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Subcontracting Production Rate based pricing

Nov 14, 2016 at 11:44 PM

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Hi,

I need help in addressing a business scenario at a client. Our contract with a Subcontracting vendor Pricing is based on Production Rate/Throughput that can be achieved per day. Here how it is-

-Day rate of $7000/day during test phase and until the production rate reaches 2.5 Metric Tonnes Per Day.

-Once the Production Rate reaches 2.5 MT, rate switches to $2 per KG.

-If Production rate reaches 3.5 MT, Rate switches to $1.5 per KG

-If any time the production falls below 2.5 MT, Rate automatically switches to the day rate of $7000/day.

Few of the options I have explored are

Quantity based Scales in Purchasing Info-records. (Does not work in this scenario)

Manual Option. Where we can maintain the pricing manually in PO with three separate line items representing each production rate. (Clumsy solution and potential for data entry errors).

Could anyone suggest me a way forward.

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3 Answers

Best Answer
Jürgen L
Nov 16, 2016 at 07:42 PM
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Having 3 lines with the same quantity in the PO will actually have a very negative effect on your material availability and the confidence of your users into the number they get from SAP, e.g from MD04 transaction.

An average price in the info record is not really good for anything, except you are really planning to use it as PO price. Your buyers do not know at all about the right prices if they have no other logging. the better way would be to use 1 of the 3 prices, then there is a theoretical chance that for 33% of your orders you do not need to change the price later when you know which one it is.

if your decision is not to use standard price, which would not relieve you from changing the PO anyway to an accurate price, then create your info record with 1 or the 3 prices, create your PO, lock the item to ensure that nobody can receive the goods before you have a final price from your vendor, update the PO when the final price is known, post the GR.

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Jurgen,

My client is not using SAP for Material Planning and material availability is not managed using SAP. That's the reason I was trying to make it as simple as possible for the buyer.

Also this contract is unique and might be modified by the time we implement Materials planning.

I agree with yours suggestion on the Standard Pricing and locking the PO.

Thank you. Appreciate your time and consideration.

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Jürgen L
Nov 15, 2016 at 05:43 AM
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How can you ever know which Production Rate/Throughput you have/had when you order, or latest when you receive the material?

Is that at all in your hands? Is this info stated anywhere visible for the receiver?

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Rahul Vallurupalli Nov 16, 2016 at 06:36 PM
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Jurgen,

Thanks for responding.

To your question regarding Production Rate/Throughput, this is not predetermined and will only be known when the supplier communicates back to Buyer. During creation of the PO the only known value is the expected quantity. All the other variables like delivery time, production rate are known. I have considered these when trying to come up with a solution.

The only option I see is manual entry in the PO-

  1. Maintain the info-record with Average of the 3 prices
  2. Create PO with three line items, each referring to a Production Rate and each having different Price
  3. After Production is complete, get the Production Quantities, Rates from the Supplier
  4. Update the PO
  5. Post GR.

Cons:

  1. This process will post a price difference in to PPV accounts
  2. Standard Price will not reflect the true price of the material.
  3. Manual process. Requires coordination and chance of errors.

If you have a suggestion for better approach, please advise.

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