Exploring the Supplier Consignment (2LG) Scenario

Consignment means that a supplier provides you with materials that are stored at your premises but remain the property of the supplier. No liability is recorded until you actually withdraw the material from consignment stock. Once withdrawn, the consumed quantity is settled with the supplier based on agreed settlement periods.

The consignment process typically includes the following steps:

1. Create Purchasing Info Record for Consignment

   For each combination of consignment supplier and material, you need to create a purchasing info record of type 'Consignment'. This step is mandatory because the info record contains the price that will be used later to settle the withdrawals.

2. Create Purchase Order for Consignment

   To request consignment materials from a supplier, you create a purchase order that includes a consignment item. This item is identified by a specific item category and does not include a price, as ownership of the material remains with the supplier until it is consumed.

   Note

   Optionally, you can create a consignment purchase requisition either manually or automatically through material requirements planning (MRP). Like the purchase order, the consignment requisition is also identified by the item category Consignment.

3. Supplier Delivers Material

   The supplier receives the purchase order, delivers the material, but does not issue an invoice.

4. Post Goods Receipt

   When the consignment material is delivered, you post the goods receipt with reference to the consignment purchase order item. The received quantity is automatically added to the consignment stock of the respective supplier.

5. Post Withdrawals

   Withdrawals from consignment stock or transfers to your own stock create a liability to the consignment supplier. These transactions are valued at the price maintained in the consignment info record, based on the date of the withdrawal or transfer.

6. Settle Consignment Withdrawals

   You regularly settle the liabilities to the supplier resulting from these withdrawals.

7. Supplier Receives Credit Memo

   During settlement, the system generates a settlement document along with a message that can be used to inform the supplier about the settled withdrawals and the corresponding credit memo amount.

Now, listen to the following conversation in which inventory manager Finn asks consultant Julia some questions about master data and organizational structure in the context of consignment.

Even though setting up a purchasing info record is usually the buyer’s job, it’s something that needs to be in place before you can start the consignment process.

Watch the interactive demo to learn how to create a purchasing info record for consignment.

When creating a consignment purchase order, there are two options available. The choice between them depends on how frequently you order the material on consignment.

Use Case 1: Regular Consignment Ordering

If you consistently order a specific material on consignment, you can configure the system to handle this process automatically. In this scenario, MRP (Material Requirements Planning) can directly generate consignment purchase requisitions, which are then converted into consignment purchase orders—either manually or automatically.

To enable this, the special procurement type "10" (consignment) must be maintained in the material master record.

Once this is set up, the system will automatically create a consignment purchase requisition whenever a requirement for the material is identified.

Watch the interactive demo to learn how to create a consignment purchase requisition via MRP and convert it into a consignment purchase order.

DemoStart Demo

When a goods receipt is entered for a consignment purchase order, the system automatically posts the received quantity to the supplier’s consignment stock.

Watch the interactive demo to learn how to post a goods receipt to consignment stock.

Consignment Stock

Let’s look at the results of posting the goods receipt and find out where you can view and track the consignment stock.

First we will review the key features of consignment stock.

Key Features of Supplier Consignment Stock:

• The stock is physically located at your premises but still owned by the supplier.
• It can be seen in the system at the plant and storage location level, and it's included in MRP (Material Requirements Planning).
• The stock is managed separately for each supplier.
• It is available in all three stock types (unrestricted-use, quality inspection, and blocked).

Watch the interactive demo to learn how to display consignment stock.

DemoStart Demo

You can use consignment stock just like your own inventory.

Here are the main withdrawal options:

1. Goods Issue for Production or Internal Use

   • Description: Withdraw consignment stock to use in manufacturing or internal processes.
   • Stock Type: Unrestricted-use stock

2. Sales Delivery

   • Description: Ship consignment stock directly to a customer as part of a sales order.
   • Stock Type: Unrestricted-use stock

3. Transfer to Own Stock

   • Description: Post a transfer from consignment stock to own stock.
   • Stock Type: Unrestricted-use stock

4. Scrapping

   • Description: Remove damaged or obsolete consignment stock from inventory.
   • Stock Type: All stock types

Watch the interactive demo to learn how to post a transfer from consignment stock to your own stock.

Watch the interactive demo to learn how to post a goods issue from consignment stock.

When consignment stock is withdrawn, the stock quantity is reduced, and a liability is recorded for the supplier.

Consignment settlement isn’t typically a core task for the supply chain team. However, to complete the consignment process, we’ll briefly cover it.

First, let's briefly recap the process.

1. Replenishment

   Consignment stock is regularly replenished through purchase orders and goods receipts.

2. Withdrawal and Liability

   Each time stock is withdrawn or transferred to own stock, a liability to the supplier is created.

3. Settlement

   At regular intervals, all withdrawals from the previous period are evaluated and settled.

4. Credit Note

   The settlement process results in the issuance of a credit note to the supplier.

Watch the interactive demo to learn how to settle consignment withdrawals.