3 Replies Latest reply on May 10, 2011 7:07 PM by Sandeep Gandhi, Consultant

    Purchase price variance based on Receiving QUALITY

    djh-2149574
      Problem Statement:

      The client have a requirement that when he places an Order to the vendor for a certain commodity, he agrees to a certain level of Quality Parameters and an agreed Rate based on these parameters.

      Example:
      $100/Kgs on a condition that the physical inspection Quality Parameters are met 100%.
      $90/Kgs on a condition that the physical inspection Quality Parameters are met between 90% to 99%.
      $80/Kgs on a condition that the physical inspection Quality Parameters are met between 70% to 89%.

      When the Receiving is done against the PO, it was found that the Quality was not upto the standard and the result is only 90%. The Client has to pay for the received Quantity at the rate of $ 90/Kgs.

      Q1. How this scenario can be handled in Oracle Purchasing, Inventory, Payables (without Quality module)?

      Q2. What would be the Inventory Cost of the item $ 100 or $ 90?

      Q3. What would be the Financial implications?

      Edited by: user1116442 on 07-May-2011 06:37
        • 1. Re: Purchase price variance based on Receiving QUALITY
          Sandeep Gandhi, Consultant
          Q1. How this scenario can be handled in Oracle Purchasing, Inventory, Payables (without Quality module)?
          I don't think there is any seeded way to handle this. You may have to modify the PO price manually or generate credit/debit memos after the receipt.

          Q2. What would be the Inventory Cost of the item $ 100 or $ 90?
          If you use std. costing, your cost will remain constant. Any variations will generate PPV
          If you use avg. costing, the receipts will keep updating the cost.

          Q3. What would be the Financial implications?
          The financial implications depend on your costing method. If you have std. costing, you will generate lot of PPV. And your inventory valuation will be done based on the std. cost.
          If you use avg. costing, then you will be able to get inventory valuation at a cost which is weighted avg cost.

          Hope this helps,
          Sandeep Gandhi
          1 person found this helpful
          • 2. Re: Purchase price variance based on Receiving QUALITY
            djh-2149574
            Thanks Sandeep for detailed response.

            Can you suggest if there is any other module available in Oracle EBS R12.1.x that can help us acheive the Quality Result based pricing? Someone suggested that Advance Pricing for PO can do this? I have not used it so I am not sure if this is true.
            • 3. Re: Purchase price variance based on Receiving QUALITY
              Sandeep Gandhi, Consultant
              You may be onto something.
              Advanced Pricing works to determine the price on the PO when you are creating the PO. You can configure all sorts of rules to arrive at the price.
              You can try this
              Define quality as an attribute and then derive the price based on the quality.
              When you create a PO, the quality will have a default value (say 100%) and the price will be say $100.

              AFTER receipt, you know the true quality. So go back to the PO and update the quality and reprice the line. Now Advanced Pricing will change the price.

              I am not sure if this will work but it is worth a try.
              See http://www.ncoaug.org/NCOAUG%20Training%20Day%20Feb%202009/Sundeep%20Sharma%20-%20Integrating%20Advanced%20Pricing%20with%20Purchasing%20in%20Release12.pdf for details on how to integrate Adv. Pricing with Purchasing.

              Hope this helps,
              Sandeep Gandhi