Procurement on a Consignment Basis 

Purpose

This scenario describes the procurement and management of a material that is sourced from a consignment vendor.

Consignment means that a vendor makes available to you materials he owns but which are stored on your premises. The vendor retains the title to the relevant material until such time as you make a withdrawal from the consignment stores. Only when you do this do you incur a liability toward the vendor. Invoicing is carried out at agreed intervals (such as monthly). The parties to the agreement may decide that the customer is to transfer all remaining consignment stocks to his own stock after a certain period.

" Procurement on a Consignment Basis" (consignment buying) describes the integrated use of the following R/3 components:

SAP Component

Functions

Purchasing

Create purchase requisitions,
Create and transmit purchase orders/contract release orders/SA delivery schedules

Warehouse Management/Inventory Management

Place materials into storage; manage, and valuate stocks

Quality Management

Inspect quality of goods received against a purchase order

Invoice Verification

Post invoice and arrange payment

Prerequisites

The relevant Quality Management process flows in this scenario are described in detail in QM in Materials Management.

Process Flow

Purchase Requisition

Procurement on a consignment basis begins with the creation of a purchase requisition:

Purchasing

  1. Once they have been created, you can assign requisitions to a source of supply, taking previous purchase orders or contracts into account in the process. If no suitable source of supply exists, you must:
    1. Issue requests for quotation to potential vendors
    2. Compare the quotations you receive in response
    3. Assign the purchase requisition to one of the quotations received

If required, the vendor must have been approved by Quality Management.

Purchase requisitions to which a release strategy has been assigned must be released (approved) before they can be converted to purchase orders, contract release orders or scheduling agreement (SA) delivery schedules.
  1. Depending on the source of supply, you create and transmit one of the following documents:

Purchase orders subject to release strategies must be released before they can be sent to the vendor.
  1. You monitor the order. The system is able to automatically print urging letters for you to send to the vendor, as required.
  1. You can maintain vendor confirmations (e.g. acknowledgments and shipping notifications) relating to purchase orders or scheduling agreement delivery schedules. These enable precise planning, as you always have reliable information on expected deliveries in the period between ordering goods and the requested delivery date. Shipping notifications can be referenced at the time of goods receipt, allowing you to identify and investigate any quantity variances in good time.

Goods Receipt

As soon as the ordered goods arrive, you post the goods receipt. The material is thus recorded in the inventory management system. If the material is subject to a certificate requirement, you must confirm the existence of such a certificate.

The goods receipt triggers the following activities:

Invoice Verification

Settlement with regard to the materials that you withdrew from consignment stock is carried out without an invoice having been received from the vendor. Invoices are created in the system from the list of withdrawals from consignment stock. The vendor then receives payment based on these invoices. The invoices created in this way do not reference any purchase orders or goods receipts.

Storage

When the R/3 System releases the GR quantity after incoming inspection has given the all-clear, you place the goods into storage.

If the continuous inventory method is employed in your warehouse or stores, the system updates the necessary data at the time of stock putaway.