IBEST

End User Manual

Price Variance

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SCENARIO

Due to variation of basic price of raw material (constituent material) in Electrical Industry prices of finished product
changes from the period of tendering to the date of delivery.
For Example:
"Isolator and Insulators" - Price of Isolator and Insulator depends on prices of its BASE MATERIALS like "Copper,
Aluminum, Steel"
Because of the time lag between Tendering and Actual Date of Delivery, Price of "Isolator and Insulator" Changes
from the time of Tendering to the Actual Date of Delivery.
Prices of “Isolator with Insulators” at the time of tendering is Rs.1000/-. However, on the date of delivery it
is Rs.1100/- due to fluctuation in raw material prices. - not feasible for supplier.
(Supplier is the loser - may back out)
Prices of "Isolator with Insulators" at the time of tendering is Rs.1000/-. However, on the date of delivery it
is Rs.900/- due to fluctuation in raw material prices. - not feasible for customer.
(Customer is the loser - may back out)
"Price Variation" provides Business solution to the above-mentioned issue:
Tener has a "BASE DATE". Supplier quotes Tender Price for Products based on the price of raw materials on "BASE
DATE".
Price Variation due to the change in prices of raw material from "BASE DATE" to the "DELIVERY DATE" is calculated.
Customer Pays to/ Recovers from the supplier.
For Example:
Let Tender BASE DATE be 01012018. Let Price quoted by supplier for "Isolator and Insulator" be Rs.1000/- and
DELIVERY DATE be 01062018
Calculate Price of "Isolator and Insulator" on the basis change in of Raw material prices (say Copper/ Aluminum/
Steel) from 01012018 to 01062018.
If prices on delivery date works out to Rs.1100, Customer would pay Rs.100/- (1100/-1000/-) to supplier as
Price Variance (Over and above Contract price of Rs.1000/)
If prices on delivery date works out to Rs.900/-, Customer would recover Rs.100/- (1000/-900/) from
supplier as Price Variance from the Contracted price of Rs.1000/.
Advantages of Price Variation Clause:
- It's a WIN-WIN Business Solution.
- Making Bidding and Long-term contract feasible.

PV AT MPPTCL

At MPPTCL IEEMA Price Variation Clauses (PVC) are used in settling claims between purchaser and supplier for
variation in the basic price of raw materials (& other parameters like Price index etc.) from the period of tendering
till the date of delivery.
IEEMA Price Variation Clauses provide following details.
1. Formulae for calculating Price Variance.
2. Method for deriving BASE DATE and DELIVERY DATE for each pricing component.
3. Indices (Rates/ Prices) of raw material

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Example:
Isolators and Insulators
1. Formulae for calculating PV = P – P0

2. Method for deriving BASE DATE and DELIVERY DATE for each pricing element.
BASE DATE

DELIVERY DATE

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3. Indices (Rates/ Prices) of raw material

Raw Material(s) Base Date Indices Delivery Date Indices

(B) (D)
General
Iron and Steel 30,000.00 31000
Electolytic Copper Wire 60,000.00 55000
Bus Bar Grade Aluminum 10,000.00 12000
Epoxy Resin CT-5900 12,000.00 15000
Consumer Price Index number 200 200
4. Calculation of PV
Pricing Element(s) Weightage Base Date Indices (B) Delivery Date Price factor
Indices (D) (D/B)*W
General 25 25
Iron and Steel 17 30,000.00 31000 17.57
Electolytic Copper Wire 18 60,000.00 55000 16.50
Bus Bar Grade Aluminum 10 10,000.00 12000 12.00
Epoxy Resin CT-5900 13 12,000.00 15000 16.25
Consumer Price Index number 17 200 200 17.00
SUM 104.32

Let P0 = 213400.00
P = P0/ 100 (Price Variance Factor)

Price Variance Factor =

P = P0/ 100 (104.32)

= 213400/100 (104.32)
= 222618.88
PV = P – P0
= 222618.88 -213400
= 9218.88

SAP MAPPING

1) Maintain PV Indicator in the Material Master

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2) Create Material Master for all Indices

Let 1000045 be the material code for “Isolators and Insulators”

3) Maintaining Formulae:
PV formulae here is =

The formulae is mapped as BOM through CS01 as under.

BOM Usage “Z” for ratio calculations (Multiplication/ Division)
BOM Usage “Y” for Addition or Subtraction
BOM “Z” for the above case is…

BOM “Y” for the above case is….

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Maintain BOM “Z”

Go to CS01

Maintain components and their weightage.

Tick Assembly for material 1000045 for which BOM is being created.

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Maintain BOM “Y”

Maintain assembly tick and enter qty as “-1” as P0 is to be deducted.

4) Method for deriving BASE DATE and DELIVERY DATE for each pricing element.
3.1) BASE DATE
IMMEA Circular details.

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3.2) DELIVERY DATE

IMMEA Circular Details

SAP MAPPING

Run TCODE: ZMM_PV_IEEMA_CLAUSE

Maintain BASE Date and DELIVERY Date derivation rule.
For example:
IS (7000001)…. BASE Date is 1st Saturday 3 month prior to the month of tender date.
IS (7000001)…. Delivery Date is 1st Saturday 4 months prior to the month of delivery date.

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5. Maintain (Rates/ Prices) for the indices:

Go to MEK1
Condition type MP01

Maintain price for period. In the example give below we maintained Iron and Steel prices as 31000 on
02.12.2017. (In this case Valid from = 02/12/2017: Valid to should be = 31/12/9999)

Likewise maintain all the rates.

6. PV is calculated in DI.
7. ZMM_PV_REPORT gives PV calculation for a material for BASE DATE, DELIVERY DATE.
Example:
For the above case go to ZMM_PV_REPORT

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8. Special Scenario:
1) PV Minimum Percentage: PV is applicable if calculated to greater then the “PV Min Percentage”. At
MPPTCL PV Min Percentage = 1% meaning if PV amount is < +/- 1% of the value of the goods, PV would
be Zero.
2) PV for Advance Payment: If Advance Payment is 10% , …
PV Amount is positive, 90% of PV would be considered at final PV Amount.
PV Amount is negative, no impact of Advance Payment.
PO need to have Advance Payment % maintained for the purpose.
3) Freight Inclusive Price: IF the price is freight inclusive, 2% fright is reduce the BASE PRICE of the PV
Material.

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For the purpose maintain ZFR2 as 2% in the pricing Condition of the PO line item.

4) PV in case of late delivery: Non-Turnkey

IF the Inspection offer date is after the Last date of the Contract Schedule date, PV lowest of the three
will be applied i.e.
PV to be calculated with delivery date = Inspection offer date ……………………1)

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PV to be calculated with delivery date = Contract Schedule last date ………………….2)

PV to be calculated with delivery date = Actual Delivery date………………….…………..3)
Lowest of 1 or 2 or 3 will apply.
5) PV in case of late delivery: Turnkey
If Material is offered for inspection after the Project completion date, lowest of the Inspection offer,
Project completion date will be applies i.e.
PV to be calculated with delivery date = Inspection offer date……………………………..1)
PV to be calculated with delivery date = Project completion date…………………………2)
Lowest of 1 or 2 will apply.

End of Manual

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