Wednesday, February 22, 2012

Consignment in SAP - What is Consignment - Third Party Process in SAP - Consignment Definition

Consignment Process in SAP - What is Consignment?

Consignment in SAP - What is Consignment?

Consignment Means Company provides material to Vendor is stored in vendor’s premise but actually belongs to the company. A liability only occurs if vendor consumes or sells some materials from the consignment stock.

In other words “Consignment is an agreement between the Company and the Vendor means that Company will send materials to the Vendor but the Vendor will pay only after consuming or selling the materials. If the material remains then the remaining materials will belong to the company and will be taken back by the company.”

Main Concepts of Consignment Process:

1.   In Consignment Process the Company provides materials to vendor and keeps materials on vendor’s premises and the materials are called consignment stocks.
2.   Company remains the legal owner of the material until the vendor withdraws some materials from consignment stores.
3.   The Vendor is paid on the basis of consumption happened means if vendor consumes some materials from consignment stock.
4.     Invoice is due after set period of time and payment is made to company periodically.
5.     The Consignment Price for procuring a Consignment Material from a Vendor is stored Info Record.
6.     Consignment Prices can be defined periodically.

Consignment Process in SAP – Configuration in SAP:

Material Master:

At Plant Level in Material Master Record, the field special procurement in MRP view will be set to ‘10’.

Purchase Requisition:

1.   Requisition will be automatically created by MRP.
2.   The Item Category for Consignment Requisition will be “K”.

Purchasing Info Record:

1.   The Consignment Price in Info Record is maintained by means of using the Consignment Info Record Category Radio Button.
2.   The Text in Info Record will have explanation for the price information. This Text will default in the Purchase Order.
3.   The Price maintained in Info Record is required for Material Valuation and Accounting purposes.
4.   The Inventory Valuation would be using the Material Master Price and not based on the Info Record Price.
5.     Consignment Settlement will be based on the valid price in the Info Record on the day of Consumption.

Purchase Order:

1.   The Purchase Order Type will be a Standard (NB).
2.   The Item Category for the Consignment Purchase Order will be “K”.
3.   If Purchase Order is generated manually then Item Category Code needs to be defined as K.
4.     The Price at the Item Level in Purchase Order will be zero and explanation for this will be defined in Info Record.

Mapping for Consignment Stock:

1.   The Consignment Material can be seen in SAP in the socks as a Separate Stock line item.
2.   One Material code can be used in case there is more than one vendor is supplying the same material. This facilitates the stock transfer from Consignment Stock to available stock.
3.   The Consignment Stocks from different vendors will be kept independent of one another at the price of the individual vendors.
4.   Consignment Material can be allocated to one of three stock types:

·         Unrestricted-Use Stock
·         Quality Inspection Stock.
·         Blocked Stock.

5.     The Stock withdraws can only be posted from Unrestricted Stock.

Inventory Transactions:

Good Receipt:

No Accounting entries are posted when the material is received in the system with reference to Purchase Order (As it is Consignment Material).Only Consignment Stock for the Vendor is updated.

Transfer Posting:

When the material is transferred from Consigned Stock to own stock accounting entries are posted. Own stocks of company is updated.
·         The company  clearing account is credited as per the purchase order price (As per Consignment Info Record)
·         Raw Material Account is debited at standard price from Material Master at Plant Level (Defined in Accounting 1 View)
·        Different Amount (Difference between A and B) is debited to price variance account.

Invoice Preparation:

·         Invoice and Payment are based on the quantity consumed in the period and on the price at the time the product was used (Moved from Consigned to itself).
·         The Price comes from the Consignment Info Record.
·         Invoicing will be through the Consignment Settlement Method
·         The Vendor will have an invoicing schedule with the company
·         An Invoice document will be generated automatically, based on the consumption of Consigned Materials.
·        Payment will be done on the base of this Document.

Important Points regarding Invoice Preparation:

·         The Vendor will not receive the Invoice from the Company.
·         No Cash discount can be calculated. Cash discount agreed with the company should be incorporated in the price.
·         The Prices should be flat and no scale conditions on prices are applicable.

T-Code MRKO is used for Consignment Settlement:

·         Settlement can be done only when the transfer posting is completed in the system.Settlement can be created for the consigned quantity which transferred to Vendor.

Useful Extra Steps in Consignment Process in SAP MM:

1.  Consignment Info record (Must)
2.  Item category – K (Must)
3.  Create Purchase order using vendor and material with item category K but mention no   price.
4.  Vendor sends the consignment stock. Goods receipt using movement type 101 against this consignment purchase order.
5.  Now takes the material from consignment stock by using movement type 411+K.


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