Understanding Purchase & trade agreements in D365 – Part 1

Posted On October 15, 2024 by Prafull Mandlik Posted in

Introduction

In many businesses purchase is common & important function. & for purchase department, agreement is important feature. In D365 we have different types of agreements. i.e. Purchase agreement & Trade agreement. Both agreements have its benefits.

In this blog will go through overview of purchase & trade agreements in D365 & setup of Purchase agreement in D365 of type Product quantity commitment & Product value commitment.

In D365 we can create Purchase agreements for blanket orders to buy certain fixed quantity of item from specific vendor within specified time.

Whereas Trade agreement can be used to create discounts generally for short period for specific vendor or vendor group.

In D365 there are different types of Purchase agreement & trade agreements.

Below are different types of Purchase agreements based on commitment in D365:

Product quantity commitment
Product value commitment
Product category value commitment
Value commitment

Product quantity commitment is setup when there is commitment to buy fixed quantity of item from specific vendor over fixed period, so vendor will provide special purchase price for that quantity over defined period. For example, purchaser have committed to buy 1000 quantity of 1 SKU of luggage bag from vendor A over next 1 year then vendor will offer special price of 2000 instead of original price of 3000.

Product value commitment is setup when there is commitment to buy fixed amount of specific item from specific vendor over fixed period & vendor provide discount%. For example, purchaser have committed to buy 1 SKU of luggage bag from vendor A worth 1million over next 1 year then vendor will offer 15% discount for same.

Product category value commitment is setup when there is commitment to buy fixed amount of specific category of goods from specific vendor over fixed period & vendor provide discount%. For example, purchaser have committed to buy Travel luggage bags category SKU’s from vendor A worth 10million over next 1 year then vendor will offer 20% discount for same.

Value commitment when there is commitment to buy fixed amount from specific vendor over fixed period & vendor provide discount%. For example, purchaser have committed to buy from vendor A worth 15million over next 1 year then vendor will offer 20% discount for same.

Below are different types of Trade agreements based on relation in D365:

Trade agreement for Purchase price
Trade agreement for Line discount for purchase
Trade agreement for Multiline discount for purchase
Trade agreement for Total discount for purchase

Trade agreement for Purchase price is used to define purchase price of item from specific vendor or group of vendors. The price defined in trade agreement will be reflected in purchase order automatically.

Trade agreement for Line discount for purchase is used to define discount on purchase price of item. can setup different types of discounts i.e. Fixed amount, percentage discount or for quantity range.

Trade agreement for Multiline discount for purchase is also used define discount on purchase price of item but in multiline discount system will consider quantity of specified item available on multiple lines in purchase order to decide discount percentage. For example, If we have same range for line & multiline discount of 5% for 1-101 & 10% for 101-501. When Purchase order has 2(or multiple lines) of same item. i.e. 1st line has 50pcs & 2nd line has 70pcs.

So, in case of Line discount each line will get discount of 5% even though total quantity is greater than 100. But in case of Multiline discount, discount applied will be 10% as total is greater than 100, as it considers total of multiple line.

Trade agreement for Total discount for purchase is used to define discount percentage for total purchase order level & not at line level.

Also note that, if both purchase agreement & trade agreement are defined for same combination of vendor & item, then Purchase agreement gets precedence / priority over trade agreement.

Problem statement:

In this scenario we need to setup Product quantity commitment & Product value commitment type of purchase agreement for vendor.

Solution steps:

1 – Will create purchase agreement for Product quantity commitment

1.1 Go to Procurement & Sourcing -> Purchase agreements -> Purchase agreements

1.2 Click on New -> Vendor account -> Select respective vendor (In this case it is VEN-000001) -> Purchase agreement classification -> Blanket purchase agreement -> Default commitment -> Product quantity commitment -> Effective date -> Select respective date (In this case it is 1 Aug 24) -> Expiration date -> Select respective date (In this case it is 1 Aug 25) -> Ok

1.3 Fill the respective details of Item number – P-000003, Quantity – 1000, Unit price – 3000 & Max enforced – Yes. Max enforced Yes means quantity consumed against purchase agreement is tracked. If purchase quantity exceeds quantity mentioned in agreement, then message will be displayed & link of Purchase agreement is removed from purchase order.

1.4 Confirm purchase agreement.

1.5 Now create new purchase order. Go to Procurement & sourcing -> All purchase orders

1.6 New -> Select Vendor -> Select above created Purchase agreement -> Ok.

1.7 Add Item mentioned in purchase agreement, in this case it is P-000003 & required Quantity 500 in purchase order, price will be automatically taken from purchase agreement.

1.8 We can check which agreement is linked, click on Update line -> Purchase agreement -> Attached.

1.9 Similarly, In Purchase agreement also same is reflected.

2 – Will create purchase agreement for Product value commitment

2.1 Go to Procurement & Sourcing -> Purchase agreements -> Purchase agreements -> Click on New -> Vendor account -> Select respective vendor (In this case it is VEN-000001) -> Purchase agreement classification -> Blanket purchase agreement -> Default commitment -> Product value commitment -> Effective date -> Select respective date (In this case it is 1 Aug 24) -> Expiration date -> Select respective date (In this case it is 1 Aug 25) -> Ok

2.2 Fill the respective details of Item number – P-000003, Net amount – 50000, Discount percentage – 10 & Max enforced – Yes. Max enforced Yes means quantity consumed against purchase agreement is tracked. If purchase quantity exceeds quantity mentioned in agreement, then message will be displayed & link of Purchase agreement is removed from purchase order. & confirm purchase agreement.

2.3 Then create new Purchase order, select Purchase agreement to link

2.4 Add Item mentioned in purchase agreement in this case it is P-000003 & required quantity in purchase order, discount will be automatically taken from purchase agreement.