Topic overview
The term “consignment business” refers to a logistic process where a supplier stores items right in the warehouse of the customer so that the customer can directly take items from it. Only after the customer has taken items from the consignment warehouse is ownership transferred and, consequently, invoices are issued.
Within the scope of this consignment business, the customer informs the supplier at agreed-upon intervals about quantities taken, e.g. with each withdrawal or in sum per day or period. Thus, the supplier is indirectly informed about the inventory of their items in the customer’s consignment warehouse.
This article describes the process of the supplier consignment. You will find out which applications are used for this process and which settings affect it.
Information on the consignment business from the supplier’s perspective and on consignment orders in sales can be found in the Introduction: Sales article.
Definitions of terms
Consignment
In consignment, the goods of a supplier are made available in a consignment warehouse directly on their customer’s premises. The business transaction and the transfer of ownership only take place upon the issue of the goods from the consignment warehouse, i.e. the customer’s use or resale of the goods, or the transfer of the goods from consignment inventory to own inventory. Such issue is referred to as consignment withdrawal. At agreed intervals, the customer informs the supplier about the consignment withdrawals with the help of a consignment withdrawal declaration. On the basis of these withdrawal declarations, invoices will be issued. From the purchasing perspective, this type of business is referred to as supplier consignment; from the sales perspective, it is referred to as customer consignment.
Consignment withdrawals
Consignment withdrawal refers to both the issue of goods from a consignment warehouse and the transfer of goods from consignment inventory to own inventory. A consignment withdrawal exists as soon as the picking order is completed, with which the consignment goods are withdrawn for delivery, distribution, production or for an inventory requisition. At the consignment withdrawal the transfer of ownership takes place. With the help of consignment withdrawal declarations, the customer informs their supplier about the consignment withdrawals.
Consignment withdrawal declarations
By means of consignment withdrawal declarations, the customer in a consignment business relation informs their supplier about the withdrawal of goods from the consignment warehouse or about the transfer of goods from consignment inventory to own inventory.
Process
To carry out consignment transactions, the customer and the supplier enter into a consignment agreement on specific items, sites, and periods. The agreement is created based on a supplier contract of the Consignment category. Consignment contracts are date-based contracts with a start date and an end date. They also include prices used for the revaluation posting in the course of the subsequent consignment withdrawals.
To call off the consignment goods from the supplier, the purchase order of the Consignment order category is available. When creating a consignment order, the system automatically tries to find an appropriate contract line item. To do so, the criteria Supplier, Item, and Warehouse are used. If necessary, the found contract line item can be changed manually. The relationship between the contract line item and the order line item has no direct effect; it just serves to check whether a consignation agreement with the supplier exists at all for the requested item. This check takes place at the beginning of the process, i. e. at the receipt of goods with purchase order.
The prices listed in the supplier contract are not relevant to the purchase order and therefore are not included in it. The same applies to discounts and values as well as invoicing terms, except for the payment term.
The line items in the purchase order of the Consignment category contain the information that, even after the delivery, the ownership of the goods remains with the supplier. As a consequence, third-party inventory is at the warehouse of the delivery recipient.
In such a case it is permissible that the inventory of the same item is made up of both own goods, goods from connected companies (internal suppliers), and goods from external suppliers. This also applies if the warehouse is not subdivided. In such case, a separation of the physical inventory according to the diverse inventory owners is to be ensured by organizational means.
As a result, the relevant owner needs to be specified for every movement of items if there are inventories of multiple inventory owners. For this purpose, a withdrawal strategy can be stored to define which inventory of which inventory owner is to be taken from the warehouse in which sequence (see chapter Further settings for the withdrawal strategy).
In the subsequent sales or distribution of inventories from the supplier consignment, or their utilization in production, the supplier is reported as inventory owner in the picking order and inventory order. If the supplier is an external one, the issues are called consignment withdrawals. If the supplier is an internal one, an internal clearing will be initiated instead.
The transfer of ownership from the supplier to the customer only takes place when the goods are withdrawn as part of a picking order (consignment withdrawal). To this end, a revaluation takes place directly before the goods issue. The revaluation is based on the price specified in the underlying supplier contract.
In addition to the withdrawal of goods for use in sales or production, it is also possible to withdraw goods manually. The goods then remain in the inventory, only the inventory owner changes. Inventory requisitions with the usage Add consignment inventory to own inventory are available for this purpose. The so-called consignment withdrawal is created by confirming the inventory owner change in the generated inventory order.
The customer informs the supplier about the issued goods and quantities at specific intervals agreed upon, e. g. with each withdrawal or in sum per day or period. To do so, the customer generates consignment withdrawal declarations and transmits it to the supplier. Whether the consignment withdrawals for line items are summarized in the withdrawal declaration and, if so, according to which criteria, is defined in the supplier contract. The consignment withdrawal declarations are used by the supplier as a basis for invoicing the customer.
At the close of the consignment transaction, the customer enters the invoice received by the supplier as supplier invoice of the Consignment withdrawal invoice category and assigns the corresponding line items to the consignment withdrawal declaration line items. Thus, the line items of a supplier invoice of the Consignment withdrawal invoice category always have a relationship to consignment withdrawal declarations and not to purchase orders or receipts of goods. For this reason, the invoice status of purchase orders of the Consignment order category always is Invoiced in full. The real invoice status is indicated in the consignment withdrawal declaration.
If the value of the consignment goods invoiced by the supplier differs from the value determined in the consignment withdrawal declaration, adjustment postings can be initiated with the supplier invoice. This requires corresponding settings, e. g. for the posting key specified in the supplier invoice type (see the Inventory valuation article).
If the supplier participates in the supplier credit note procedure, supplier invoices can be generated from the consignment withdrawal declarations.
Voucher references chain
The voucher references chain for a purchase order of the Consignment order category shows the relationship to a supplier contract. The supplier contract will be shown if a purchase order line item is assigned to a supplier contract line item.
The voucher references chain for a consignment withdrawal declaration shows the relationship to a supplier invoice of the Consignment withdrawal invoice category. The supplier invoice will be shown if:
- A line item of a manually created supplier invoice of the Consignment withdrawal invoice category is assigned to a withdrawal declaration line item, or if a line item is generated automatically and assigned, or if
- A supplier invoice is generated for one or several consignment withdrawal declarations within the scope of the supplier credit note procedure – in the Cockpit: Consignment withdrawal declarations application by means of the [Generate supplier invoice] action
Settings
Customizing
The Customizing application provides the following settings to enable the use of the functions for the supplier consignment:
- Inventory Management function → Multiple inventory owners sub-function – by using the Multiple inventory owners function, you can define whether inventories of different inventory owners may be issued.Moreover, you can set a withdrawal strategy. If the inventory owner sequence is manual, you can define an inventory owner sequence for a site. By doing so, you specify which inventory is issued from which inventory owners in which sequence. This setting is used as default for the warehouses of the site.
For more information, refer to the Customizing: Inventory Management article. - Sales function → Permit multiple inventory owners field – by using the Permit multiple inventory owners function in sales, you can define whether the inventories of multiple inventory owners can be considered for the availability check and reservation in sales processes.For more information, refer to the Customizing: Sales article.
- Production function → Permit multiple inventory owners field – by using the Permit multiple inventory owners function in production, you can define whether the inventories of multiple inventory owners can be considered for the availability check and reservation in production processes.
For more information, refer to the Customizing: Production article.
Further settings for the withdrawal strategy
A withdrawal strategy for consignment inventories is used to specify which inventory of which inventory owner is taken from the warehouse in which sequence. The withdrawal strategy consists of the settings in the Customizing application for utilizing inventory of multiple owners and the settings for the inventory owner sequence, which can be defined for the item, the warehouse, and the supplier in each case.
For further information, refer to the articles of the corresponding applications: