Difference between Vendor Consignment and Customer Consignment

 The main differences between Vendor Consignment and Customer Consignment in SAP:

Consignment type	Definition	Special Stock	Stock table	How to assign material to consignment stock?	How to consume material from consignment stock?
Vendor Consignment	Vendor is the owner from the consignment stock and it is stored in your company	K	MKOL	Via Purchase Order (101 K).	201 K, 261K - via cost center, order
Customer Consignment	Your company is the owner from the consignment stock, and it is stored at the customer’s company.	W	MSKU	Via SD process (631).	633 W - via shipping (SD process).

SAP MM Consignment Procurement Process / Vendor Consignment Process

Vendor Consignment

Vendor Consignment is a process wherein the supplier provides materials and stocks them in the purchaser’s premises.

 The material remains in the books of the supplier (vendor) until the same is withdrawn from the stock of the consignment and put to use.

The inventory gets transferred to the books of the purchaser only when the same is removed from the consignment stock.

The supplier (vendor) would not invoice the purchaser initially when they come into the premises of the purchaser. The purchaser is liable to pay the supplier (Vendor) only when the stock is withdrawn (consumed).

Key Points of Vendor Consignment process in SAP

        

Ø  Consignment has been designed as a special procurement type in SAP

Ø  The consignment stock is not valuated till the time it is consumed or withdrawn, since theoretically, it lies in the books of the supplier (Vendor)

Ø  The consignment material number is the same as that of a material in unrestricted stock in the purchaser’s books

Ø  Since the sourcing of a material can happen from multiple parties, the consignment stock is maintained at the level of each supplier or vendor.

Ø  The price of the consignment is maintained in the purchasing info records (PIR) of the info category, Consignment

Ø  When the withdrawal happens from the consignment stock of a supplier, the goods receipt in the purchaser’s books happens at the price maintained in the purchasing info records of type consignment for that vendor and material combination.

Ø  The goods receipt against a consignment purchase order is always non valuated

        

    Basic Configuration Steps for Vendor Consignment Process in SAP

      1. Activate Purchasing Info Record for Info category as Consignment. The Configuration transaction code for the same is OMEV.

      2.  Configure the special procurement type 10. This is done in IMG Node:

IMG>Production>Material Requirement Planning>Master Data>Define Special Procurement Type

3. Assign the special procurement type in the material master. The Master Data transaction code for the same is MM02. This is done in MRP2 view of the material master. This is optional.

4. Create a purchasing info record (PIR) of the category, Consignment. This is done using the transaction code ME11.This is mandatory.

1.      5. Maintain Output Condition Records for Output type KONS with Transaction Code MRM1

6. Maintain the automatic account assignment for material posting. The below transaction need to be maintained in the configuration transaction code OBYC. This is Mandatory.

         a. Consignment Payables: KON

         b. Expense/Revenue from Consignment Material Consumption: AKO

         c. Offsetting entry for Inventory Posting: GBB – VBR

Consignment Process Steps in SAP

The consignment process steps in SAP are fairly simple. It involves creating a purchase order, doing a good receipt and a withdrawal of the stock from Vendor’s books. The last step in the consignment process for a vendor is the settlement of the vendor’s liability. The steps are highlighted as:

1.      Procurement –

Create a Purchase Info Record for Material Vendor combination (ME11) with info category as consignment.

Create a Purchase Order with Item Category as “K” for consignment item. This ensures that a Goods Receipt to this purchase order results in vendor consignment stock and an invoice cannot be posted based on Goods Receipt alone. The net price of the PO is usually zero.

Goods Receipt based on the purchase order is done using the standard transaction code MIGO.

The stock is posted as consignment stock without value. The same would reflect as a special stock for the vendor.

The stock can be either,
1. Unrestricted-use stock
2. Quality inspection stock
3. Blocked stock

     Since the material lies in the purchaser’s premises, the same would be reflected in terms of quantity at a storage location as well till the time the same is consumed for use.

    The same can be checked in the standard stock reports in transaction code like MMBE and    MB54 – Display Consignment Stocks

     There is no accounting document which is created when the GRN is done in case of a consumption purchase order.

2.      Consumption – Consumption of consignment material happens when goods issue is done with item category K.

 The price at which the goods issue will be done will be picked from the purchasing info record which has been created for consignment for the material and vendor combination.

 In this particular case, to elaborate the process a production order was created and a goods issue was done with the item category K against the production order. Generally the consignment materials are part of Bill of Materials (BOM).

Goods issue document is posted in such a case when activity confirmation is done for the production order through transaction code CO15.

     In the above case, the price is picked from the purchasing info record which would have been created for the material and vendor combination.

3.  Settlement – The next step in the vendor consignment process is the settlement of the vendor liability. This is done through transaction code MRKO

     This would display the withdrawals from the consignment stock which have taken place and for which the liability for the vendor has not been created. You also have the option to check the accounting entries for the withdrawals for consumption made from the consignment stock for a vendor.

     After analysing the unsettled withdrawals, you can create the vendor liabilities by selecting Settle from the main screen. This will settle the outstanding entry in Consignment Account Payables account and create a vendor liability. The price of vendor liability creation will happen at the Info Record Price.

     Accounting Entries

 1. At the time of Goods Receipt – No Accounting entries are generated at the time of goods receipt

 2. Transfer the Consignment Stock to own stock- Transfer Posting –411 K –T Code MIGO-Transfer Posting

Consignment Payable A/c  CR     (Account Assignment OBYC-KON)

Stock Account –BSX – Debit

 3. At the time of Withdrawal or Consumption of Consignment Stock –

 (a)     The material is valuated at moving average Price     (Price Control in Material Master is “V”)

                          Consumption Account DR            (Account Assignment OBYC-GBB-VBR)

                         To Consignment Payable A/c       (Account Assignment OBYC-KON)

               The unit value of material comes from the Info record Price for material vendor combination for info category Consignment

(b)   The material is valuated at standard price (Price Control in Material master is “S)

                     Consumption A/c DR                                   (Account Assignment OBYC-GBB-VBR)

                      To Consignment Payable A/c                     (Account Assignment OBYC-KON)

                      Price Difference A/c (Dr/Cr)                        (Account Assignment OBYC-AKO)

Note:

Ø  An alternate way to SAP transaction flow could be when Goods Receipt is made without reference to a purchase order using movement type 501 K.

Ø  Material can also be issued to a cost center directly instead of a 2 step process of withdrawal and then issue to a cost center. The Movement type would be 201 K. Refer Goods Issue from Inventory to Cost Center (Manufacturing Consumption)

Ø  An accounting document is generated only during stock withdrawal. The price is picked up from Consignment Info Record. During Goods Receipt no accounting document is generated.

Subcontracting Process in SAP MM

Ø  Purchaser order the end product from a vendor, and specify in the purchase order which components Purchaser will send the vendor to manufacture the end product.

Ø  Purchaser issue the components to the vendor, and create a goods receipt for the product manufactured by the vendor. At the same time, the consumption of the components is posted.

Ø  The vendor's invoice is entered with reference to the purchase order. A subsequent adjustment for excess consumption or under-consumption of the components can also be made at the same time.

Subcontracting: The finished product is ordered from a vendor. The components that the vendor

needs to manufacture the finished product are entered as “material to be provided” items.

Sub-Contract PO: The service provider provides the part to be maintained to the subcontractor along with other components that may have to be exchanged during the subcontract rework. After maintaining the part, the subcontractor returns it to the service provider.

BOM: A complete, formally structured list of the components that make up a product or assembly. The list contains the object number of each component, together with the quantity and unit of measure. The components are known as BOM items.

You can create the following BOM categories in the R/3 System:

 - Material BOM - Functional location BOM

 - Document structure - Sales order BOM

 - Equipment BOM

              When a main BOM item is a subcontract item (in the item category field of PO/PR line item, the value is "L"), then the system will automatically know that the sub items need to be issued out. Such issue, from the internal system processing view point, is only a transfer from one storage location to the subcontract vendor storage location rather as consumption.

             It will only be considered as consumption when the parent item is received back from the vendor. The system will automatically track all the items sent to the vendor waiting to be received back.

The following are the pre-requisite procedures for handling subcontract items:

  Ø   When setting up the subcontracted parent item (material type HALB), the material master has a procurement type of "F" and special procurement of 30. The effect is that when the purchase requisition was created by MRP or manually, the item category will be "L".

  Ø   BOM items for the main part have been setup to contain all the materials which must be supplied FOC to the vendor.

  Ø   There is no need to setup the routing for the sub-contracted main item.

The following are subcontract related procedures:

  Ø    Finding out what sub-items need to be issued to subcontractors and issue them.

  Ø    Finding out what sub-items have been issued to subcontractors and waiting to come back.

  Ø    Receiving subcontracting item (from the store viewpoint, there is no difference from normal receiving).

  Ø    Invoice processing: the invoice is only for the services and is no difference from normal processing.

Invoke transaction ME2O:

  Ø   Leave the Date required, Material and Plant blank unless you wish to limit the listing to a specific area. Check the Only Negative available SC stocks if you only want to look at the cases where materials need to be handed to the subcontractor. If you do not check this, then items which have already been issued to the subcontractor and waiting to come back will also be shown.

  Ø   To issue the items to the subcontractor, select the item, then click Post goods issue button.

  Ø   Enter the storage location from which the sub-items is taken out, and the quantity given.

  Ø   If there is not sufficient on hand stock to be given to the subcontractor, then the system will issue a "0 items posted" message. If there is sufficient quantity, the system will transfer the quantity to the vendor storage location. On this screen, you can also check the on hand stock balance by clicking the stock overview and stock/requirement buttons. You may also place the cursor on a PO number and display the PO details giving rise to this SC issuing requirement.

Subcontract Posting Material Document

101 + Receive in the new Material after sub-contract

 543 - Clear the quantity in Material Provision for Vendor

Accounting Document

Debit Inventory - New Part 150

Credit Inventory - Purchase Offset 150

Debit Service cost for sub-contract 50

Credit GR/IR - Inventory 50

Debit ROH - Material Consumed 100

Credit ROH - Material Consumed 100