3.2 Inventory Management
3.2.3 Special Stock and Special Procurement Forms
If, on the other hand, an agreement exists between the customer and vendor stipulating that the customer must keep any remaining consignment stock after a specified deadline, a transfer posting to the customer’s stock is performed.
Depending on which view is used to examine the consignment, one can differenti- ate between a customer consignment and a vendor consignment.
For a customer consignment, goods are sent from your company to a customer.
Until these goods are withdrawn by the customer, the material is still among the valuated stock of the issuing plant and is the property of your company.
The accumulation of special stock at the customer location is done by posting a goods issue (see Fig.3.9). Supply of consignment goods is done without invoicing the customer. It is only a consignment withdrawal, in which a goods issue reduces customer stock as well as the stock of the issuing plant, that is relevant to billing.
Kunde Distribution Logistics
Consignm.
Order
Outbound Delivery
Consignm.
Pick-up
Outbound Delivery Goods-Issue
Neg. Goods-Issue
Plant Stock (unrestricted-use) Consignment Stock at Customer-Site (Special Stock)
Customer
Customer
Consignment Fill-upConsignment Pick-up
Consignm.
Issue
Goods-Issue
Neg. Goods-Issue Consignm.
Return
Outbound Delivery
Invoice (Debit)
Invoice (Credit) Outbound
Delivery
Consignment ReturnConsignment Consumption Consumption by customer
Fig. 3.9 Customer consignment overview
When consignment stock is returned by the customer, known as aconsignment pick-up, it is removed from the customer special stock and posted back to your company’s storage location stock. Reduction of special stock through pick-up is not relevant to billing. Withdrawal of consignment stock can be reversed through returns. Goods receipt for a consignment return replenishes the special stock and leads to a credit for the customer.
From the view of procurement logistics, vendor consignment goods represent a special type of procurement in which a vendor provides material to a company without demanding payment. The vendor remains the owner of these goods until the company withdraws something from the consignment stores. Theconsignment stores, that is, the consignment stock, are also located at the customer site, which in this case is the procuring company. Withdrawal of material leads to a liability toward the customer, who issues an invoice at stipulated periods. From the perspective of inventory management, the consignment stock is maintained under the same material number as the company’s own stock. This gives Materials Planning the possibility of consid- ering the non-valuated consignment stock as unrestricted-use stock.
Procuring consignment stock and subsequent invoicing upon withdrawal require a price agreement to be in place with the external vendor. Such a price agreement is stored as a purchasing info record and makes use of the condition technique to save individual rebates and quantity scales in the system (see also the section on purchasing info records in Volume 1, Chap. 4, “Procurement Logistics”). Because the consignment stock of a particular material can come from more than one vendor with varying prices, the stock is managed separately with the price of the respective vendor (see Fig.3.10).
The actual procurement process for consignment material is done in the same way as for the external procurement of standard materials, via purchasing requisitions, purchase orders and outline agreements. From a purchasing perspective, procure- ment is completed upon goods receipt. The goods receipt of non-valuated consign- ment stock can be done with or without reference to unrestricted-use, blocked or quality inspection stock. Invoicing and payment of the material is initiated only after its withdrawal from stock.
Thewithdrawaland consumption of consignment material is done via a goods issue from the unrestricted-use consignment stock of the vendor. Withdrawal leads to a liability toward the external vendor.
Because the vendor cannot directly track the goods withdrawal, the liabilities are settled periodically without an invoice receipt. Payment is done via a settlement run by generating a credit note for the respective vendor.
3.2.3.1 Subcontracting
Another special case in external procurement issubcontracting, in which a com- pany orders material from an external vendor and supplies that vendor, the subcon- tractor, with some or all of the components needed to produce the ordered material.
In this section, we will examine the procurement and subcontracting of a finished
3.2 Inventory Management 121
product from the viewpoint of purchasing and inventory management. The pro- curement process begins by ordering the finished product from an external vendor.
The finished product is ordered through a purchasing requisition, a purchase order or a scheduling agreement with a subcontracting line. Such an order not only includes information regarding the material to be produced, but also, in one or more subitems, information regarding the components that are provided to the supplier for the subcontracting job. The components are either entered manually or derived with the aid of a BOM (bill of material) explosion for the procured finished product.
The physical provision of components is usually done via a transfer posting from unrestricted-use stock to vendor consignment stock. Alternatively, the required components can be provided by a second vendor. In such a case, a purchase order is placed to the second vendor for the required components. In both cases, the components belong to the company and are maintained from an inventory manage- ment standpoint as special stock and identified as vendor consignment stock (see Fig.3.11).
After manufacture or processing, the subcontractor supplies the ordered product.
Goods receipt not only leads to an increase in stock of the finished product, but also
Kunde Procurement Logistics
Consignm.
Order
Goods-Receipt
Consignment Stock of Vendor (Vendor-Consignment)
Vendor
Pick-up / Transfer posting Procurement-(Consignment)
Info-Record
Vendor (Consignment) Liability
Plant Stock (unrestricted-use)
Internal Consumption
Settlement Credit
Note
Fig. 3.10 Overview of a vendor consignment
to the consumption of components from the vendor consignment stock. To ensure exact allocation of the receipt of the finished product as well as the component consumption from the vendor consignment stock, goods receipt is performed with reference to the order. The consumption of components for each original goods issue item takes place exclusively from the vendor consignment stock. Consump- tion of components that deviates from the component quantities indicated in the order is either recorded in the goods receipt or posted as a subsequent adjustment.
3.2.3.2 Third-Party Order Processing
The material itself or the purchasing procedure and the involved system settings determine the way in which a material is procured for a particular sales order.
Procurement is carried out from an available storage location stock via internal or external procurement, triggered by a purchasing requisition, an order, a planned or production order, or by a delivery from an external vendor. Third-party order processingis an order placed with an external vendor with the stipulation that the
Procurement Logistics
Subcontract Order
Vendor
Plant Stock (unrestricted-use) Komponenten
Supplier Invoice
Finished Product From components
Goods-Receipt Post consumption
Supplying components
Plant-Stock (Subcontracting Stock)
Physical supply of components
Fig. 3.11 Overview of subcontracting
3.2 Inventory Management 123
order is to be delivered to a third party. The customer thus orders from one company, but delivery is performed by an external supplier who sends the goods directly to the customer and invoices the company for them.
The decision to have an item sent by a supplier rather than the respective company is done on the level of the corresponding order item. A sales order can thus consist of several different standard and third-party items. The third-party items can be entered manually or generated automatically, based on parameters in the material master, such as when a sold material is to be exclusively procured externally.
When saving a sales order with third-party items, the items to be procured externally generate a purchase requisition item. The conversion of a purchase requisition to a purchase order is described in Volume 1, Chap. 4, “Procurement Logistics”. For the conversion, the system takes on the data of the sales order, including the customer delivery address. The order is transmitted to the supplier, who then delivers the goods to the final customer (see Fig.3.12).
Third-party processing is goods movement from a supplier to a customer in which the inventory management of the ordering company is not affected. In order to document this step, and to enable a value-based update of stock, a statistical goods receipt can be performed from the view of inventory management. Such a statistical goods receipt has the same effect as a goods receipt for an order with an account assignment: The stock is not updated in its quantity, but only with regard to
Procurement Logistics
Vendor Customer
Sales Order
Purchase Requisition
(Third-party) Purchase
Order
Supplier Invoice Invoice
Statistical Goods-Receipt
Distribution Logistics
Physical Delivery of Products
Fig. 3.12 Course of third-party processing
value as consumption. The update of the order value is posted to a clearing account for the subsequent invoice verification.
In the event of an external procurement procedure, the vendor sends a vendor invoice to the ordering company. The purchasing procedure is completed when a billing document is generated for the customer. To prevent the customer from receiving the invoice before receiving the goods from the vendor, the system can be set such that a statistical goods receipt must first have occurred before a vendor invoice can be entered. The goods receipt can be triggered automatically by a shipping notification from a vendor. When a statistical goods receipt has been previously posted, the clearing account is settled through receipt of the vendor invoice. Customer billing based on the calculated and delivered quantities is usually done only after the vendor invoice has been entered in the invoice verification process.
Alternatively, the system can be set such that order-related billing is done with reference to the original order quantity immediately after the sales order is generated.