pricing based on secondary uom

8/10/2019 Pricing Based on Secondary UOM

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Pricing Based on Secondary UOM

An Oracle White Paper

Aug 2014


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Pricing Based on Secondary UOM Page 2

Executive Summary:

Manufacturing and distribution organizations can define global and product-specific unit of measureconversions. On a product-by-product basis, default units of measure can be defined for various typesof transactions. This allows manufacturers and distributors to sell, purchase, manufacture, receive,store, and ship in different units of measure with pre-defined conversions.

In Process Manufacturing business, a products nominal or average weight could be defined forplanning purposes. Customer sales orders could be placed for a specified number of packages or casesof the given item. During the shipping process, the item could be picked & shipped on number ofpieces (Each) while the actual weight of the product is captured, and the customer could be billedbased on this actual weight. And most importantly the conversion rates from one UOM to the othercould vary from transaction to transaction. This process of ordering, shipping and invoicing based ondifferent units of measure with no fixed pre-defined conversion rates is called Catch WeightManagement.

Catch weight processing is mainly used by food processors and distributors to manage products wherean individual items actual weight varies due to external factors. These products would typically be soldin one unit of measure though priced by secondary unit of measure, which is (usually) the weight of theproducts being shipped.

The term "catch weight product" refers to a class of product (typically food) that cannot be portionedto a predetermined quantity and hence is usually sold in packages of varying quantity. Ex: chicken,meat, flowers, oils, etc.,

Oracle Order Management and Advanced Pricing support the catch weight functionality and providethe flexibility for the business to generate the invoice based on the secondary UOM.

Catch Weight Processing Benefits Recording of dual units of measure for inventory, sales and invoicing transactions. Definition of a nominal or average weight per item Recording of actual weights at time of shipment Customers can order in one unit of measure such as packages or cases and be invoiced based

on per-pound (or Kg or ton) pricing, thus avoiding the ambiguity between the seller and thebuyer.

Customers who use items with catch weight can henceforth use Oracle Advanced Pricing to define theprice list with variable UOM. On a similar note the customer can use Oracle Order Management togenerate the Invoice based on the secondary quantity used during shipping.


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Introduction:

This document is an overview of how Catch Weight Management is implemented in Oracle OrderManagement and Advanced Pricing.

Oracle Order Management & Advanced Pricing offer flexibility and extensibility in terms of handling various pricing scenarios. Catch weight functionality is one of the business scenarios which AdvancedPricing supports in terms of Pricelists defined in Secondary UOM.

Catch Weight Management applies primarily to the meat and dairy industries where the weight can varyfrom piece to piece, either due to natural variations, or because of weight loss that occurs duringstorage/shipping. Hence these items are ordered in certain units of measure such as Bundles or Boxesbut are priced by weight of the products shipped. In other words, catch weight functionality enables anitem to use two units of measure with a degree of freedom in converting from one to the other. Adefault conversion factor is used with a deviation range limit.

Catch weight functionality for computer systems means that they can store two or more units of

measure parallel but independent from each other throughout each business transaction which is basedon actual data.

When dual UOM items or catch weight items are created in inventory, pricing unit of measure must bedefined along with the Primary & Secondary UOMs. The same Pricing UOM is used to create thePricelist for pricing the order.

Dual UOM items are defined in the Master Items form with a Primary UOM and Secondary UOM.Pricing can be set to either Primary or Secondary.

Business Needs:

Catch weight functionality mainly comes into picture in industries such as dairy and meat where itemsare tracked based on Dual UOMs and there is a variable conversion rate between Primary andSecondary UOMs.

In this type of industry, even though the primary quantity remains same, the secondary quantity variesbecause of various factors.

In case the secondary quantity varies, the item can be invoiced based on the secondary quantityshipped.

In some business scenarios customers may order items in third UOM, for which the invoice should bebased on the secondary quantity shipped.

Whenever there is a change in secondary quantity, you must define the pricelist in Secondary UOM with the Primary UOM check box enabled in the Pricelist. All pricing calculations for catch weightitems are performed with respect to the pricing unit of measure defined for that item.

Examples of catch weight items:

1) In the poultry industry, chicken will be measured in terms of Dual UOM like Each and Kg.

Consider One live chicken = 2 Kg, here we can define the Primary UOM as each; such that

One live chicken=One Each and Secondary UOM as Kg such that one live Chicken =2 Kg.


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Primary UOM Each indicates that one live chicken is always consistent in terms of Each, but thechicken weight in Kgs may decrease or increase depending on the various conditions causing the birdto either gain or lose weight. In this case the customer requirement would be to set the price as per thesecondary UOM.

2) Consider an example of a Box of flowers. The Primary UOM is always a Box, but the weight of thebox may vary depending on the environmental factors. The customer would prefer to be invoicedbased on the Secondary UOM Kg .

The UOMs used for the item Flowers are Box and Kg.

The conversions between the UOMs, Box and Kg, should also be defined so that the price will becalculated based on Kg even if the customer places an order in a UOM that is Primary.


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Oracle Order Management and Oracle Advanced Pricing Solution for the aboveBusiness Needs:

Defining Catch Weight Items:

A Dual UOM item is set with the tracking parameter in both Primary and Secondary UOMs. In thisexample the Pricing parameter is set to Secondary UOM and Secondary UOM is Kg.

Using the UOM conversions form, define a standard item conversion as well as lot specific conversionfor the item (Refer to the screen shot displayed below).

The source unit will be derived from the Primary UOM of the Master item and base unit will be theSecondary UOM given in the Master Item form.


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Define the conversion factor between the Primary and Secondary unit of measures,1 Each=2 Kg as shown below

Define the conversion factor for 3rd UOM other than Primary and Secondary.1Box=10 Each as shown below which is equal to 20 Kg.


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There are some business scenarios for which customers order items in UOM other than Primary andSecondary UOMs such as Box or Dozens.

In some cases the standard conversion defined in the system for a 3 rd UOM is used. For the aboveexample the item is ordered in Dozen. In this case if customer orders one Dozen then the secondaryquantity is defaulted to 24 (1Box= 12 Each =12*2=24 Kg).

If it is ordered in Box, 1Box=10 Each =10*2=20 Kg.

Define Pricelist:

Define the Pricelist for the Item in the Secondary UOM (Kg) with the Primary UOM check boxenabled with a value of 1 Kg=$10.

In the Master Item form the Pricing field is set to Secondary and Secondary UOM was given as Kg.

Note: The Primary UOM checkbox should be enabled else the same price will not be available for theitem and the system throws an error while entering the Sales Order.

The Pricelist is defined with UOM of Kg as shown below:


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Price Calculation in Sales Order Based on Secondary UOM:

Scenario#1

Price Calculation for Non Lot Controlled Dual UOM Item:

If a Customer orders a catch weight item in Primary UOM and due to catch weight effect if there is any variation in the secondary quantity, then that variation of secondary quantity should also be invoiced tothe customer.

Input the primary quantity in the sales order based on the defaulting factor, secondary quantity will bedefaulted and here the conversion is derived from the standard item conversion defined.

Since the pricing is based on the secondary quantity order, total will be calculated as multiples ofsecondary quantity and unit selling price.

Define an item with standard conversion of 1 Each = 2 Kg and Pricelist for 1 Kg=$10.

Enter a sales order for the same item for a quantity of 1 Each and secondary quantity defaults to 2 Kg.

Unit Price and Extended Price shown below are $20 (2Kg*10=20).


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While doing Transact Move Order, change the secondary quantity to 1.5.

Now Ship Confirm the Sales Order line, so that Secondary Quantity shipped is shown as 1.5 and alsothe Price is calculated only for Quantity 1.5 with Unit Price changed to $15 and Extended Pricechanged to $15 as shown below.


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Scenario#2

Price calculation for Lot Controlled Item:

Consider a scenario where a Sales Order is created for Lot Controlled Item. Initially when we entersales order for a quantity of 1 the secondary quantity is defaulted to 2 Kg as per standard conversionand, the total order amount is calculated to $20 as shown in Figure below.


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In this case the Price is changed to the corresponding secondary quantity defaulted from Lotconversion.

Once the lot is allocated, the secondary quantity shipped is changed to 1.5015 as per the lot conversion.Similarly the total order amount is also changed based on the secondary quantity shipped; in this case itis changed to $ 15.02 as shown below:

Scenario#3

If a customer orders a catch weight item in UOM different from primary and secondary and due tocatch weight effect if there is any variation in the Secondary Quantity that variation of secondaryquantity should also be invoiced to the customer.

Once the appropriate Lot is allocated to the sales order during picking, the catch weight functionality istriggered, the secondary quantity changes and the secondary quantity defaults based on the Lot specificconversion.

In this case the Price is changed to the corresponding secondary quantity defaulted from Lotconversion.

Define a Conversion like 1Box=10Each=20 Kg and Pricelist for 1Kg=$10.

Initially when we enter sales order for a quantity of 1 for the third UOM which is Box the secondaryquantity is defaulted to 20 as per standard conversion, here the total order amount is $200.

Once the lot is allocated, the secondary quantity shipped is changed to 15.015 as per the lot conversion.Similarly the total order amount is also changed based on the secondary quantity shipped; in this case itis changed to $150.15.


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Scenario# 4

Consider a Case where an Item has more than 2 Lots for an item with different lot conversions.

Define a Dual UOM item with Primary UOM of Each and Secondary UOM of Kg.

Define 3 Lots with 3 different conversions for the above item each lot having different lot specificconversions.

Create a Sales order with a quantity of 3 as shown below:


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Reserve 3 different lots for the 3 Line Quantities through Reservations form as shown below

Perform Pick Release and crosscheck the reserved lots and ensure that they are allocated and thenperform Ship Confirm.


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The Price is calculated from the following equations:

Unit price = [List price (specified for Secondary UOM) * the actual Secondary UOM quantity]/Primary UOM Quantity

In the example: [10*5.59]/3 = $18.65

Extended Price = Unit Price * Primary UOM Quantity

In the example: 18.65 * 3 = $55.95


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Scenario#5: RMA for above scenario:

If a customer returns all the 3 Lots shipped in above scenario for a return reason of damaged product

Allocated all three lots during return.

Credit Memo is also created based on the lots returned as shown in below screenshot.


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Scenario#6

Calculation of Price in Sales orders for a Non Lot Controlled Item in Oracle Warehouse Management(WMS) Enabled Process Organization:

In WMS Enabled Organizations picking and shipping of sales order lines are done via the Mobileinterface. While performing the Pick Release action, the user notes the change in the conversion factorand enters the updated secondary UOM quantity to reflect the actual weight or quantity in the system.Based on the secondary quantity entered price will be recalculated.

Define a Non Lot Dual UOM Item in a WMS Enabled Process Organization with a standardconversion of 1 Each =2Kg and deviation factor and Pricelist for 1 Kg=$10.

Enter a sales order for the same item for a quantity of 1 Each and secondary quantity defaults to 2 andPrice shown will be $20.

While performing Pick Release using the Mobile interface, change the secondary quantity to 1.5 andShip Confirm. Based on the secondary quantity picked and shipped, the Sales Order Price is alsochanged to $15.

Scenario#7

Calculation of Price in Sales Orders for a Lot Controlled Item in WMS and Process enabledorganization:

Consider a Lot Controlled Dual UOM Item in WMS enabled Process organization with a with standardconversion of 1 Each =2 Kg and deviation factor and Pricelist for 1 Kg=$10.

Define a lot specific conversion such that 1 Each=1.5Kg.

Enter a sales order for the same item for a quantity of 1 Each and secondary quantity defaulted to 2,Price shown is $20.

Initially when we enter the sales order quantity in the Primary UOM, the secondary quantity defaulted will be based on Item specific conversion.

While performing Pick Release allocate the lot using mobile interface and here the secondary quantity ischanged to 1.5 based on the Lot Specific conversion.

Perform the ship confirmation using the mobile interface based on the secondary quantity, sales orderprice is changed to $15.


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Scenario #8:

Intercompany Invoicing for Catch Weight Items:

In a scenario like Internal drop shipment to customer where items are shipped from a differentoperating unit and the invoice will be given to the customer from different operating unit.

Invoice amount to the customer is based on the secondary shipped quantity, AP & AR invoiceamounts are based on the primary quantity shipped and these accounts payable and accounts receivableinvoice amounts are not changed depending on secondary quantity shipped.

Consider the below example where a customer orders a catch weight item from operating unit (OU1)

$100 Per KG Price List Transfer Price is 100SGD per KG

Item is shipped from operating unit (OU2)

Let OU1 be Vision Operations with functional currency as USD

Let OU2 be Singapore Distribution Centre with functional currency as SGD

Consider a Lot Controlled Dual UOM Item with standard conversion of 1 each =10 Kg and deviationfactor and Pricelist for 1 Kg=$100.

Create a pricelist where Transfer Price as 1 Kg=100SGD.Define a lot specific conversion such that 1 Each=8Kg for this item.

In this scenario sales order is created in OU1 with shipping from warehouse in OU2.

Enter a sales order for the same item for a quantity of 1 Each and based on that secondary quantity isdefaulted to 10, Price shown is $1000.

Allocate the Lot and Book the sales order. Then, Pick and Ship the line.

Based on the secondary quantity shipped, the Sales Order Price is changed to $800.

Customer OU 1OU 2


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Create Intercompany accounts payable and accounts receivable invoices for the sales order between thetwo operating units OU1 & OU2.

The actual transactional qty is 1(Primary qty) and 10 (Secondary quantity) so the intercompanyaccounts payable and accounts receivable invoice is generated for 1000 SGD.

Intercompany accounts receivable invoice is generated for 1000 SGD as shown below:


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Intercompany accounts payable invoice is generated for 1000 SGD as shown below:

Price Calculation in Sales Order when the Pricing UOM is set to Primary in Master ItemForm:

Oracle Order Management supports catch weight pricing for items which have their "Pricing UOM setto secondary". If the Pricing UOM of the item is set as primary, then re-pricing will not happen onthe basis of secondary shipped quantity at the time of shipping the item. In this case Invoice isgenerated based on the Primary shipped quantity.

Modifiers on Catch weight Dual UOM Items:

The Modifier application behavior (surcharge, discount, freight etc) for catch weight Dual UOM Items will be same as in case of standard items.

RMA for Catch Weight Items:

Returns for catch weight items, pricing will consider the secondary quantity shipped and based on thatcredit memo will be created for the customer.

When we enter a Credit To Invoice, the return primary and secondary quantity defaults to the quantity

on the invoice line, superseding the quantity defaulting from the reference source.

For example, we have an order for Primary quantity 1 : secondary quantity of 10; invoiced for 8secondary quantity and invoice created for 8*100=$800. If a customer wants to return the full quantityand receives an on account credit , referencing the sales order line would allow to return the fullquantity of primary 1 and secondary 8 on one return line.

The credit memo is created for the customer based on the secondary quantity i.e. 8*100=$800.


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Calculation of Price in Sales orders if Auto Allocate is set to Yes while Performing PickRelease of the Order:

There are some business scenarios where customers will do Auto Allocate while performing pickrelease of sales order instead of allocating manually by setting Auto Allocate Flag to Yes in the ReleaseSales Order form.

In such cases while doing the miscellaneous receipt of items we must update the on hand quantitybased on the Lot conversion in the miscellaneous receipt form, this will cause conversion fromprimary to secondary to happen automatically based on lot specific conversion.

Similarly price is calculated automatically based on the secondary shipped quantity.

Effect of the System P arameter "Over shipment Invoice Basis on Variation inSecondary Quantity:

If the item is dual UOM controlled -Over shipment Invoice Basis does not come into play.Independent of this, system parameter catch weight functionality will work.

If the system parameter " Over shipment Invoice Basis is either set to Invoice Ordered Quantity orInvoice Shipped Quantity for catch weight items, then Invoice will always be generated based on thesecondary quantity shipped. You must choose one over the other and perform setup accordingly.

Limitations:

In case of partial shipments of lot specific quantities, the system calculates price based on item specificconversion instead of lot specific conversion.

Consider a lot item with Primary UOM Each and Secondary UOM of Kg with a standard conversionof 1 Each =10 kg and a lot specific conversion of 1 Each=8 Kg and a Price for 1kg= $100. Create asales order with the above lot item for 10 Each and perform a partial shipment for 5 Each and 40 Kg.It is observed that Price is calculated as $5000 instead of $4000.

Conclusion:

Oracle Order Management enables the flexibility of pricing the order for catch weight items based onthe secondary shipped quantity if there is no fixed relationship between the primary and secondaryquantity. The catch weight items are priced based on the secondary shipped quantities after theallocation of lot item.


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Pricing Based on Secondary UOMAugust 2014Author: Jala Prasad Devanaboina

Oracle CorporationWorld Headquarters500 Oracle ParkwayRedwood Shores, CA 94065U.S.A.


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Worldwide Inquiries:Phone: +1.650.506.7000Fax: +1.650.506.7200Web: www.oracle.com

This document is provided for informational purposesonly and the information herein is s ubject to changewithout notice. Please report any errors herein toOracle Corporation. Oracle Corporation does notprovide any warranties covering a nd specificallydisclaims any liability in connection with this document.

Oracle is a re gistered trademark, and Oracle Order Managementis a registered trademark(s) of Oracle corporation.All other names may be trademarks of their respective owners.

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