implement your pricing policy within standard oracle

Implementing your Pricing Policy within Standard Oracle Financials Functionality

Authored by Aidan Duffy

Implement your Pricing Policy within Standard Oracle Financials Functionality © 2009 Page 1

Implement your Pricing Policy within Standard Oracle Financials Functionality

Authored By Aidan Duffy

February 2009

© 2009 Contractors Network Ltd. All rights reserved.

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CONTENTS

ABOUT THE AUTHOR............................................................................. 3

ABOUT CONTRACTORS NETWORK........................................................ 4

EXECUTIVE SUMMARY .......................................................................... 5

Using Advanced Pricing for smarter discounting.................................. 6

Using Advanced Pricing when the price is different every time........... 8

Using Advanced Pricing in outsourced manufacturing....................... 10

Using Advanced Pricing in Back to Back............................................. 11

Using Advanced Pricing in Procurement............................................. 12

Using Advanced Pricing when list price frequently changes .............. 13

Using Advanced Pricing in configuration of Bills of Material.............. 14

Using Advanced Pricing in Intercompany Transactions ..................... 15

Using Advanced Pricing in custom applications ................................. 16

Using Advanced Pricing with other Oracle modules........................... 17

Oracles extension methodology – “Extend, don’t customize”............ 18

Advanced Pricing and Release 12....................................................... 20

SUMMARY ........................................................................................... 21

Design Considerations ........................................................................ 22

Implementation Considerations ......................................................... 22

Performance Considerations............................................................... 23

GLOSSARY........................................................................................... 26


ABOUT THE AUTHOR

Aidan Duffy is an accomplished Oracle E-Business Suite Functional / Technical Hybrid

consultant with over 10 years experience of the Oracle E-Business Suite. His skill set

including supply chain, manufacturing & core financials, has been gained on key

functional, technical and team-leading roles with many leading US and European blue-

chip clients, he is well qualified to provide expertise on this subject having four major

implementations of Advanced Pricing to his credit.

If you have any feedback or questions you can reach Aidan on

[email protected]


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EXECUTIVE SUMMARY

The Oracle E-Business Suite uses the Advanced Pricing module to help ensure accurate

pricing across the organization.

Accurate pricing of a transaction is important to maintaining a good relationship with your

customers and ensuring accurate financial reporting. It removes the responsibility from

the user, who may not be aware of organisation pricing policy, or margin considerations.

Applying the correct price up-front improves efficiency, and eliminates the need to revisit

transactions to adjust the price at a later stage. Accurate pricing improves communication

in outsourcing, contract manufacturing and Back-to-Back environments. It also provides

tangible benefits in communicating with customers and partners.

Using Oracle’s Advanced Pricing module helps achieve accurate pricing by allowing great

flexibility in choosing what price to apply. The application uses the technology to enable

standard pricing models such as Volume discounting, Promotions and Price breaks.

Oracle also allows extending the standard functionality using fully supported

customizations, and allows detailed reporting on the price charged at a particular time,

and the reasons why that price was charged.

This document discusses some of the possible applications of Advanced Pricing in

business situations. Various scenarios are outlined, along with practical examples of how

Advanced Pricing has been used to help implementation.


Using Advanced Pricing for smarter discounting

Advanced Pricing allows the use of complex pricing models and configuration of other

useful pricing options. For instance, the system will allow the creation of adjustments

using modifiers to create pricing models such as

Discounts

Surcharges

Promotions

Apply the modifiers using various methods:

New Price

Formula

Percentage uplifts

Selectively apply the modifiers using conditions based on seeded or custom attributes:

Customer

Order Type

Supplier

Item

Contents of customer flexfield

Apply the modifiers at various phases in a transaction cycle. In Order Management for

instance, apply the modifiers at:

Fetch List Price

Book Order

Ship Order


Options that are more complicated are available, such as:

Range Pricing

Price Breaks

Other Item Discount

Most of the above options are available as part of standard Advanced Pricing

functionality. Whatever pricing policy your company requires, Oracle can implement that

policy across the enterprise.


Using Advanced Pricing when the price is different every time

Some business scenarios require a sales price that changes often, in which case,

maintenance of price lists and modifiers requires a lot of effort. Basic pricing cannot

easily manage this kind of pricing model, as the price changes too often.

Advanced Pricing provides a very flexible solution to this by allowing each call to the

pricing engine to generate a custom price. This price does not have to relate to a price

list, it can depend on any number of factors.

For instance, the following scenarios all require that the same product can have a

different price, depending on the timing of the transaction.

Create a discount scheme based on the amount ordered in a single calendar month.

Customers achieve increasing levels of discount as they order more of a particular

product class.

Discount Scheme for Product Class 1

Range Percentage

0-1000 5%

1001-10000 6%

10001-999999 6.50%

Product Class List Price

Class 1 100

Class 2 200

Sales Order CustomerProdClass Qty Gross Discount Net

SO 1 Cust A Class 1 1 100 0% 100

SO 2 Cust A Class 1 11 100 6% 94

SO 3 Cust A Class 1 900 100 6.50% 93.5

SO 4 Cust A Class 2 100 200 0% 200


Calculate a sales price based on 10% uplift over the average cost of an item.

Sales Price based on Average Cost plus uplift

Inventory Order Management

Item Avg Cost

Item A 100

Sales Order Item Sales Price

SO 1ItemA 110

Purchasing

PO No Item Price

PO #1 Item A 100

PO #2 Item A 110

PO #2 Item A 115

Item Avg Cost

Item A 108.3333

SO 2ItemA 119.166667

Calculate sales price based on 10% uplift over the average purchase price for that item.

Sales Price based on average PO price

Purchasing Order Management

PO No Item Price Sales Order Item Sales Price

PO #1 Item A 100

SO 1 Item A 110

PO #2 Item A 110

SO 2 Item A 115.5

Since Oracle can generate a custom price, it can perform this kind of once-off pricing,

and record what adjustments have been applied on each transaction line.

Generating a custom price allows total flexibility in which price to apply, and reduces the

time spent maintaining price lists and modifiers.


Using Advanced Pricing in outsourced manufacturing

Outsourced manufacturing has increased in popularity as businesses leave the

manufacturing and distribution to specialists, and concentrate on core business. As part

of good customer relationship management, it is important to know who your customers

are and what they are ordering. This allows the seller to better understand the

characteristics and buying patterns of its customers.

In order to achieve this, we could interface products sold by the manufacturing partner

into Oracle Order Management.

An outsourced manufacturing model consists of the seller, the manufacturing partner, and

the end customer. The manufacturing partner ships the goods on behalf of the seller, and

transmits shipping details electronically.

Consider a scenario where the seller wishes to report sales-related information depending

on the volume and timing of goods ordered. Advanced Pricing allows the seller to

calculate internal adjustments at some point in the sales order cycle, as discussed in

Chapter 1, “Using Advanced pricing for smarter discounting”.

These line-by-line adjustments are stored in standard pricing adjustment tables at the

time of pricing. Later the adjustments can be reviewed and used to facilitate complex

sales reporting.


Using Advanced Pricing in Back to Back

The term "Back to Back" represents a situation where products sold to customers, are

purchased directly from suppliers. The goods may be bundled with services, or require

configuration before being sold onto the end customer.

To represent this transaction in Oracle, a sales order and a purchase order are required.

We need to determine both a purchase price and sales price for each order.

The sales and buy prices are related, but Order Management and Purchasing are different

modules, and normally need separate price lists. This is, in effect, duplicate information

and increases maintenance or interface effort.

Integrating Order Management with Advanced Pricing, it is possible to generate a sales

order price from a supplier contract price, plus an uplift percentage. In this way, the

business need only maintain a single price list to perform purchasing and selling.

Sales Price based on Supplier Catalog

Supplier Catalog Order Management

Item List Price

Item A 100 Sales Order ProductSalesPrice

SO 1 Item A 110

Item A 110

SO 2 Item A 121

Using Advanced Pricing the system can generate a price based on related information in

another part of the business. This ability allows great flexibility in choosing which price to

apply to a transaction.


Using Advanced Pricing in Procurement

Integrating Procurement with Advanced Pricing allows a business to assign variable prices

to items on purchase orders or requisitions; so managing changes in supplier pricing

policies. This feature also allows a business to negotiate complex pricing deals, and

ensure Oracle can apply the best possible purchase price.

Integrating Procurement with Advanced Pricing and using contract purchase agreements

can be used to satisfy the following scenarios:

If a supplier offers a discount during a slow sales month, the system should apply the

discounted price, without affecting the standard price.

The details entered on each purchase order dictate the supplier price for an item. The

grade or colour could affect the purchase price of cardboard, for instance. This would

allow operation with a single item representing cardboard, reducing item and price list

maintenance considerably.

This structure allows the dynamic adjustment of agreement prices based on reference

fields such as:

Purchase Order Need by Date

Purchase Order Deliver To location

Supplier Name

Supplier Site

Buyer Name

Contents of Supplier Flexfield

Contents of Purchase order flexfield

Modifying the pricing date, and purchase order or requisition price is possible by using

fully supported PL/SQL hooks to extend standard functionality. A further discussion is

available in section two, “Using Advanced Pricing when the price is different every time”.


Using Advanced Pricing when list price frequently changes

Accurate transactions require up-to-date pricing data; this presents problems when the

price changes often. To maintain the correct price list, the business needs to perform

frequent price list maintenance, or import using the standard price list interface.

Accurate sales order pricing depends on up-to-date price lists; delays in loading price lists

using an interface can result in the further delays to subsequent sales orders, or an out-

of-date price being applied.

For example, a selling company may want to import a price from an external pricing

system; a contract manufacturer may need to import their price lists from a sales

partner; companies using outsourced partners may require the import of sales price lists.

Advanced Pricing can assist in these scenarios using the High-Volume price list loader

program is the most efficient method to load large volume price lists. This fully supported

interface loads pricing data files into Oracle, and reports on any exceptions.

Modifiers are used to adjust a list price depending on related information. This allows

application of discounts or surcharges depending on attributes of the customer, for

instance the customer classification code.

In an environment where the list prices are adjusted frequently, these modifiers can be

imported at the same time via the High-Volume price list loader program.


Using Advanced Pricing in configuration of Bills of Material

Advanced Pricing allows the system to price items based on items chosen at run-time

using the configurator. This avoids the need to have separate items and price list entries

for similar items with different configurations.

Oracle allows entry of the top-level item onto a price list using standard Bills of Material

and Order Management. For products sold with different optional items, where the user

chooses one of a set number of options, how does the system adjust the price according

to the option chosen?

Advanced Pricing allows a company to be more complex in its pricing using assemble-to-

order items. A pc, for instance, normally contains mandatory items and optional items.

When a customer orders a pc, the user selects the optional items using the configurator;

these optional items can be included in the sales price on the order line.

A pc supplier could add a surcharge if extra memory was required, or allow a discount if

no options chosen had to be purchased.

Sales Price based on Bill options

Item List PriceSalesOrder Product

SalesPrice

Model A 1000 SO 1 Item A

StandardMemory 1000

Standard Memory 0

Extra Memory 150 SO 2 Item A

Extra Memory 1150

Once again, Oracle applies an adjustment to the sales order line; the user can review and

understand a particular price.


Using Advanced Pricing in Intercompany Transactions

Oracle uses an intercompany transaction to record sales between business units within an

organization.

The end customer, the selling organisation and the shipping organisation are the three

parties in the relationship. Oracle creates a sales order against the selling organisation for

the end customer. Advanced Pricing can adjust the selling price on the external sales

order, using any of the methods discussed elsewhere in this document.

The shipping organization charges the products shipped at a “transfer price” to the selling

organization, as business units charge other business units at a preferential price.

In terms of accounting, the shipping organisation invoices the selling organisation at the

transfer price, and the selling organisation requires an invoice payable to the shipping

organisation, also at the same transfer price. There is no sales order, as such, between

the shipping and selling organisations.

Transfer pricing therefore, is a key part of implementing this scenario in Oracle Financials.

Standard Oracle configuration allows the naming of a particular price list as the transfer

price list, associated with the selling organisations invoice to address.

Advanced Pricing allows adjusting the transfer price charged between the selling and

shipping operating units using the reference fields such as

Selling Organisation

Shipping Organisation

In this way, each combination of selling and shipping organisation can have a different

transfer price.

It is also possible to derive the transfer price between the shipping and selling operating

units using a customised set of rules. This is similar to the scenario discussed in section

two, “Using Advanced pricing when the price is different every time”.


Using Advanced Pricing in custom applications

Sometimes it is appropriate to design a completely custom application, when the

standard functionality cannot be configured to fit the business process. Re-using the

look-and-feel of the standard application ensures a consistent experience for the user.

For instance, a custom screen to create a quote could offer an initial discount to the

customer. Further volume pricing could then apply if a sales order results from a quote.

Alternatively, comparing and contrasting supply options in a custom Procurement form

would allow the entry clerk to choose the most suitable supplier.

Advanced Pricing allows the creation of a new pricing area, and associates it with the

custom application. The new pricing area can re-use some, or all, of the standard pricing

configuration.

This means pricing will operate in the same way across these modules, so the user sees

consistent application behaviour. This also allows operation of separate pricing policies at

different stages in the transaction life cycle.


Using Advanced Pricing with other Oracle modules

As part of applications version 11.5.10, Oracle provides a range of pricing options in

areas including

Oracle Order Capture

Oracle Order Management

Oracle Procurement

Oracle Contracts

Oracle Service Contracts

Demand Planning

Logistics

Oracle defines a set of pricing rules for each of these modules. The separation of the

pricing rules in these modules allows operation of pricing policies in separate parts of the

organisation.

For example, Oracle Order Capture is designed to allow quick entry of customer quotes.

It may be necessary to offer a certain discount at quote stage; a further volume discount

scheme could be applied when an actual sales order is created from the quote.


Oracles extension methodology – “Extend, don’t customize”

One of the reassuring features of working with Advanced Pricing, is that it follows

Oracle’s preferred ‘Don’t customize, extend’ policy. As the Oracle product set has

developed, the need for customizations has lessened. Companies who have had Oracle

installed for a long time, and have many customizations do not always appreciate this.

In many areas, standard functionality has replaced the need for customizations. Oracle

suggests the use of custom extensions where the latest standard functionality is not

enough to achieve the business requirement. This allows writing custom code, while

staying within a fully supported framework.

Before Advanced Pricing, adjusting the sales or purchase prices meant one of three

options:

Maintain up to the minute sales and purchase price lists

Assign the responsibility of the choosing the correct price to the order

entry clerk

Design a heavy-duty customization to adjust prices, after the transaction

had been created.

The first option has associated maintenance issues, the second will only be reliable in the

simplest of pricing models and both can cause other problems; once a price has been

quoted to a customer, the price is effectively set. This can make it difficult for an

organization to implement pricing policy, and result in commitments to low margin

business.

The effort in changing transaction prices once already applied is best avoided if possible.

These types of customizations can be complex to design, create and maintain.

Using Advanced Pricing allows you to operate complex pricing models and record the

adjustments applied on a transaction-by-transaction basis, all the while staying fully

supported by Oracle.

There is also a business case for revisiting old pricing customizations already in operation,

as the standard package may now provide the required functionality. If not, extension of

Advanced Pricing can satisfy the business requirement.


Replacement of an interface with standard functionality can provide operational and

support cost savings into the future. If an existing customisation requires complex logic,

in most cases it will be beneficial to move it into the extension framework, to take

advantage of the Oracle support.


Advanced Pricing and Release 12

Oracle has not changed the functionality to a large extent in release 12. A couple of extra

features are part of the standard package. In terms of extending the functionality, similar

configuration and techniques apply to the new release. Any design or development effort

spent in previous versions would need to be revisited, but not re-written in the event of

an upgrade.

The following is a selection of the extra standard features available in release 12

Feature Description

Multicurrency conversion listMaintain a single price list for multiple

currencies

Price Books

Generate and communicate price lists to

internal or external customers using pre-

defined formats, or via an email server or

XML gateway.


SUMMARY

As described above, Advanced Pricing can be used to good effect in many business

scenarios. It allows the organization to formalise its pricing policy within Oracle, apply a

price to a transaction once only based on a set of rules, and review the reasons why that

price was applied.

Before Advanced Pricing, generating the sales or purchase prices meant one of three

options:

Reliance on up to the minute sales and purchase price lists

Assigning the responsibility of the choosing the correct price to the order entry

clerk

Design a heavy-duty customization to adjust prices, after the transaction had

been created.

The first option has associated maintenance issues, the second option will only be

reliable in the simplest of pricing models and both can cause other problems; once a

price has been quoted to a customer, the price is effectively set. This can make it difficult

for an organization to implement pricing policy, and result in commitments to low margin

business. Designing and implementing a customization to update the transaction price

after it has been created can be difficult, and is not an ideal solution.

Advanced Pricing provides an alternative to the above methods as it allows the

generation of a price based on data in another part of the business, data interfaced from

outside the business, or based on a set of rules configured to any specification.

In the author’s experience, Advanced Pricing is being used to calculate complex pricing

models, and reduce the dependency on offline calculation tools. Companies can modify

and stretch the standard functionality, and still be confident that the price applied to a

transaction is the correct one.


It has been possible, with a little effort, to demonstrate the Advanced Pricing functionality

to clients to their satisfaction. Once the functional consultant or super user achieves a

level of comfort with the configuration, it is possible to make subtle changes to achieve

something slightly different in a short space of time. The author also found the

extendibility, when the customer asks for something a little bit different, to be very

powerful.

Nevertheless, there are considerations to be taken into account:

Design Considerations

As shown, it is possible to create very complex pricing models with Advanced Pricing

functionality. However, with complex models, it can be difficult to determine the accuracy

of what has actually happened.

When the adjustment amount has been applied to the transaction price, can we be sure

the correct amount has been applied? Where does the applied adjustment fit in the

greater scheme of things?

In order to lessen this risk a detailed design phase should be carried out, and the

requirements agreed with the business. A method of validation of the adjustments

created should be decided early in the design process.

Close cooperation will be required between functional, technical and business users

during the development and unit testing cycles. Provided these guidelines are followed it

is possible to leverage the power of Advanced Pricing to add value to the pricing model.

Implementation Considerations

The complexity of Advanced Pricing means that if you encounter a problem during

implementation, it can be difficult to determine exactly what is happening in a pricing

engine call. There are trouble-shooting tools to help if a problem occurs but they are not

very intuitive. In the author’s experience the amount of time spent troubleshooting

decreases as more familiarity with Advanced Pricing is gained.


Performance Considerations

Advanced Pricing is now extendible so that it is possible to write large amounts of code to

calculate the correct price for every transaction. There is a risk of introducing bad

performance into your pricing calls if this is taken to extremes. Considering the data the

pricing engine has to consider for each pricing call, it is not surprising the standard

pricing response is not instant. If you greatly increase this response time by adding a lot

of custom code, the user will experience considerable wait times when entering

transactional data.

The same theory applies when adding extended pricing calls to concurrent requests or

interfaces. If the volumes are very large, it is necessary to fine-tune the custom code or

be creative in scheduling the batch jobs. Moving the pricing call to a later point in the

order cycle is also an option, as I've referred to earlier in section one, “Using Advanced

pricing for smarter discounting”.


In summary, it is possible to achieve a very positive result using Advanced Pricing to:

Formalize pricing inside Oracle Financials to replace external pricing systems

Apply the correct price once only, transactions need not be re-priced

Enhance existing pricing policy relatively quickly and easily

Create complex pricing models like

Discounts

Surcharges

Promotions

Price Breaks

Using techniques/calculations such as

New Price

Percentage uplifts

Formulae

Create adjustments based on reference data such as

Customer information

Order information

Item information

Customized information such as contents of flexfields

And apply these adjustments at various times including:

Pricing a transaction

Importing sales order

Booking sales order

Shipping sales order

Creating intercompany invoices

Enhance existing interfaces with non-Oracle or external systems


Improve external communication with customers, suppliers and sales or

manufacturing partners


GLOSSARY

Advanced Pricing is based on a data model similar to other standard modules, with its

own terminology applying. The following is a list of useful terms in reading this

document:

Flexfield

Oracle provides a number of standard fields used to hold information about an object.

For instance, a customer has fields to hold address data and tax registration information.

In order to store extra information than is available in the standard reference fields,

however, it is common to use Flexfields. A customer flexfield might be used to indicate if

the customer prefers invoices in paper or electronic format.

Price List

Price lists are used to store the list prices of products sold by the business. The list price

is added to a transaction line.

Sales Price List Currency EUR

StartDate 01-Jan-08

EndDate 31-Jan-08

Product Price

Item A 99

Item B 110

Item C 120

Adjustment

An adjustment is variance applied to the list price on a transaction line, to give the selling

price.

Sales Order Product List Price Selling Price

SO 1 Item A 110 100

Adjustment

Volume 10%


Modifier

A modifier is used to describe an adjustment to the price. A modifier could detail a

percentage discount to be applied to the list price. The modifier causes an adjustment to

the list price to achieve the correct selling price

Modifier Volume Discount

Type Percentage

Discount 10

Qualifier

A qualifier is used to restrict a modifier only to apply to a selected group of transactions.

Modifier Qualified Volume Discount

Type Percentage

Discount 10

Qualifier

Order Total > 100

Formula

A Formula is used to represent mathematical calculations on variables or constants to

derive a result.


Pricing Engine

The pricing engine searches through all price lists and modifiers, determining what price

is relevant, and any modifiers that should be applied to the transaction.

There are five basic stages in a pricing engine call

Select the relevant list prices and modifier lists

Retrieve the list price

Apply adjustments to list price

Calculate Selling price using adjustments

Create corresponding adjustment records

implement your pricing policy within standard oracle

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