As a buying organization, you would always like to get the best possible deal when procuring products or services. What if the sourcing tool you are using gives you the ability to do Total Cost Analysis, which can help you remove some of the guesswork in making sourcing decisions, control cost, discover the optimum terms, and maximize the total value received from the purchases? With Wave 7, SAP Sourcing now supports Formula-Based Pricing, which can help you build formulas based on various cost factors such as material costs, freight, duties, tariffs, customs fees, transportation, insurance, tax, or possibly other items.

Formulas could be pricing formulas which can help you come up with a calculated Unit Price OR could be Cost Analysis formulas which can help you assess both direct and indirect costs, do “what if” analysis, and compare relative costs of different scenarios – for example, onboarding new suppliers as against incumbent suppliers or installing a new software system as opposed to upgrading an existing software system. Formula-Based Pricing can help you consider the total cost impact of different sourcing alternatives and their outcomes, as well as help you automatically calculate the True Unit Price.

The following figure shows the formula editor in SAP Sourcing where buyers can build sourcing formulas.

Whether you are conducting an RFx or an Auction event through SAP Sourcing, Formula-Based Pricing can help you build the strategy around minimizing the cost and maximizing the value from these events. SAP Sourcing enables buying organizations to build complex formula expressions using operands such as supplier entered attributes, product specifications, standard fields such as Quantity and Target/Current Price, AND Operators, including basic operators (+, -, *, /) or Logical Operators (AND, OR, IF, =, <, >, <=, >=, !=). Formula Expression can also include another formula or set of formulas as an Operand to build complex expressions; this is particularly important when you have various formulas to calculate Sub Total costs and a single formula to add up all Sub Total costs to produce a final Total Cost. Buyers also have flexibility to create internal formulas for internal analysis which are not shown to suppliers. The result of any formula can be added to the Total Cost or Total Price.

The following figure shows the supplier’s view of the line item in a case when buyers have defined the Unit Price Formula to calculate the Unit Price automatically. The supplier enters values in the attributes and the corresponding formula calculates the Unit Price.

The diagram below shows how formulas, specifications, attributes, etc., are tied to line item groups and how suppliers have visibility into the line item groups. Let’s take an example. The buyer has defined:

- 2 Formulas, “F1” & “F2”
- 2 Attribute Groups, “A1” & “A2”, each with 10 attributes
- 2 Line Item Groups “LIG1” & “LIG2”, each with 3 Line Items
- 2 Suppliers “S1” & “S2”

In this scenario, the buyer can decide to assign F1, A1 to LIG1 and make it visible to only S1 and/or assign F1, F2, A1, A2 to LIG2 and make it visible to S2.

I hope you have enjoyed reading this article. Please feel free to provide your feedback or post your comments.

I really enjoyed the article and the content you provided of my interest. It recalled me my past days in sourcing functions. Now the same can be done easily in SAP.

SAP is providing more on core process of sourcing.

I am excited to get more info on the same & some hand on with the application as well

Thanks for your feedback. You can experience this feature (hands on) with upcoming Wave 7 release of SAP Sourcing application. I would be writing more blogs around RFx and Auction area in the near future, hope you would like them as well.

Thanks,

Mahesh