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📽️ Check out a video demonstration for this use case, here.

Use Case Situation Description

User Roles:

Pricing or Product Manager or Pricing Analyst

Business Objective:

Contract pricing is utilized to lock-in a margin % by using a formula that tracks the changes of product cost or market price against a fixed margin base. This eliminates risk and volatility for the chemicals manufacturer because the price will increase and decrease with the periodic changes in cost and market pricing. Automating this process eliminates human errors and time-consuming manual processes. New contract pricing is automatically generated per the contract triggers (e.g. change in raw materials, market index, or other costs).

• Pricing formula library needs to be created / maintained

• Variations in formula calculation are often requested by customers or product managers

• New contract pricing occurs frequently (daily/weekly/monthly) per contract terms

• 3rd party reference data needs to be updated (daily/weekly/monthly)

• Calculating and communicating updated pricing is time-consuming and error-prone

• Companies can have 100’s to 1,000’s of contracts needing frequent updates based on updated market, cost, cost to serve, and related variable elements

• Flexible contract pricing templates - one formula model can address many customers

• Real-time pricing updates based on new input triggers and recalculation logic

• Connection to 3rd party market, cost, and cost-to-serve data

• Impact modeling based on updated data, forecasts, and other scenario modeling

• Connection to ERP or other system to publish/execute updated customer contract pricing

• Increase efficiency faster contract pricing creation, re-negotiation process, and regular customer pricing updates via automation and process simplification

• Increased margin with contextual decision support and profitability forecast modeling

• Reduced margin compression with reduction in manual errors and timely pricing updates

• Margin inputs recency: days/$ of lost margin due to old/incorrect pricing inputs

• Efficiency and error reduction: cost of manual errors, process costs

• Margin input recency = average monthly cost increase * days pricing out of sync

• Labor savings & error reduction = hrs./mo. contract calculations * analyst rate

Prescriptive Design Requirements

Functional Requirements

For this use case, the functional requirements are:

• Ability to configure the agreement with a customer or group of customers.

• Ability to select a product or group of products.

• Ability to select the agreement start-date and agreement end-date.

• Ability to select an agreement currency.

• Ability to route the draft agreement through a pre-defined approval workflow.

• Ability to override calculated prices.

• Ability to route recalculated or overridden prices into an approval workflow.

• Ability to use a standard template to guide the user through configuring the complex formula per product or group of products.

  • Ability to activate or de-activate.

  • Ability to select a product or group of products based on the agreement product scope.

  • Ability to configure parameters to be used as an input to calculate product(s) prices. E.g.

    • Base Adder

    • Price Swing Guardrail (Upper, Lower)

    • Price record decimal precision (e.g., 4 Decimals)

    • Adders: Ability to include multiple adders (Up to 3 Adders)

    • Pricing UoM (Lbs., KG)

    • Price Calculation Frequency (Weekly, Monthly, Quarterly)

    • No. of periods (1, 2, 3, 4)

    • Lag (0, 1, 2)

    • Period offset (+1 Month, - 1 Month)

    • Index Value (Value of, Average of, Minimum of, Maximum of)

    • Select the relevant index from a pre-configured list of approved indexes

  • Following table illustrates the prescribed calculation scenarios:

• Ability to configure the table above at the product level or at the raw material level

  • Select the mix of raw material(s) related to the selected product.

  • Add the associated contribution weight per raw material type.

  • Determine the decimal precision per raw material.

  • Ability to select the relevant index from a pre-configured list of approved indexes.

• Price Calculation:

  • New Price = Calculated Formula Price

Non-Functional Requirements

For this use case, the non-functional requirements are:

• Automatically recalculate prices based on the Calculation Period and the contract start date.

• Store approved prices in a Price Records table

The following are the primary KPIs for this use case:

• Forecast Annualized Revenue: Next 12 month by month estimated revenue simulating the expected monthly unit price (i.e., based on the expected raw material future cost and the forecasted index value) * the forecast monthly volume (Note, the expected monthly volume is a data input by the customer’s demand planning function)

• Historical Annualized Revenue: the sum of all trailing 12 months of revenue

• Annualized Revenue Change: the difference between the Forecast Annualized Revenue minus the Historical Annualized Revenue.

• Forecast Annualized Margin: the sum of the next 12 month by month estimated margin. The month-by-month expected margin is calculated by the difference between the monthly forecast revenue minus the month forecast raw material cost.

• Historical Annualized Margin: the sum of all trailing 12 months of margin.

• Annualized Margin Change: the difference between the Forecast Annualized Margin minus the Historical Annualized Margin.

• Forecast Annualized Volume: the sum of the future 12 months of volume estimated by the customer’s demand planning function.

• Historical Annualized Volume: the sum of the trailing 12 months of volume

• Annualized Volume Change: the difference between the Forecast Annualized Volume minus the Historical Annualized Volume.

These requirements for reporting and dashboards are NOT included in the baseline estimate.

• Descriptive Analytics displayed within the agreement header and item objects:

  • Ability to illustrate historical monthly trend of the customer’s purchased volume, the actual Raw Material Cost, and the actual unit price per UoM.

  • Ability to illustrate the historical Volume vs. Profitability trend analysis.

  • Ability to analyze the agreement performance by illustrating the relationship trend among Revenue, Cost and Margin

User Stories

User Story Name - Store Historical Prices

I want to: Store prices in a price history table with Pricefx

so I can: Use it as the source throughout the downstream processes

Acceptance Criteria:

Prices will be stored in Pricefx Data Source to allow for growth and scalability.

Prices will be stored for up to 2yrs. Pricefx will configure a cleaning task to remove prices beyond 2 yrs. Cleaning Task will run on the weekend.

Price History table will include similar key and attributes in the LPG

User Story Name - Extract new Price Records

I want to: Extract new price records from the Historical Price Record table

so I can: Use it use to trigger processes in downstream applications

Acceptance Criteria:

Prices will be exported using a CSV file placed on an agreed on Pfx SFTP folder.

Prices will configure a backend task to run on a nightly basis in order to scan the price record history table for new prices and export them on a single CSV file.

CSV file will include per line the Customer ID, Product Code, New Price, Effective Start Date, Valid-to date (agreement end date)

Customer will have to configure a task to remove the newly placed outbound files from the SFTP folder into another folder.

As a Pricing Manager/Pricing Administrator, I want to use an interface to see all formula-based price records at the Product Code / Customer ID level, so I can effectively manage and administer the price updates and ensure prices are calculated and communicated to the customer based on the agreed-on contract terms.

User Story Name - Agreement Conditions

I want to: Be able to store all agreements conditions a data source

so I can: Use it as inputs to or trigger to the automatic price calculation process

Acceptance Criteria: N/A

User Story Name - Price records Key

I want to: See prices at the Product ID / Customer Level in a single interface

so I can: Leverage Pricefx out-of-the-box capabilities to efficiently interact with those prices

Acceptance Criteria:

Leverage the out-of-the-box capabilities of Pricefx Live Price Grid

The LPG primary keys are Product Code / Customer ID

LPG should automatically include new price records once a new Formula-based agreement is created.

The LPG should automatically remove price records for expired or deleted agreement

User Story Name - Price Records Product and Customer Attributes

I want to: See the key product and customer attributes that describe the price record

so I can: Use it to interact with the price records

Acceptance Criteria:

Product Description and (up to 3 Product attributes)

Customer Name and (up to 3 Customer attributes)

Formula related attributes (up to 3 Formula attributes)

User Story Name - Price Records Formula Attributes

I want to: See the key formula parameters

so I can: Use it to interact with the price records and understand the variables that influence the new prices

Acceptance Criteria:

Index Type, and Index Value

Index Aggregation Method

Periodicity

Lag and offset parameters

Lower and Upper Price Swing Guardrails

User Story Name - Price Records

I want to: See the current price and the effective stat date along with the prior price and the prior effective start date

so I can: Understand the difference between the old and the new prices

Acceptance Criteria:

Current Price

Current Price Effective Start Date

Prior Price

Prior Price Effective Start Date

User Story Name -Automatic Price Calculation

I want to: Automatically trigger the price calculation based on the predefined triggers in the formula contract

so I can: Ensure that prices are calculated on a timely manner based on the agreed on contract with the customer and reduce any delay.

Acceptance Criteria:

Price calculation to be triggered automatically based on an event-based task that will run nightly to determine if any price record should be updated.

Price to be calculated based on pre-defined rules.

Price will be automatically approved

As a Sales Rep/Pricing Manager, I want to use an interface that can be used to set up the formula contract parameters, negotiate the parameters with the customer, and approve the formula agreement. Once approved, the parameters will be used as triggers and input to calculate the next period price.

User Story Name - Agreement Header

I want to: Use an interface that allows me to capture the header level of the formula agreements

so I can: Ensure that the first step of the formula agreement is defined appropriately, and become the source and an input to the follow up step (i.e., Step 2: Items)

Acceptance Criteria:

Pricefx will use the header object of the Agreements and Promotions Module as the interface.

Header Inputs:

Start Date

End Date: This field will be set to 12/31/3999 as a default.

Customer(s): provide access to the customer master and ability to select a single customer or multiple customers. User can choose the advanced filter feature to select customers.

Product(s): provide access to the product master and ability to select a single customer or multiple customers. User can choose the advanced filter feature to select customers.

Agreement Currency: Drop down menu to choose a currency

User Story Name - Exchange Rate table

I want to: Load the currency conversion data into Pricefx Currency Conversion table

so I can: Use it as an input to the next period price calculation

Acceptance Criteria:

Data to be loaded in Pricefx Data Source table either manually through Pricefx Excel Client, or automatically integrated via using CSV file placed on a Pricefx dedicated SFTP folder on a pre-agreed frequency.

Must have column definition: From Currency, To Currency, Periodicity, Values. (Up to 10 customer’s selected fields)

User Story Name - Agreement Header – Price Calculation Date

I want to: Set up the agreed-on price update date

so I can: Ensure price calculation is triggered to calculate the new prices as of that date and set the new price effective start date is calculated based on the calculation date.

Acceptance Criteria:

Price calculation frequency selection: a drop down menu that will have the following options:

will always be trigger on the 1st day of the month,

-1st of the quarter,

-1st day of the week

User Story Name - Agreement Item – Active Status

User Story Name - Agreement Item – Final Price Decimal Precision

I want to: Define the decimal precision for final calculated price

so I can: Set it up based on the agreement with the customer

Acceptance Criteria:

Prices in Pfx appear in accordance with the decimal precision rule.

Rounding will be applied to only the final calculated price.

No rounding will be applied to the intermediary calculations required to produce the final price, such as UoM conversion step, currency conversion step, or any intermediate addition or multiplication operation

User Story Name - Agreement Item – Price Swing Guardrails

I want to: Set a Lower and Upper price swing limits  

so I can: Ensure that new calculated prices can be only effective if the price swing amount exceeds the pre-determined guardrails

Acceptance Criteria:

Price Swing Guardrails are set as an absolute value rather than %

Price Swing Guardrails are set  on formula level

Example: If “Lower Limit”  <= P2-P1 <= “Upper Limit”  then P2 = P1, else, P2-P1 > Upper Limit or P2 – P1 < Lower Limit then P2 = P1 + Price Swing

User Story Name - Agreement Item – Periodicity

I want to: Determine the price calculation frequency

so I can: Use it as:

Set up the agreed-on frequency with the customer.

Trigger to automatically recalculate the price

Acceptance Criteria:

Annually, Semi-Annually, Quarterly, Monthly, Weekly

User Story Name - Agreement item – Index Value

I want to: Assign an aggregation method to the index value

so I can: Use it to determine the estimated value of the index based on the agreed-on method of calculation

Acceptance Criteria:

Average of, Minimum of, Maximum of, Value of.

User Story Name - Agreement Item – Lag/offset rules

I want to: Define the time-period (Start/End time) that will be considered to calculate the index value

so I can: Identify in the contract what index period to use and how frequently to adjust prices

Acceptance Criteria:

Please refer to Table-1 above for example of Lag and offset

Lag and offset can be applied at the product code level or at a raw material level

User Story Name - Agreement Item – Adders

I want to: Be able to apply adders to the new contract pricing

so I can: Add or subtract to the base price either permanently or temporarily for a period of time (i.e. Jan-Feb only - then it reverts back to the normal base price).

Acceptance Criteria:

(Up to 3 Adders)

Adders are considered a manual entry. (Not pulling from a parameter table of from a data source)

Adders will be added to the new calculated prices.

User Story Name - Agreement Item – Pricing Raw Material

I want to: Be able to configure raw material(s) and the associated weight

so I can: Use it as input in the new price calculation

Acceptance Criteria:

Once selecting the Product Code, allow the user to determine the raw material that will be used to make up the product along with the associated weights.

It is no necessary that the weights should add up to 100%

Ability to map the raw material to an index.

-Example: Product Code = X

Raw Material 1 = Ammonia

-Index 1 = Ammonia IHS Index

-Weight = 75%

Raw Material 2 = Natural Gas

-Index 2 = NYMAX NG Index

-Weight = 50%

User Story Name - Agreement – Approval Workflow

I want to: Be able to submit the agreement for approval

so I can: To ensure agreement conditions are accepted by the required level of authority

Acceptance Criteria:

One level of approval (Pricing Manager or Sales Rep à Product Manager)

Approval logic based on metrics from the current agreement on either header or item level

As a Sales Rep/Pricing Manager/Pricing Administrator, I want to load several data tables into Pricefx tables, so I can use it through out the formula contract configuration, and for the next period price calculation.

User Story Name - Index data table

I want to: Load the index data into Pricefx Index table

so I can: Use it as an input to the next period price calculation

Acceptance Criteria:

Data to be loaded in Pricefx Data Source table either manually through Pricefx Excel Client, or automatically integrated via using CSV file placed on a Pricefx dedicated SFTP folder on a pre-agreed frequency.

Must have column definition: Index Source, Periodicity, Values, UoM, UoM conversion factor. (Up to 10 customer’s selected fields)

User Story Name - Exchange Rate table

I want to: Load the currency conversion data into Pricefx Currency Conversion table

so I can: Use it as an input to the next period price calculation

Acceptance Criteria:

Data to be loaded in Pricefx Data Source table either manually through Pricefx Excel Client, or automatically integrated via using CSV file placed on a Pricefx dedicated SFTP folder on a pre-agreed frequency.

Must have column definition: From Currency, To Currency, Periodicity, Values. (Up to 10 customer’s selected fields)

Data Requirements

Out-of-Scope

Solution Design

Identify the input data required for this use case, review data requirements here. An important consideration would be the role of the Data Readiness Methodology for managing input data.

The design and the implementation of the Complex Formula builder is going utilize the suite of features and out-of-the-box capabilities of Pricefx that Agreements & Promotions Module. This module will be the frontline interface that will be leveraged by either the Sales Representative or in some cases will be utilized by the Pricing Manager in collaboration with the Sales Rep for the purpose of:

• Streamlining the negotiation process with the end customer

• Capturing the agreed-on contract parameters

• Approving and producing a customer facing PDF document for the purpose of communicating the approved agreement with the end customer.

The Agreements & Promotion object within the Agreements & Promotions Module consists of 5 sub-objects, the chart below depict the prescribed process with Pricefx Agreements & Promotions module:

Header

The user interface that will allow the user (Sales Rep, Pricing Manager) to select agreement scope a) Customer(s), b) Product(s), c) Agreement Start and End Dates, d) Agreement Currency. And provide the user with access to descriptive analytics that KPI’s based on the agreement scope.  

The user interface that will allow the user (Sales Rep, Pricing Manager) to configure and build the component of the customer formula by product or group of produces. The below features illustrate the prescriptive solution within the Items tab:

• Active: (Yes/No): On/Off Switch to engage or disengage the formula calculation

• Product(s): Allows the user to select products from the agreement product scope.

• Product Rules: Allows the user to configure the Base Adder, Base Lower and Base Upper Bounds, and the number of precision decimals for the price. The image below illustrates how those parameters will be configured within Pfx.

• Formula Configuration: Formula configuration is managed by its own guided workflow that is embedded within the Items tab and after the selection of the product(s). it allows the user to map an index to a product(s), and set up the periodicity, the # of periods, the lag, and the offset parameters. (Illustrated in Table-1 above).

The configuration of the formula can be applied at the raw materials level (one level below the Product Code).

Solution Design Process

The use case focuses on automating contract pricing calculations to provide insights and track changes in product cost or market price against fixed margin base. Our solution aims to eliminate human errors and reduce time-consuming manual processes. In the business scenario, as a Pricing Analyst/Manager, you're required to review current contract pricing results, make adjustments, and recalculate the contract. This involves reviewing calculations and conditions tables, the workflow for the approval process, and the customer insights dashboard. Using complex formulas for specific pricing results is central to this process thus showing the need for accuracy and efficiency in contract management.

The first step for this Use Case is to review current contracts’ status and performance to identify those contracts that are close to expiration and need to be renewed. For this step we will use the Chemical Contracts Renewal Dashboard as our Analytics capability.

Login to Pricefx

1. Type your username, partition,and password.  Click the Login button.

2. Once you are logged into the Pricefx, click on the corner-dots icon to open the main menu.

1. Click on the Dashboards option in the main menu. You will see then a blank dropdown for selecting the Dashboards. If you click on the Dashboard dropdown, you will see a variety of the prebuilt dashboards that are included by default into Pricefx Chemical Industry Package. The learning partition includes demo data. In the normal scenario to use these dashboards you will need to have Product Master, Customer Master and Transaction data loaded into the Pricefx.

2. Select the Chemicals Contract Renewal Dashboard option from the list.

The window on the left allows you to filter Contract Renewal information. The fields are automatically filled, but you can make changes using the browser and calendar icons. After making changes, click the Apply Settings icon at the bottom.

3. In the Contracts Performance table, you will notice the column Days to Expire values (display may vary). Here you can identify the contracts that are closer to renewal and may need some price changes for better profitability. You can compare the Contracts’ Performance previous results with the Approved Contracts table results.

   

Under the Contract Performance table, you can click on the contract number to open the Contracts window in a different browser page automatically.

These steps are useful to identify contracts opportunities for pricing improvements. You can use the Dashboard contract links to open the contract directly or follow the next steps to search/look for a specific contract under Agreements & Promotions.

The second step is to review the current contract prices to identify opportunities and make changes for a better profitability. For this step we will use the Agreements and Promotions capability.

1. Using the main menu, locate the Agreements and Promotions path, like this: → Agreements and Promotions → Agreements and Promotions.

2. Under the main Contracts window, use the Name search field column to locate the contract number you are looking for. In this example we are using C-272

3. Select the contract by using the checkbox. Notice at the bottom some additional action icons are displayed, click on the Duplicate icon to recreate a new contract to work on the price changes.  

You will get a confirmation message at the top of the window. Now you can locate and click on the new duplicated contract.

You must change the name of the contract to easily identify it. Click on the pencil icon.

After you clicked on the pencil icon to rename your contract, provide a name for your contract and click on the OK blue icon.

Under the Header tab, notice the validity period is the same as the original contract. Using the Calendar icons you can change the validity of this new contract. Extend the contract validity for the current year.

You can change the Input Parameters of your contract by adding customers and products at a Header level.

On the right side of the window the Calculations results at a Header level. These results come from the original contract. The blue Show hyperlinks allow to review additional historical information in graphical charts.

You can select the condition by clicking on the checkbox to display more details per item level which you can see under the Items tab where the contract conditions are listed.

The blue Show and Open hyperlinks display/enter additional information related to the selected condition. When an item is selected, additional action icons appear at the bottom to maintain the records.

When making your changes, you can use different Base values as you have noticed int he previous step. When the conditions have the Include Scales box checked, you can open the listing by checking the Expand icon.

To add values, click then on the Base Adder column.

To select another product and enter additional scales, click on Duplicate Records icon at the end of the row. Here you will have to enter Targets and Base Adder values. To save the changes, click Apply and close the dialog box.

This can be helpful in understanding how the condition calculation works, should you need to adjust it.

To review the formula, click the Open box under the Formula Configuration.

This is what you will see:

You can now use the dropdown to add another Formula Element into the calculation. If, for instance, you choose Index value, this will appear automatically and changes will be added to the formula.

You can change the Calculation Period to take advantage of price changes as frequently as you may need them. The dropdown menu will display an array of options from monthly to quarterly to rolling 3 months etc.

You can continue and use the Index option to elect appropriate indexes. Note that the system will display a warning message when Contribution percentage values are required.

To resolve this error, enter your selected value in the Raw Material Contribution % field and in Index Contribution %. Save changes by clicking Confirm Changes at the bottom.

To add extra currencies, use the Calculation Output Types section. Click the Expand icon and using the Currency dropdown, select an option from the listing.

You can use the dropdown also to select Unit of Measure from the list. Click on Apply blue icon at the bottom of the dialog box to save changes.

To manage surcharges, scroll down and open the Surcharge dropdown list. Here you can select the item you want and enter a value in the Surcharge Amount field.

To review previous calculations, click on the Calculations tab → Show. This will display more details to make sure you have all the information before recalculating your changes.

To recalculate changes, after you have completed all the adjustments for the existing condition, you can click on the Recalculate box to apply.

The system will display a warning notification that products must be selected at Header level as well.

To do this, click on the Header tab and under Input Parameters, click on the viewing icon for Products.

Now you can filter the main Product Master list using your dedicated industry. In our example we use Chemicals. Click the checkboxes to select the products you have previously selected for the Items conditions, then click the Select Items blue box at the bottom.

Now the system will display the selected products at Header level.

Click on Recalculate once more to successfully process the calculation. A confirmation message will displayed by the system to notify you that the calculation has been successfully processed.

You can upload additional files to your contract by using the Upload button under Attachments tab. The button is located in the top right corner of the dialog window.

You can also communicate contract-related information with other users allocated to the particular contract, simply by opening the dropdown and selecting the user you want, then type your message and click on the arrow to send it.

The system will display the message in the window with date and time for tracking purposes. The recipient will receive an email to review the contract and answer the message. The user can also reply directly under the Message tab using the Reply button.

After completing the previous steps, your current status for the contract will be Draft.

The system displays workflows available to complete the approval process. As soon as you click on the Submit icon, the approval process starts.

You can now submit the contract for approval. To do so, click the Submit button at the top-right corner of the window. Follow the notifications and submission steps as recommended by the system to complete the approval.

Identify and Review Required Company Parameters

Identify Required Data Sources and Datamarts