Did you know that Dynamics 365 for Finance and Operations offers certain pricing advantages to customers? Because not all organizations have enough users to qualify for reduced pricing structures and negotiations, the concept of agreements presents a more competitive market to mid- and small-sized companies. In today’s blog, we’ll explain how to use these agreements to leverage your loyalty and gain a competitive advantage.
When planned correctly, these agreements can positively influence buying power if categorized and combined with either quantity or similar product offerings. In both the Sales and marketing and Procurement and sourcing modules, agreements are offered to maintain a log and track transactions specific to any type of commitments made. And since these are offered on the Sales side and Purchase side, as shown below, you can use them not only for your customer base to potentially gain additional market share, but also for commitments you want to issue with your own suppliers!
Once a new agreement is started, you must select a classification, as shown below. As with other areas within Dynamics 365, these classifications are intended to allow you to group agreements together for reporting and analytics. You can choose whatever classifications you like, but here are a few recommendations:
- For sales, you may want to consider agreements that are divided by consumer size (e.g., Large, Mid-Range, and Small Market). Reporting by margin and understanding where your profits are coming from rather than focusing solely on sales dollars may prove useful for future marketing campaigns.
- For purchases, you may want to classify agreements geographically by splitting North America into quadrants (e.g., West, Central, Northeast, Southeast). These classifications may allow for consolidated transportation and sourcing.
Again, the classifications are limitless by design, to offer flexibility for all users.
After classifying your agreements, the next step is to define validity dates. When defining an Effective date and Expiration date, the agreement and any releases created in conjunction with a specific record are restricted to these dates. Unlike other dates within Dynamics 365, these dates offer a firm period in which purchase orders and sales orders can be issued. This can benefit either party in each transaction by ensuring no offer is extended further than desired.
Next, a Default commitment type must be selected. Each option is defined below, but generally speaking, an agreement needs to differentiate between value (price) and quantity.
- Product quantity commitment – An agreement to buy a specific quantity of products. Lines that use this commitment type are defined by an item number, as well as by the quantity and unit that were agreed on. The Amount field isn’t available.
- Product value commitment – An agreement to buy specific products for a specific amount. Lines that use this commitment type are defined by an item number and by the agreed-upon amount (price). The Quantity and Unit fields aren’t available.
- Product category value commitment – An agreement to buy products from a specific sales category for a specific amount. Lines that use this commitment type are defined by a sales category in the hierarchy of sales categories and by an amount. The Quantity and Unit fields aren’t available.
- Value commitment – An agreement to buy any product in any procurement category for a specific amount. The Quantity and Unit fields aren’t available.
Now that the prerequisites are selected, the lines can be defined as to what item(s), categories, or amounts should be considered against the defined commitment type. Various fields will be available upon selection of these types, but the required definition must be within each line.
In addition, within Line details, added functionality can be used to further control the limits within the agreement. Comparable to the dates, the optional elements below will hinder the flexibility among the value or quantity defined, which is inherent when left excluded.
- Max is enforced – Toggle switch that determines if the total quantity or amount for all order lines can exceed the quantity or amount that is specified on the related commitment.
- Minimum release amount and Maximum release amount – If amounts are specified in these fields, a message is displayed if you make any change to an order line that causes the order line to differ from the related commitment.
- Price and discount is fixed – Toggle switch that determines if the price on an order line and the price on the related commitment can differ. If the price is changed on the order line, the link to the commitment is broken. If the link is broken, the order line doesn’t contribute to fulfillment of the commitment.
- Exclude from rebate – Toggle switch that determines if you can also exclude items from rebate calculations when you specify them in the sales agreement or the sales order. This feature is available for rebates that are based both on a single invoice and on multiple invoices over time.
The fulfillment for each agreement can likewise be viewed within the Line details. Ultimately, this is what drives the Fulfillment Report found within each module’s area page. The report can be filtered by commitment type, item, customer, vendor, etc., but the values reported are intended to provide a quick view into all these values.
With all required inputs entered, the agreement can then be confirmed to formalize into Dynamics 365 and create a journal that can be sent to the other party. This confirmation step is necessary because by default, agreements have a Status of On hold:
After confirming, you’ll have the option to either mark the agreement as effective or leave it On hold. Since approvals may need to be incorporated through workflows, effectivity may come later. However, once active, the agreement can be transacted upon as long as the validity period is current.
To maintain tracking and keep calculations related to the appropriate agreements, each release order must be created directly from the agreement. As released, they are transacted upon almost identically to standard sales and purchase orders, excluding the relationship that is held on the release to the commitment type. The added benefit of linking them occurs when releases are made or updated. The requirements from the agreement are cross-checked against the release order or changes; if they don’t align, an error and hard stop occurs.
Example 1: release order attempting to be made outside of validity dates (note error at top of screen).
Example 2: Quantity change exceeds max of agreement (note dialog box).
In summary, agreements offer additional functionality for many users, customers, and vendors alike. Loyalty can be leveraged for smaller organizations with minimal spends, larger corporations with limited buys, and a variety of others. Don’t let size or breadth define your buying power. Influence your pricing and control your destiny!
Happy Dynamics 365’ing!