This documentation gives a general description to deep configuration on business background of F&A pricing usage in Oil and Gas industry; why use it, how it works, and how to implement F&A pricing in your system.


Author: Shichang Ma




Background

In Oil and Gas industry, the price of certain petrochemical products like Benzene, Ethylene et al may vary every day. Since the shipping process for petrochemical products can take long, especially when the shipping method is sea/marine, it is common that the price is determined by the average of these prices over a time range (a week or month) plus a surcharge. Third party providers like Argus, CMAI, Opis publish the market price of these products on a daily basis; these prices are commonly known as quotes. In order to accommodate the business need to calculate the price of an order based on external quotes over a period of time, SAP introduced F&A pricing in IS Oil.

How it works

Before formula pricing is introduced or implemented, businesses used to use spreadsheet for price calculation. Simple ones can be average of 1 week quotes on Benzene, while complex ones can be like 0.91Benzend+0.3Ethylene+surcharge then average by one month. Spreadsheet would work fine if you have ten orders a day requiring spreadsheet calculation, but imagine when you need to refer to your spreadsheet hundreds of times a day, finding the right spreadsheet, plugging numbers, coming back to SAP… In IS oil F&A pricing, these special formulas can be stored in the system and later used by sales order or purchase orders for automatic calculation. It is assumed that you have a good understanding in how standard pricing procedure works, thus we will not go into condition technique in this documentation. Formula pricing is differentiated at condition type and condition record level. Comparing to regular pricing, F&A pricing has a formula to be maintained for each formula pricing record, it enables variable dates for calculation, and further allows client to define multiple rules and compare two calculation results and pick the desired final rate.

Introduction and Configuration

Formula Condition Type

Formula pricing is identified at the condition type configuration in V/06. Formula pricing has the calculation type as Q, commodity Price, while regular condition types have the calculation type as percentage, quantity, fixed amount, weight, etc…

Formula pricing condition type:

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Regular pricing condition type:

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Formula Pricing Condition Record

The difference in the calculation type would affect your screen in VK11. Below there is a screenshot of how VK11 for formula pricing looks. Note a new icon for maintaining formulas showed up, while scales is no longer an option, nor can you enter a number amount directly for this condition record.

VK11 for formula pricing

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After you make an entry for your condition record like what you do with regular conditions, select the line and click on maintain formula and it will take you to the screen where you can create a new formula. Note this is the first method of creating a formula. You can also choose a pre created formula repository in the system.

You can use/access a formula in various places, including: condition records, sales documents, billing documents, purchase orders, info records. You can also create formulas inside the condition records in these places.

Formula Repository

Formula can be created directly using T-code O3I7. As SAP convention, O3I8 is for formula change, O3I9 for display. Once you give a name for the formula, system takes you into the below screen for formula maintenance. Note you can copy and modify from an existing formula by clicking on the Repository Proposal icon as below.

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If you click on “Final and Provisional Rules”, you will see the following screen for date determination maintenance. You can either assign fixed date range or let the system determine date range by specifying the rules at Reference date exit, Ref Date Offset, time unit of measure, # of time unites fields.

Reference date could be GI date, or Pricing date, after system decides a reference date, you can offset it to a base date, e.g. 1st of next month, Monday of next week. Time unit of measure and # of time units are applied to this base date and form a time range. There is also a check box for “Excl base date”. By selecting this field, you determine that the quotation on the reference date is to be excluded during the calculation of the quotation in the defined time period.

You can also specify how currency conversion should be calculated if you are working in multi-currency environment. A detailed explanation on the meaning of these fields can be found in this link.

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Normally two sets of date determination will be applied for a formula, provisional and final. This is used in case you don’t want to wait until end of month to bill the customer, thus you define a provisional date using one week quotes and by the end of month you can rebill the difference between provisional determined price and final determined price to the customer. With that said, in your pricing analysis you might find the status of a formula price to be either provisional determined or final determined.

F&A pricing in Sales Orders

Let’s take a look at how Formula pricing works in sales orders. When you go to conditions tab in item level, you can find a magnifying glass in front of formula condition type.

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After clicking on the magnifying glass, it takes you into the formula details just like what we see in O3I8

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Note A term has a status of “01, evaluated successfully using final rule”. We discussed this previously in maintaining a formula.

From here, you can further change the formula by clicking on “maintain formula” icon, you can save the changed formula under a different name. You can also click on second level analysis to view how a condition value is arrived. The screen will list all the quotas and their values. The format of this report can be customized in SPRO

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Before we go into the configuration on F&A pricing, let’s first do a quick comparison on formula pricing and regular pricing from a high level.

Regular pricing:

Fix date only from pricing date, condition value maintained manually in documents or determined directly from record in VK11

Formula Pricing:

Both fixed date and variable dates possible, condition value determined in directly through formula, while formula can be maintained in sales/purchase documents or VK11. Dependent on formula and external quota feeds

F&A pricing Configuration

Pre-requisites before you start F&A pricing:

  1. External quotations
  2. F&A condition records
  3. Routine for date determination
  4. Access sequence
  5. Formula Condition types assigned to your pricing procedure

Configuration for F&A pricing can be found in under Industry solution Oil & Gas (Downstream) menu path in SPRO.

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External Quotations

Quotations are brought into sap either by daily feeds through interface or program, or entered manually through Transaction code O3I2. You can also use sm30 and enter table V_OICQP. In standard SAP external quotations are stored in table OICQP.

You can use quotation source, quotation type to differentiate different quotations needed for the business, and define characteristics like currency, UoM, calendar under “Define quotation data”.

Maintain formula & Average Pricing user exits

This is where you maintain/develop pricing related routines. We’ve seen them during explanation on formulas; this is the central place for all routines development. You can also access this screen by entering transaction code O3F5

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7 Comments

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    1. Srinivasan Telu

      Hi Shichang,

      Incase we want to handle Pricing scales in the FAP condition, how can it be handled it.

      Standard FAP condition is not having having the option/decativated. Any suggestion on the same.

      Srinivas

      (0) 
      1. Shichang Ma Post author

        Srinivas, without knowing the specific requirement regarding the scales, it almost seems that the best option would be creating another condition type as discount or surcharge for your F&A condition type. I don’t have a O&G system access now but in case you have a two level scale you may also explore the AvsB rule see if you could plug in a routine there. 

        (0) 
  1. Sundar Ramaswamy

    A must go-to document for the Oil & Gas consultants dealing in formula pricing.

    I would appreciate if you could also include

    a) F&A pricing for Purchase Orders with configuration

    b) The usage of A vs B terms.

    Great Job, Shichang Ma

    (0) 

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