IS Oil F&A Pricing Introduction

to Configuration
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:

Regular pricing condition type:

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

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.

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.

Normally two sets of date determination will be applied for a formula, provisional and final. This is used in case
you dont 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

Lets 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.

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

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

Before we go into the configuration on F&A pricing, lets 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.

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. Weve 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

ormula & Average Pricing in the Oil & Gas

Industry
F

In case you have noticed my other blogs then you must have already got an idea about the Upstream
& Downstream Industry Process Overview & SAP Solutions in the Oil & Gas Industry.
If you did not get a chance, for Upstream refer: http://scn.sap.com/community/oil-andgas/blog/2015/04/27/upstream-industry-process-overview-sap-solutions
For Downstream refer: http://scn.sap.com/community/oil-andgas/blog/2015/04/28/downstream-industry-process-overview-sap-solutions
We have already discussed about the Downstream Industry Value Chain where you have
noticed that Marketing Accounting & Pricing component plays quite a crucial role while
we talk about Oil & Gas Industry. MAP) component is basically enhanced with many
additional functions such as contract pricing, cumulative contract call off pricing,
customer pricelist, default price lists etc. required for the downstream oil business.

Now lets focus about Pricing portion in the Downstream Industry.

Different Pricing methods and strategies can be followed by the Downstream business to cater
different needs :

Contract Pricing
Cumulative Contract call-off Pricing
Gross & Net Volume Pricing
Formula & Average Pricing etc.
Again from the transfer pricing methods point of view the frequently used pricing
methods are:

Market based pricing

Cost based pricing
Negotiated pricing
Free market prices for both inputs and output
Cost plus margin for value of services rendered etc.
Bidding is done by the Commodity traders for oil futures contract and ultimately they are
responsible for the Oil prices. These kind of contracts are basically agreements to buy or
sell oil at a specific date in the future for an agreed-upon price. For example: External
quotations of Oil prices are provided by Platts, Reuters etc

Lets understand what is Formula & Average Pricing & why it is useful

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.

Next point comes What is the purpose of Formula & Average Pricing

F & A Pricing indicates Formula and Average (F&A) Pricing.

This method of Pricing uses external quotations such as Platts, Reuters, and
others to determine the price of a material.
The purpose of F & A Pricing is to enable the calculation of product prices based
on external quotations over a set time period.
The calculation is performed with company-defined calculation rules. Currency
fluctuations within the time period are taken into account either by daily
conversion or by averaging.
F & A Pricing can be used both on the purchasing (MM) & sales side (SD).

How Business works with the F & A Pricing

Most of the Businesses preferred to use the spreadsheet for price calculation. For
example: It could be average of 1 week quote of Benzene, while complex ones can be
like 0.91Benzend+0.3Ethylene+surcharge then average by one month.
However the spreadsheet method has its portion of drawback:

Time Consuming to find out right spreadsheet, Plugging Numbers, Referring the
Spreadsheet multiple times etc.

Now its time to know about Formula & Average Pricing in SAP

F & A Pricing in SAP is quite recommended in order to address the issues with the
spreadsheet load method:

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.
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.
The process flow for F & A Pricing is as follows:

Define Formulas to be used for F & A Pricing

Define Condition Type for F & A Pricing
Using Pricing Date to Determine the Rule
Using F & A Pricing During Invoicing

SAP Configuration for Formula & Average Pricing

F & A Pricing can be configured from the following IMG Node:

Industry Solution Oil & Gas (Downstream)> Industry Solution Oil & Gas (Downstream)> Formula &
Average Pricing

The prerequisite for the F & A Pricing Configuration will be as follows:

The Group Conditions field should not be activated in customising:

The corresponding condition types (for example, FA00) and the access sequences must be
defined and included in the pricing procedure in Customizing.
The price quotations used by F&A pricing are defined in the quotation table.

We can either use table OICQP provided in SAP Oil & Gas or we can use self-defined tables
for storing the quotation data.

Quotation data can be entered manually in Maintaining Price Quotations, or electronically

by remote connection to a data provider using the External Quotation Interface.

Automatic Pricing for Invoice Verification is important to set: MM Specific Settings

net to be set:In the purchase order, select the item and choose Item Details. In the GR/IR area of
the screen, select GR-based IV(goods receipt-based invoice verification).

In Customizing for the Industry Solution Oil & Gas (Downstream), we define the rules
for copying data from the goods receipt document to the invoice receipt document

This is done by choosing MAP (Marketing, Accounting and Pricing) Formula & Average
Pricing>Define copy rules for invoice receipt.

We can enter data as required by the PrTy(pricing type for invoices) field. The pricing type
for invoices controls how the system carries out repricing during invoice verification.

The settings for controlling invoice verification and price date control based on the goods
receipt can be made in the Info record and the Vendor master data record.

The settings made there are automatically copied to subsequent purchase documents.

To access the info record, choose Environment Info record. In the info record, choose
Goto Purch. Org. data 1(Purchase Organization 1), then make the following settings:

For goods receipt-based invoice verification, select GR-based IV in the Control area of the
screen

For price date control, enter data as required in the Pricing date cat. field in the
Conditions area of the screen

Purchasing Data Vendor:

o
o

On the initial screen of the vendor master record, choose Goto Purchasing org.
data >Purchasing data, then make the following settings:
For goods receipt-based invoice verification, select GR-based inv. verif. in
the Control data area of the screen.
For price date control, enter data as required in the Pricing date cat. field in
the Conditions area of the screen

Differential Invoice:

In the oil industry arrangements are often made with customers to calculate invoices based
on the average price of a product over a certain period of time.

If the product is delivered before the averaging period has elapsed, it is necessary to create
a provisional invoice.

When the averaging period has ended and the final price is known, the pricedifference is
invoiced by creating a differential invoice.

Formula Condition Type

Formula pricing is identified at the condition type configuration in Transaction Code 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.

Regular Pricing Condition Type

Formula Pricing Condition

The difference in the calculation type would affect our screen in VK11. Note a new icon for maintaining
formulas showed up, while scales is no longer an option, nor can we enter a number amount directly for this
condition

record.

After we make an entry for our condition record like what we do with regular conditions, select the line
and click on maintain formula and it will take us to the screen where we can create a new formula.

Note this is the first method of creating a formula. We can also choose a pre created formula repository
in the system.

Transaction Code O317 & O318 can be used in order to create Formula Repository.
Once we give a name for the formula, system take us into the below screen for formula maintenance.
Note we can copy and modify from an existing formula by clicking on the Repository Proposal icon

1757 Views

I am working on a pricing procedure and i have difficulties to understand how quotations and formulas fit in the
pricing procedure.

To get publication averages prices into pricing, you need to have three things in place.

1. Daily/Weekly publication prices prices in OICQP Table

2. Condition record maintenance with or without suitable Formula repository
3. Necessary configuration behind it.

Table OICQP requires configuration of Industry solution O&G -> MAP -> F&A Pricing -> Quotation Source, Type
& Data.

Formula repository is a template and require number ranges config. You can call suitable formula repository
while creating condition record. It helps you to save time, insteading setting many rules each time while creating
condition record, you can setup once in repository and keep calling.

Condition type used for F&A pricing should have Calculation type 'Q'. Condition record is specific to key
combination and link the repository proposal to condition record.

While creating Sales order/Billing, system will consider all rules and prices and returns provisional or final value.
The value in document cannot be changed manually by user. You can see status column with traffic signal, it
tells you, whether the the price is in error or final price or provisional price. You can do analysis by clicking on
Zoom

button.

In evaluation go to 'A' term or 'B' term to find secondary level analysis. If the value is in foreign currency, based
on exchange rate setup, system automatically convert to document currency.

To get publication averages prices into pricing, you need to have three things in place.

1. Daily/Weekly publication prices prices in OICQP Table

2. Condition record maintenance with or without suitable Formula repository
3. Necessary configuration behind it.

Table OICQP requires configuration of Industry solution O&G -> MAP -> F&A Pricing -> Quotation Source, Type
& Data.

Formula repository is a template and require number ranges config. You can call suitable formula repository
while creating condition record. It helps you to save time, insteading setting many rules each time while creating
condition record, you can setup once in repository and keep calling.

Condition type used for F&A pricing should have Calculation type 'Q'. Condition record is specific to key
combination and link the repository proposal to condition record.

While creating Sales order/Billing, system will consider all rules and prices and returns provisional or final value.
The value in document cannot be changed manually by user. You can see status column with traffic signal, it
tells you, whether the the price is in error or final price or provisional price. You can do analysis by clicking on
Zoom

button.

In evaluation go to 'A' term or 'B' term to find secondary level analysis. If the value is in foreign currency, based
on exchange rate setup, system automatically convert to document currency.

Within your pricing procedure you can turn any of your Z/Y condition type as F&A pricing relevant by making the
calculation type as 'Q' commodity pricing (V/06). And voil!! you will see a magical button in front of the condition
type in your document pricing procedure. This button opens the gate to the world of formula and average pricing.
From here onwards you can play around the way it describes in the help.sap.com link provided earlier. Let me
know if you get stuck anywhere.

Formula & Average Pricing

Formula & Average Pricing

Formula and Average pricing is functionality available in SAP IS-Oil.
The prices in Oil industry fluctuates daily. Price quotes for material gets picked up daily based on availability of
quotes by different oil Exchanges (Third party quotation provider). Oil distribution and marketing companies need
to use this price for sales.
SAP IS-Oil provides the functionality of Formula and Average pricing to meet this requirement. Everyday Price
quotes from different oil exchanges like Platts, Opis, Nymex comes to SAP through interface & saved in Standard
or Customized Z table. Each Material is linked to a particular Price quote uniquely in F&A pricing.
The purpose of formula & average pricing is to enable the calculation of product price with the help of external
quotations over a set period of time. The price can be further modified with company defined calculation rule
before it is used. The system also takes into account currency fluctuation within the time period.

Quotations can be specific for a day or can be averaged over a period of time, agreed
between Oil Company and customer.

The averaged time period are set out in pricing and payment term policies.

The handling of weekends and public holidays must be specified within formula.

The quotations can be converted into local currency using an agreed exchange rate type.
There are two ways in which the quotation can be converted into local currency.

Converting the daily quotation using daily exchange rate.

Taking the average of the quotations and converting using an average of exchange rates.
SAP has two sets of rules for defining the averaging period Provisional and final rules.
Provisional Rule This calculation rule is used by SAP when data required like external quotations to perform the
final calculation is not known.
Provisional rules are used at the time of creation of Sales order, where there is a possibility that at the time of
creation of SO, the price quotes are not available. Hence, still the order needs to be saved.
Final Rule Final calculation rule is used to determine the final price of the product.
Final rules are used at the time of creation of Invoice, where in, a re-pricing happens, looking out for all available
prices in the price table, and finally, saving the document.
There are some situations (like external quotations are not posted by third party or Batch jobs which update
tables are failed) when external quotations for required time period are not available in the system. In this
situation final price of material is not known so invoice is created with the help of provisional rule. Once Final
price is available in the system Differential invoice or Credit/Debit note can be raised against original invoice as
per business process.