What is Advanced Pricing?
Advanced Pricing is a way to acquire more detailed price information when pricing depends on specific factors. When advanced pricing is set up, suppliers' bids may include multiple prices for the same item, depending on the factors defined by the buyer. There are two types of advanced pricing:
- Tiered Pricing - used when price depends on purchasing volume
- Matrix Pricing - used when price depends on a factor other than quantity, such as delivery date, or geographical location These 2 Pricing structures provide a natural way for suppliers to express their pricing terms to buyers for complex sourcing events, allowing for different prices based on volume discounts and attributes.
For either of these types of advanced pricing, suppliers are asked to respond with multiple prices for each line item corresponding to different requirements or conditions. Advanced Pricing is supported in the RFX types that collect pricing information, RFP, RFQ and Negotiation.
To allow advanced pricing in a template, use the Advanced Pricing parameters on the Rules - Bidding page. Please note that you cannot use the Bundling feature in any RFX which uses Tiered or Matrix Pricing. Also, ensure that you have added items to your RFX before defining your tiered or matrix pricing structures. Tiered and Matrix pricing can only be used with parallel closings!
|Matrix Pricing is a type of advanced pricing used when price depends on a factor other than quantity, such as delivery date or geographical location.|
Choices... Choices... Choices!
The choice to import or localize supply is one that requires ongoing analysis and a willingness to adjust to emerging realities in the market. Not every commodity or service is suited for the long distance buy. It is critical to understand the geographical drivers of your spend and the dynamic nature of international sourcing during the sourcing market assessment process.*
- Currency (particularly in weak currency countries).
- High duties, tariffs and import taxes.
- Service benefits (time, cash flow, flexibility).
- Geographic or logistical barriers (port infrastructure, mountain ranges).
- Low cost local sources (technology, labor).
- Well developed local industries with competition.
- Local content laws or, in the U.S., Minority and Women Owned Businesses.
The next step for consideration may be regional sourcing, which implies the casting of a wider sourcing net (a number of geographically proximate countries – or states domestically) and the existence of several using locations across a broader geographical area.*
A series of factors can drive toward regional sourcing:
- Regional leveraging opportunities (negotiating power of greater volume).
- Relatively easy and timely cross-border shipping (geographically and infrastructure).
- Regional trading agreements – low/declining duties, low freight.
- Suppliers capable of exporting (operationally and administratively).
- Technology only available Regionally, not in every country.
- Local supply monopolies that require outside competition.
- Relatively equal currency value between countries.
*Excerpts taken from 89th Annual International Supply Management Conference: Deciding Where to Source – Local, National, Regional, or Global
Next: Ariba Sourcing - Advanced Pricing Events, Matrix Pricing Events
Beverly Dunn is a Customer Success Manager with Ariba. All customers are invited to join the private Customer Success group on Ariba Exchange, where you can access the Customer Success Spotlights, Lunch 'n Learn Webinar calendar and replays, and the Ariba Knowledge Nuggets.