Supply chain | Supply Chain Management, Commerce

Purchase Agreement Vs. Trade Agreements

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Posted on by King710

What are the benefits of a "Trade Agreement" for Purchasing and "Purchase Agreements". We usually like to cut blanket Purchase Orders with a vendor then dial it in later.

Can a Trade Agreement price funnel into a Purchase agreement?

If you have a Trade Agreement and a Purchase Agreement for an item with a specific vendor which price takes precedence ?

Thank you!

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They are 2 separate forms and they both represent a discount, but they are not related in as much as you do not turn a trade agreement into a purchase agreement.

Trade agreement - represents a discounted price or a discount percent for one vendor, a group of vendors, or all vendors for one item, a group of items, or all items. It also can involve volume pricing/discounts, that is, you buy 1-10 items at one price, 11-20 at another, etc.

The trade agreement is "usually" for a specific time frame, sometimes very short term but it can also be for a longer term

The trade agreement is also how you would have different prices for different product variants. For example, you buy 1/2" pipe at one price, and 3/4 inch pipe at another price

The trade agreement prices automatically populate the purchase order, you do not have to do anything.

The purchase agreement is like a contract. It involves a specific discount/price over a longer period of time - a calendar year for example - in which if you agree to buy a certain quantity/dollar amount of an item or items to receive that discount. The agreement is with one vendor only.

the system has no enforcement mechanism if you do not buy the quantity or dollar amount of the items. Let's say you agree to spend $50K on a group of items to receive a 5% discount; there is nothing in the system that allows the price to revert to the standard price if you don't meet the commitment.

Also, in order to receive that discount, you have to, when creating the purchase order, cite the agreement or the discount/price will not apply. And what makes this extra tricky, if you create the PO and then try to apply the purchase agreement, you cannot do it. You would need to delete that one and create another. The only place to use the agreement is on the new purchase order dialog box.

As to your final question, if both a trade agreement and a purchase agreement could be used, the purchase agreement price/discount will apply.

If you have any questions, let me know. This is a topic that I have a strong background with.

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Junaid Idrees on at

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Hi King710,

Please check the below link. A bit old post but very well explained about purchase and trade agreement and their impact in business.

www.encorebusiness.com/.../

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Junaid Idrees on at

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Hi King710,

Did it help you to clear understanding between purchase and trade agreement or do you need any further help/information from community?

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King710 65 on at

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Thank you so much! I will definitely have more questions. Great work!

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Junaid Idrees on at

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Sounds Good !!

If there is no further information is required for this thread, would you be so kind and mark the verified answer to help other members.

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King710 65 on at

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How do I verify ?

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Junaid Idrees on at

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1. Create a simple Purchase agreement and convert to Purchase Order and verify the impact.

2. Create a purchase agreement and also create a trade agreement on the same item. Then convert purchase agreement to PO and verify the impact.

BTW, both screens and business purpose are totally different. Purchase agreement is just like contract or a blanket purchase order to buy certain qty. Of items from "specific vendor". However Trade agreement is created for short period of time to receive discount on item/item attributes and you have more options like it can create on group of items or Group of vendors.

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AXSHAH 528 on at

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Trade agreement is simply to default prices of purchase order and sales order lines. Example of frequent rate changes for commodities like oil.

And

Purchase agreements are for vendor commitment, both parties promising amount based on volume. Example 10,000 tons of cement weekly order for the month of January to lock prices.

Precedence or priority of price on purchase order lines

Purchase agreement>Trade agreement>Released product purchase price.

If this solved your query then mark as resolved.

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