SAP - Sales and Distribution – Pricing Condition records– Lesson 5
In this lesson we will understand what is Pricing Condition and why this is needed.. In the next lesson I will show you how to configure the Pricing Conditions in SAP.
What is Pricing - ‘Pricing’ term is used to explain the calculation of prices for customers or vendors and costs for internal purposes. These represent a set of circumstances that apply when a price is calculated. These are based on many variable factors like Customer, Material, Order quantity, Period etc. For example, a customer – WALMART orders in bulk and obviously he deserves some more discount than other customers like AUCHAN, TESCO. Alternatively, the customer can also have a purchase contract with you that you will deliver to him at some particular price, so you set up condition records for each customer and respective discounts.
Pricing is an intrinsic part of Sales & Distribution. System has provided extensive features to map various pricing scenarios in business environment. ‘Conditions’ are extensively used in pricing. Condition technique is main basis of pricing in sales.
Elements used in Condition Technique
Condition type is representation in system of some aspect of daily pricing activities in business environment. For each kind of price in business transaction a condition type can be created in customizing. Example for Prices, Surcharge, Discount etc.
Various Controls are provided in condition type definition in customizing to suit the numerous price types.
System has predefined condition types for all categories of price types. These are utilized in the standard pricing procedures used for standard scenarios. Few of them are as under:
Discount Value (Manual)
Standard condition types are normally copied to new customer condition types and modified to suit specific pricing requirements in business transactions.
Condition table defines combination of fields that identify a condition record. Specific condition data is stored in system as condition record.
Example: Condition table ‘005’ is used for customer specific material prices. Key fields of this table are displayed below:
In this table first two fields identify organizational data and last two fields describe relationship between customer and selected materials.
Access Sequence is a search strategy used by system to find valid condition record for particular condition type. It determines the sequence in which search is conducted.
Access sequence consists of one or more accesses. This sequence establishes which condition records have priority and it tells the system where to look first, second and so on till a valid record is found.
Access sequence contains the condition tables and the standard procedure to maintain the sequence of condition table is from ‘Most Specific’ to ‘General’.
Example of Access Sequence:
PR00 is standard access sequence used for condition type Price.
As seen above the access is arranged from ‘Most Specific’ (Customer/Material) to ‘General’ (Material).
Pricing Procedure is a group of condition types arranged in particular sequence to have correct prices being determined in a sales document.
Various controls of pricing are setup in Pricing procedure like
- Processing condition types manually
- Requirements for specific condition types
- Printing of Condition types etc.
Standard system contains many pre-defined pricing procedures for various business scenarios. These contain frequently used condition types again pre-defined in system.
Example of Standard Pricing Procedure in system
| || |
Relationship between elements used in condition technique is explained in below figure
Pricing Elements in business transactions are defined as condition types in system. These elements can be classified in four basic categories
- Prices - Price is basic gross or net price of item in sales document. This element forms the basis of pricing. In standard system Material Price, Price List type & Customer Specific Price are predefined.
- Surcharges and Discounts - Business requires variety of surcharges and discounts in sales processing and wide range of Condition types are predefined in system to suit the requirements. These condition types can be copied to new one’s and customized to match specific requirements.
- Freight Charges - Freight costs relate to Shipping which are used to pass on the costs to customer and displayed in Billing documents. In Standard system there are predefined condition types for Freight based on Incoterms which are internationally recognized shipping terms.
- Sales taxes - Taxes form key element in any business transaction and system provides for condition types for the same. Example for tax determination in US there are condition types available for State, County and City sales taxes as well as on jurisdiction codes.
Graphical example of Pricing in Sales document
Header & Item Conditions
These are basic categorization of condition types.
- Header Condition - Header conditions are one’s that apply to header of sales document. These have no condition records maintained and are entered manually in sales document. No access sequence is maintained for these condition types. Example- Freight, Absolute Discount etc.
- Item Condition - Condition types used only at item level are called item conditions. Most of condition types are item conditions and automatic pricing is carried out for them. Example- Material price, Customer Price, Customer Discount etc.
There are many special Pricing Functions provided in system to map various business pricing requirements. Some of the important one’s are explained here.
Promotional Pricing Agreements
There are two types of agreements for carrying out marketing programs with wide-ranging discount structures i.e. promotions and sales deals
a. Promotion – It represents a high-level marketing plan for particular products or product lines, like for a specific period some products may need to be promoted.
b. Sales Deal – Sales Deal is fine-tuning of a promotion and can contain specific condition records for the sales deal. These can be product line specific, multiple sales deals could exist for a promotion.
Customer Expected Price
Extended pricing functionality enables to take into account the Customer’s expected price which can be displayed in Billing documents. These can be used to avoid customer disputes for prices especially in industries like Consumer Packaged Industries.
Two condition types are predefined in system where data can be entered manually.
Customer Expected Price
Customer Expected Value
It can be customized that during order entry if expected price and actual price differ beyond specified amount, order can be marked incomplete and hence not processed to delivery or billing.
During Pricing business may want to compare prices with cost or view margin contribution, system has predefined condition for this.
Condition type ‘VPRS – Cost’ is available which can be used in Pricing. Condition category ‘G’ is assigned to this condition type by which system copies the valuation data from material master to the condition. The Standard or Moving Average Price is copied depending on material master maintenance.
Some conditions are used as basis for determining scale value from several items. For such scenario system has provided Group condition and routine. Following figure demonstrates group condition in sales.
Here group condition type K029 exists for which Condition record is maintained for material group ’02’ which applies to both materials.
In pricing for sales and billing documents, more than one condition record may apply to a particular item at any one time, condition exclusion process can be used to compare possible conditions in order to determine such things as the best price for a customer.
The system can use condition exclusion to select the best price or discount in six different ways:
- Selecting the best condition record of a particular condition type from within one exclusion group
- Selecting the most unsuitable condition from within one exclusion group
- Selecting the best condition record for a condition type
- Selecting the most unsuitable condition record for a condition type
- Selecting the best conditions from different exclusion groups
- Excluding all condition types in the second exclusion group if a particular condition type in the first exclusion group exists in the document
Pricing being extensive and complex to an extent, system has provided for an important tool called Pricing Analysis.
In Item Conditions screen in sales document option is provided to analyze pricing information which allows user to check how system has calculated various pricing elements of an item.
The tool is extremely useful when pricing is not determined as customized and further analysis needs to be done.
Pricing data stored in system can get very extensive and for extracting information on such data, pricing reports are created. Pricing reports put together information about condition records, condition types, and condition tables according to various different criteria, like for example
- Customer specific agreements for certain period.
- Condition record for customers in specific region or country.
Pricing Reports are created in customizing and can be executed via application menu.