How to determine procurement method for suppliers for achieving a more resilient supply chain in D365FO?
Supply resilience is essential to keep operations running and deliver products to customers. The different procurement methods can help by either supporting a very close relation to few or one vendor or an agile relationship to multiple vendors. The different methods can help navigate risk- and market dynamics if applied correctly. This article will shortly explain some of the methods and what relationship they are appliable for.
The supply relationship is evaluated based on the formulization level of the relationship in D365FO. The methods elaborated in this article are:
The scale starts from highly formalized relationships, which are intercompany trading to very low formalized relationships with no upfront agreements signed with vendors, which is the RFQ process where price is negotiated every time an order is created.
Intercompany trading
Intercompany trading is the highest level of formalized supply relationship where the buying company owns the vendor or the other way around. The vendor is created as a legal entity in the D365FO instance and is created as a vendor for the buying company. Every time an intercompany order is created a transaction trace is created across the legal entities meaning this is the highest formalized and data heaviest supplier relation. The configuration for the intercompany trading is explained in this article here:
Purchase agreements and trade agreements can be configured for an intercompany vendor. The next highest formalized supply relationship is the purchase agreement.
Purchase agreements
A purchase agreement is a contract that commits a company to buy a specified quantity or amount over a period for a specific price and discount. This relationship is very formalized by committing the company to buy a certain quantity of items from this vendor by making a contract with the vendor. The transaction data amount is not as high as for intercompany trading, but these agreements are only made with vendors where the relation needs to be close, and the vendor is trusted. The relationship is turned into a formulated committed contract.
When a purchase agreement is created a vendor account, and a purchase agreement classification shall be added.
The “Purchase agreement classification” is a configured value where it is possible to configure certain elements.
-??????? Subcontractors – A purchase agreement can have a prime contractor, co-contractors, and subcontractors. You can assign the prime contractor to the parent purchase agreement and a co-contractor or subcontractor to specific child agreements. It is important not to turn this on for an already used “Purchase agreement classification” because it cannot be disabled afterwards. The fast tab will look like this:
The subcontractor field is a look up for chosen a vendor. The vendor, which the agreement is created for is excluded from this dropdown.
-??????? Certifications – This checkbox is ticked for adding certification compliance details for the vendor. We can add certification details such as ID, type, effective/ expiration date, certifying organization, liability amount or bond limit on purchase agreement. Purchase agreement certification compliance report is used to identify the details for purchase agreement. The activation details process is the same as for the subcontractors.
A “Certification type” needs to be configured for this functionality and certain details added to it, which will not be elaborated in this article.
-??????? Require direct invoicing – Select the require direct invoicing option when direct invoicing is required. This will prevent the use from releasing orders form the agreement because the button will be disabled.
-??????? Activities - Select the “Activities” option to include information about tasks and milestones. When this switch is set to “Yes” the “Activities” button is enabled to add activities to the purchase agreement.
When the activity is created the “Details” button is enabled and more details can be added to the activity.
This will not be elaborated further in this article.
-??????? Line matching policy for purchase orders released from the purchase agreement can be:
-??????? Primary responsible worker and Secondary responsible worker can be added – The primary responsible person is the one responsible for the purchase agreement. The secondary responsible person cannot be added without the primary has been defined.
When the agreement is created a default commitment type is pre-selected and the “Effective date”, “Expiration date”, “Item number”, “Site”, “Warehouse”, “Quantity”, “Unit price” and so on can be added.
Project ID is added to the agreement if it is linked to a project. All purchases that will be created from the agreement will be recorded as project transactions if the project ID is added. When the agreement is linked to a project the project ID, project category and activity number of the project will be visible in purchase agreement line details under the project section.
The commitment for a purchase agreement can be set to on of these four based on what is agreed with the vendor:
-??????? Product quantity commitment – Specific quantity of a product
-??????? Product value commitment – Specific currency amount of a product
-??????? Product category value commitment – Specific currency amount in a procurement category where the amount can be for a catalog item or a non-catalog item.
-??????? Value commitment – Specific currency amount which can be fulfilled by any product or by any procurement category.
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On the line level minimum and maximum release amounts can be added and the “Max is enforced” parameter can be set to “Yes” for prohibiting the quantity or amount remaining on the purchase agreement from being exceeded.
Intercompany trading – The purchase agreement can be associated with a sales agreement in another legal entity if the intercompany trading relationship is created between the vendor and customer.
The purchase agreement is associated with many functions and activities inside of D365FO and it is a great tool to manage a close vendor relationship. The next section will concern trade agreements.
Trade agreements
A trade agreement can be formulated for multiple vendors and items in one journal. The first part of creating a trade agreement is the “Trade agreement journal names” where the relationship can be set to concern either price or discount.
The relationships can be for sales orders (Sales) and purchase orders (Purch.). The different types of discounts and price are as follows:
-??????? Price – Price used for certain item(s).
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-??????? Line discount – Line discount agreements are a discount percentage or a discount amount that can be applied if the quantity on the sales or purchase order line meets the minimum quantity and maximum quantity that is required by the agreement.
-??????? Multiline disc. – The multiline discount can be applied when one or more purchase order lines that are added together meet the discount requirement. The items must be in the same multiline discount group. This kind of discount is used when, for instance, a company wants to give a discount if a customer orders over 10 items in the item discount group.
-??????? Total disc. – Total discounts are applied on the total value of the sales or purchase order. This kind of discount is used when, for example, a company wants to give a discount when a single purchase order includes a minimum of USD 3000.00 worth of items.
-??????? Postage discount – This discount is related to the retail module under omni-channel to add a shipping discount when the customer’s order exceeds a certain limit. It is the same as the shipping discount function. ?
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When adding lines to the journal the following options are relevant.
A trade agreement can be formulated for a vendor, vendor group or all vendors and for an item, item group or all items. The trade agreement can be set to be active for a certain period, have a from and to qty, unit and currency. These are the main components others are also relevant but will not be discussed in this article.
It is possible to add lead time to the individual line under details, which can be utilized to choose the vendor with the lowest lead time by planning optimizer.
The lead time can be set to be in only working days by flipping the slide “Working days” to “Yes”.
Include generic currency - Select this option to guarantee that the trade agreement can be converted from generic currency to other currencies. This field is available only if you select the value Price (sales) option in the Relation field, and only if the currency is the generic currency that is defined in the Generic currency field in the Accounts receivable parameters page.
Find next - The criteria are used to continue searching for discount combinations. So multiple discounts can be added to one purchase order line.
Additional functionality that can be added to the purchase trade agreement for making the best chose between different vendors for a certain item can be:
-??????? Multisourcing policy helps balancing orders between vendors and setting minimum order quantities for individual items for specific vendors.
-??????? The feature “Purchase trade agreements for Planning Optimization” enables master planning to find the vendor and/or lead time for a planned order, based on the best price or lead time that is found among all purchase trade agreements that have been specified for a given product. Note that planning optimization needs to be enabled for this feature to work.
Attribute-based pricing - Is related to the chemical industry and formula production where the price is adjusted according to the potency of some components, or if the price needs to be adjusted depending on the values of batch attributes.
The trade agreement is good to have multiple vendors and chosen the one which fits best according to lead time and price. Therefore, the relationship is not based on a predefined preferred vendor, but the vendor is selected based on upfront information for the vendor. This makes the relationship more formalized than the RFQ process where price shall be provided for a specific order line every time.
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Request for quotation (RFQ)
The RFQ process is where different vendors are selected to give a bid on a single or multiple items the company needs to purchase. The vendor can gain access to D365FO through the vendor portal and reply to an RFQ forwarded to that vendor. This relationship is characterized by being an open bid where vendors shall give their best price within the required delivery date and no agreements are made upfront. However, the RFQ process can be used to generate a purchase agreement if the purchase type on the RFQ is set to “Purchase agreement”. The RFQ can also be turned into a purchase order when accepted if the purchase type “Purchase order” is chosen. The last option is “Purchase requisition” and it cannot be selected manually but is preselected if the RFQ is created from a purchase requisition.?
To help selecting a vendor for the RFQ “Scoring criteria’s” can be created and are added to the RFQ through the “Solicitation type” and the solicitation type is selected when creating the RFQ. Nevertheless, it can be defaulted from “Procurement and sourcing parameters” together with other parameters.
It is possible to add “Bidding guidance items” to the “Solicitation type”, which is used as a Unique ID for the record in the database if needed.
The scoring criteria is a range of values, where a score is added depending on the performance of the vendors e.g., the vendor cannot provide all the items.
By clicking “Manage replies” and going to the “Bid scoring” fast tab, it will be possible to add a score to the individual vendor reply for comparison.
When clicking “Compare replies” the score will be shown across the vendors and the RFQ can be accepted.
Here the reply can be accepted, returned or rejected.
It is important to state that vendors must be added to the RFQ before it can be sent to vendors. This can be done manually or by copying vendors from the procurement category by pressing “Auto-add vendors” on the “Vendor” fast tab. ?
If the reply on the RFQ is not imported through an EDI integration the vendor collaboration with external vendors can be configured. Where the vendor has access to the D365FO application and can type replies in the “Vendor bidding” workspace.
This is also here where the manager can enter a reply if the “Bid type” is “Open” and not “Sealed”.
For setting up the vendor collaboration a user must be created for the vendor with the Vendor admin (external),?or?Vendor (external) associated to the user. Where the security role is configured as an “External role” with the “Party role” set to vendor. ?A workflow can be enabled to manage the request for a new user for vendor collaboration if needed.
The user wanting access shall be added as a contact for the vendor and the contact shall be active and enabled for “Vendor collaboration access allowed.”
If changes are made to an RFQ after it has been forwarded to the vendor, the “Create” function under the “Amendment” section can be used.
There are other areas of the RFQ process, which are not covered in this article. The main point concerning the relationship is that there is no agreement assigned upfront for the RFQ process and therefore it is more agile than the trade agreements and purchase agreements. The relationship can be combined with the vendor collaboration portal and the vendors can be added to the procurement category for auto adding to the RFQ, which in my opinion formalizes the relationship a bit more than a simple purchase order for a selected vendor. But it is still less formalized than intercompany and the two agreement types.
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Want to read more about features that can help to create supply chain resilience then read these articles:
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1 年Thanks for sharing