Pricing Procedure in MM with Discount, Surcharges, and Taxes

Introduction

In SAP, pricing is not just about assigning a price tag; it’s about combining multiple elements like gross price, freight, discounts, surcharges, and taxes to calculate a net amount accurately. The Pricing Procedure provides a structured way to bring all these elements together and determine the correct net price for each procurement transaction.
This blog explains the fundamentals of the pricing procedure and demonstrates a simple example applying discounts, surcharges, and taxes.

What is a Pricing Procedure?

A Pricing Procedure is the backbone of SAP’s pricing mechanism in Materials Management (MM). It determines how the system calculates a final price by bringing together all relevant condition types in a specific sequence.

Key Elements of a Pricing Procedure

1.    Condition Table

A condition table stores the fields used to create individual condition records.
•    Example: If you use Plant as the key field in the condition table, then the condition record will be created only for that plant.
•    Multiple fields can be combined in one condition table.

2.    Access Sequence

The access sequence defines how SAP searches for condition records for a condition type.
•    One access sequence can include multiple condition tables.
•    Example: If four condition tables are linked to an access sequence, SAP will search for valid records only within those tables.

3.    Condition Type

Represents a specific pricing element such as gross price, discount, freight, or rebate.
Example: 
•    PB00 – Gross Price ($100 per unit)
•    DIS5 – Discount (5% or 10% depending on quantity)
•    DISU – Surcharge (e.g., 5% insurance or handling fee)
•    DITX – Input Tax (e.g., 5% VAT)

4.    Condition Record

The actual pricing data is maintained against condition tables for a condition type.
•    Example: If a condition record is maintained for a vendor, whenever that vendor is used, SAP automatically fetches the corresponding record through the access sequence.

5.    Schema Group

Schema groups link vendors and purchasing organizations to pricing procedures.
•    One schema group is assigned to a vendor and another to a purchasing organization.
•    SAP uses this combination to determine the correct pricing procedure.

6.    Calculation Schema

Define the step-by-step sequence of pricing conditions (gross price, discounts, Taxes, surcharges, etc.). All required condition types are grouped here to form the pricing logic.
Example:
•    Gross Price 
•    Add Surcharge 
•    Subtract Discount 
•    Apply Input Tax 

7.    Schema Determination

Determines which pricing procedure is used in a purchasing document.
•    This is based on the combination of the vendor schema group and the purchasing organization schema group.

Why Is Pricing Procedure Important?

•    Ensures accuracy in procurement and vendor payments.
•    Provides flexibility to include complex pricing rules.
•    Standardizes the way organizations handle discounts, surcharges, and taxes.
•    Reduces manual errors by automating calculations.

Scenario-Based Example

Let’s take a simple scenario to see how discounts, surcharges, and taxes work together:
•    Rule 1 (Discount): If the ordered quantity is less than 100 units, apply a 5% discount. If it is 100 or more, apply a 10% discount.
•    Rule 2 (Surcharge): A fixed 5% surcharge is applied as insurance.
•    Rule 3 (Tax): A 5% input tax is calculated on the subtotal after discount and surcharge.

Example 1 – Order of 80 Units

•    Order Quantity: 80 units
•    Unit price (Gross price per unit): $100
•    Gross Price = 80 x $100 = $8000
•    Surcharge (5% on $8000) = $400, which is $8400
•    Discount (5% on $8400) = $420, which is $7,980
•    Tax (5% on $7,980) = $399, and the final price is $8,379

Example 2 – Order of 120 Units

•    Order Quantity: 120 units
•    Unit price (Gross price per unit): $100
•    Gross Price = 120 x $100 = $12,000
•    Surcharge (5% on $12,000) = $600, which is $12,600
•    Discount (10% on $12,600) = $1260, which is $11,340
•    Tax (5% on $11,340) = $567, and the final price is $11,907

Conclusion

The Pricing Procedure in SAP MM is more than just a calculation; it’s a structured way to bring together gross price, surcharges, discounts, and taxes into one transparent flow. By configuring condition tables, access sequences, condition types, and calculation schemas, businesses can automate pricing rules and reduce manual effort.
In our example, we saw how:
•    Discounts can be applied dynamically based on quantity.
•    Surcharges like insurance or handling charges can be added automatically.
•    Taxes ensure compliance and accurate final amounts.