Vendor hierarchies are flexible hierarchies that reflect the structure of vendor organizations. For example, if your vendor base includes multi-level buying groups, cooperatives, or chains of retail outlets, you can create vendor hierarchies to reflect the structure of these groups.

Vendor hierarchies are used during purchase order processing and billing for determining pricing, including rebates. Vendor hierarchies may be useful for your organization if you trade with vendors who have complex, external structures that you need to take into account for pricing. For example, you trade with major retail chains or large concerns that are organized in hierarchies with numerous levels.

Vendor hierarchies are flexible structures consisting of elements, called nodes, each of which represents one element of the vendor's organizational structure, such as a regional sales office. Each node below the highest hierarchy node refers to another node at a higher level in the hierarchy, known as a higher-level node. Nodes that are assigned to higher-level nodes are known as dependent nodes.

The following vendor hierarchy consists of five nodes, which are defined on three levels. In this example, vendors are assigned to two of the nodes - Smith South and Smith Northwest.

The structure of a vendor's organization is likely to change over time. For this reason, the vendor hierarchies you create to represent your vendors must be flexible. For example, you can move or change nodes within a hierarchy. When you reassign a node to a new location in the hierarchy, the system automatically reassigns any vendors, and other nodes, which are attached to the node you are moving. This reduces the amount of vendor master data you have to maintain.

In addition, when you assign a new vendor to an existing hierarchy, you ensure that the vendor automatically inherits, for example, all pricing agreements that apply to this hierarchy node.