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Sourcing and Contracting - How the ByD system selects the Source of Supply on Purchasing Documents.

During your daily business you will  want to always select the best option of supplier to buy products.

The ByDesign system offers several source determination methods to help you on this topic.

These methods however have hierarchies that, in some cases, are not well known.

Why is the supplier A being selected instead of supplier B?

Why the list price is not being considered?

How can I make the system to always select a specific supplier for a determined product?

Thinking on the answers for these questions I have created this document. Please find below more details about how the system determines the source of supplies.

1. Overview

2. Scoping

3. List Prices

4. Contracts

5. Quota Arrangements

6. Fixed Source of Supply

7. The Hierarchy

8. Quotes and Requests

9. References

10. Common Issues

1. Overview

In the ByD System you will find several options to manage the determination of which supplier.

You have List Prices, Contracts, Quota Arragements, Fixed Sources and of course, Quotes.

You do not need to necessarily use all of them, but it is recommended to have at least one, so the system can help you to select the best supplier for a purchase.

2. Scoping

The first (and actually only) step you need you to perform is to scope the option of sourcing on your system.

It is very simple to do it. All you need to do is to go to the Business Configuration work center, Implementation Projects and edit your project.

When editing it, check the options for Sourcing and Contracting, under the Sourcing section.

Also, answer the questions related to this topic under the Questions step.

Once you have scoped this feature, you are ready to use whatever method you like to define the sourcing determination of your system.

3. List Prices

List Prices are the most simple method to use since they are very easy to comprehend.

A list price consists on a list of products, and their prices, that are sold by a specific supplier.

To create a List Price, you can to go to the Product Portfolio work center, List Prices view.

By clicking on the New option you will be able to create a list price as below.

When creating a List Price you need to maintain the supplier who sells it, the products and their prices.

You also need to maintain a validity for it

Please note that the system, in the end, will have one list price for each product, however you can create them all at the same time.

You can also create List Prices using the Microsoft Excel.

PS: Please note that there are two different documents with a very similar name on the system: List Prices and Price Lists.

The difference is simple: List Prices are related to a supplier, they show the price you need to pay to buy items. Price Lists are related to Customers, they contain the prices your customers pay to you when you sell products to them.

Price Lists are not relevant for the Sourcing and Contracting topic.

4. Contracts

Contracts, or Purchasing Contracts, work in a very similar way when comparing them to List Prices. They are basically documents related to a specific supplier which you use to define the price you will pay for determined products.

The key difference is that contracts have targets. These targets are values that once achieved turn the contract to a complete state.

For instance, if you create a target of 10 thousand dollars, once you create transactions that reach this value, you will achieve the objective of the contract.

To create a contract you need to go to the Sourcing and Contracting work center, Contracts view.

When creating one, you need to define the supplier, the products, the target values and the validity of the contract.

5. Quota Arrangements

Sometimes this topic seems to be very complex, but the truth is that it is not that complicated.

Quota arrangements are methods that you can use to distribute your purchases between suppliers.

In order to use a Quota Arrangement, you need to have, at least, two contracts with two different suppliers, both covering the same product.

In other words, you will use the quota arrangement to distribute the quantity to be purchased over these contracts.

For instance, If you have two contracts, with suppliers A and B, and both contracts contains the product 123, you will use the quota arrangement to buy, for example, 50% of the quantities from the supplier A and the other 50% from the supplier B.

Quota Arrengements consider only Contracts. It is not possible to use List Prices on this scenario.

You can create a Quota Arrengement under the Quota Arrangements view, in the Sourcing and Contracting Work Center.

There are three important things you need to consider when looking to a quota arrangement: the Quota Number, the Quota Base Quantity and the Allocated Quantity.

The Quota Number works like a percentage. In the screenshot above, the numbers are 40 and 60. Which means that 40% of the purchasings should use the supplier Omego, while 60% should use the supplier AMS.

You do not need, necessarly, to use clear percentage numbers. You can, for example, use 1 and 2. The system will consider the fraction of 1/3 and 2/3, and will calculate the percentage accordingly.

The Allocated Quantity is exactly what it seems to be. It is the total quantity of products that you already purchased from the supplier.

The system will take the Quota Number and the Allocated Quantity to calculate the quota rating.

The quota rating is the paramenter that the system uses to choose between the suppliers. This value is calculated as followning:

Quota Rating = Allocated Quantity / Quota Number

Based on this and on the screenshot we can calculate the following:

Quota Rating Omego: 80 / 40 = 2

Quota Rating AMS: 230 / 60 = 3,84

So, by calculating this, you know that the system will select Omego for the next purchasing, because the rating is lower than AMS's.

Now, the quota base number is something that you can use to impact the way the system calculates the rating. It is basically another value that the system will sum to the allocated quantity. For example, If you defined that the quota base number is 100 for Omego, the system will calculate the rating as following:

Quota Rating Omego: (80 + 100) / 40 = 4,5

In this case, instead of Omego, the system would select AMS as next supplier.

6. Fixed Source of Supply

A Fixed Source of Supply is something you create when you want to ensure that ALL purchases of a specific product will be done using the same supplier.

It works like a flag. You select a list price, or a contract, and flag it as Fixed Source of Supply.

By doing this you will be making the system select that list price, or that contract, for every transaction related to the chosen product.

You can create a fixed source of supply under the view with the same name, available on the Sourcing and Contracting work center.

7. The Hierarchy

Okay, we have seen all the options you can use to determine the source decision making in the system.

But what happens when you use all of them? How the system selects which one it will consider? What is more important? A list price or a contract? A Quota Arrangement or a Fixed Source of Supply?

Well, the system follows the hierarchy below:

- Fixed Source of Supply

     - Quota Arrangement

          - Contracts

               - List Prices

First thing the system considers is the Fixed Source of Supply.

In case it does not find anything, it will check the Quota Arrangments.

If no arrangment existis, it will check the contracts.

Not finding any contract it will search for list prices.

But how the system chooses between two contracts? Or two List Prices?

Well in this case the sytem will check the following:

a. Price

b. Contract Released Quantity

c. Lowest delay in delivery

So, if you have two list prices for the same product, the system will select the one with the lowest price. In case both lists have the same price, the one which was delivered faster will be selected.

In case of two contracts with the same price, the system will select the one with the lowest released quantity.

If even so the system cannot decide, it will select the one which was delivered faster.

8. Quotes and Requests

On this document I have metioned a lot of elements you will find under the Sourcing and Contracting work center. Now you may already have noticed that at any moment I mentioned RFQs (Requests for Quitation), Quotes, etc.

I have done so because these documents are not considered for sourcing determination. At least not for the automatic sourcing determination.

A quotation sent by a supplier is not considered by the system when proposing sources of supply.

So, if this is the case, why would I use a RFQ and a Quote?

Well, this feature works as a manual source determination.

A request for quotation is basically a question you send to your supplier asking him how much he wants for a determined product.

The supplier replies with a quote, informing their price.

You may ask for quotes from several suppliers, manually comparing them and deciding which one you will use.

When you select the desired quote you award it. By doing so, you will create a purchase order using the price in the quote.

9. References

In case you have more interest on this topic, I recommend the following documents available on the ByDesign's help center:

- Source Determination

- List Prices in Supplier Relationship Management

- Purchasing Contracts Quick Guide

- Request for Quotation Processing

They contain a lot of details about the options mentioned above and can helo you when working with them.

10. Common Issues

In case you are having trouble with one of these features, check the case documents below, they can contain the solution you are looking for:

1905373 - Not Possible to Create a List Price with Zero Price Value

2028203 - List Prices (Suppliers) Selected Randomly in Purchase Requests for a Material

1872524 - Cannot Delete List Price

1804577 - Change Source of Supply Priority is Disabled for a Purchasing Contract

1883137 - Approval Process for Purchasing Contracts Missing

2104712 - Contract Price Is Not Copied To Purchase Order

1411898 - Purchase Order created although Supplier is blocked. Purchasing Contract not closed when supplier is blocked.

2018728 - Unable to Renew Soon Expiring Purchasing Contract due to Missing Negotiate Button

Best regards,