Defining Consignment Collaboration

Consignment is a business model in which the physical location and the ownership location of the goods are different. Consignment inventory is used when the Buyer wants the flexibility of having the inventory on, or close to, its premises but wants to defer ownership until consumption.

A Consignment Collaboration process requires the initial ordering of goods (consignment Purchase Order) and related consumption notices from the Buyer. This is accomplished through stock transfers where the Buyer transfers goods from their consignment stock to their own stock. When the Supplier is notified of the transfer of ownership, they can perform the ownership transfer in their own back-end ERP and issue an invoice.

SAP Ariba Supply Chain Collaboration provides ways for Suppliers to view a list of materials on consignment, for Suppliers to create invoices for consignment movements, and for Buyers to create self-billing Invoices for consignment movements.

• A Consignment Purchase Order is a standard Purchase Order.
• A line item can be marked as a consignment item.
• A Purchase Order is designated as a Consignment Purchase Order if at least one line item is marked as a consignment item.

• A Transfer Posting is created by the Buyer in SAP system.
• It identifies goods that have been moved from one stock location to another.
• When goods are moved from consignment stock to Buyer’s own stock, a transfer Posting is generated and sent to the Supplier.

• A Settlement Invoice is created by the Buyer.
• A Settlement Invoice is only used when the Buyer and Supplier agree on this model of invoicing.
• A Settlement Invoice is created as a result of Transfer Posting. The Supplier receives this as a Consignment Movement.

Provides Buyers and Suppliers with end-to-end visibility of movements related to consignment inventory

Enables Buyers to generate consignment Invoices.

Improves Buyer cash flow and inventory turnover by deferring transfer and payment of goods until they are consumed

Minimizes risk of material stock-outs

Reduces replenishment lead times

For an overview of the Consignment Collaboration process, watch this video.