoice: discounts or money-off reductions applied to an invoice.
• Free goods: an item given away for free or an item sold at a reduced price when the customer purchases a specific quantity of the promotional item. The item given away for free or sold at a reduced price does not have to be the promotional item itself (i.e. you can configure ‘buy item A and get item B for free’, or ‘buy item A and get item B at half price’ types of promotions).
• Accrual: values or points accrued for later redemption.

You can select to apply tiered details for off-invoice and accrual promotion types. This enables
you to define the thresholds that can have different prices or percentage reductions based
on the quantity entered.

Trade Promotions Process Flow

Pricing Process Flow.png

Positioning
The SYSPRO Pricing solution falls under Execution and Operational, as one of the SYSPRO solutions for internal resource planning.

SYSPRO Pricing is pervasive in the following solutions:
• Accounts Receivable
• Inventory
• Sales Orders
• Trade Promotions
• Quotations

Module Dependencies

Pricing extends across the following modules:
• Accounts Receivable
• Inventory
• Sales Orders
• Trade Promotions
• Counter Sales
• Quotations

The following modules are required for global base pricing:
• Accounts Receivable
• Inventory
• Sales Orders

The following modules are required for contract pricing:
• Accounts Receivable
• Inventory
• Sales Orders

The following modules are required for trade promotions pricing:
• Accounts Receivable
• Inventory
• Sales Orders
• Trade Promotions

Other recommended modules for pricing:
• Counter Sales
• Quotations

Integration

The SYSPRO Pricing solution relies on the integration of the following:

Accounts Receivable

Customers can be configured with:

an invoice line discount code for automatic application of discounts on sales order lines.
an invoice discount code for automatic application of discounts on invoices.
an auto price code selection for automatic application of price codes and discount codes in sales orders under the Simple pricing system.
a price category/code table for automatic application of price codes and discount codes in sales orders under the Extended pricing system.
a contract pricing flag to indicate automatic application of contract prices in sales orders under the Contract Pricing system.
up to five buying groups for the automatic application of contract prices and promotions in sales orders based on buying group.
a trade promotions flag to indicate automatic application of trade promotions in sales orders under the Trade Promotions system
a trade promotions pricing flag for the automatic application of complex pricing in sales orders under the Trade Promotions system.

Inventory

Stock codes can be configured with:

a pricing method for the extraction of prices, discounts and quantity discounts in sales order under the Simple and Extended pricing systems.
a pricing category for the extraction of prices, discounts and quantity discounts in sales order under the Extended pricing system.
a list price code and price on which discounts for the stock code can be based during sales order entry.
multiple price codes for the application of prices in sales order entry under any of the manual or automatic pricing systems.
quantity discount breaks for the application of prices in sales order entry under any of the automatic pricing systems.
promotions and price breaks for use in sales orders under the Trade Promotions system.
a minimum % above cost to ensure pricing applied in sales order entry exceeds the cost of the item by a specified margin.

Sales Orders and Counter Sales

Within these modules:

in the absence of any of the automatic pricing systems, manual pricing is applied to sales orders manually.
automatic pricing is applied to sales orders under the Simple, Extended, Contract pricing and Trade Promotions complex pricing systems.
promotions are selected and applied to sales orders under the Trade Promotions system.

For more info about Syspro, you can also visit the Syspro website at Syspro

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