5.10: Consignment inventory (SCM P1 M5L10)

Objectives

The objectives of the consignment inventory curse are:

• Consignment inventory process.
• Configure a product for consignment inventory.
• Consignment replenishment order.
• Production process and reservation process for vendor- owned inventory.
• Change the ownership of raw materials for production.
• Describe how vendors can monitor consigned inventory in the vendor collaboration interface.

Consignment process

Consignment inventory is inventory that’s owned by a vendor but stored at your site. When you’re ready to consume or use the inventory, you take over the ownership of the inventory.

Consignment Inventory Product Configuration

In order to use the consignment inventory process in D65FOE you will need to configure product with an owner inventory dimension. There are also some limitations for the other settings on the products that must be configures and certain configurations that are nor supported.

Main product setting is:

• Active owner dimension

Other product configuration:

• Standard cost price
• Default purchase price
• Trade agreements
• Default order settings
• Default BOM settings
• Warehousing settings

Product setup limitations:

• Supported costing methods: Standard cost and moving average.
• Purchase agreements aren’t considered when you search for prices
• Stopped flag for inventory prevent the item to be used on a consignment replenishment order and an inventory ownership change journal
• Catch weight can’t be enabled
• You can’t process warehouse work for vendor owned on-hand inventory

Owner Dimension Support

The following document lines can have an owner dimension value that differs from the current legal entity:

• Consignment replenishment order lines
• Production lines
• Transfer journal lines
• Counting journal lines
• Tag counting journal lines
• Quantity adjustment lines

For all other document lines, the owner is set to the current legal entity by default and cannot be updated.

Tracking Dimensions Group

Items that are going to be used in consignment processes must be associated with a Tracking dimension group where the Owner dimension is set to Active. The Owner dimension always has the Physical inventory and Financial inventory options selected. The Coverage plan by dimension is never selected.

Product information management > Setup > Dimensions and variant groups > Tracking dimension group.

Figure 5.10 tracking dimension group – owner

Inventory Owners

In order to record physical inbound consignment inventory, you need to define a vendor owner. This is done on the Inventory owner page. When you select a Vendor account this generates default values for the Name and Owner fields. The value in the Owner field will be visible to the vendor, so you might want to change it if your vendor account names aren’t easy for external people to recognize. It’s possible to edit the Owner field, but only up to the point when you save the Inventory owner record. The Name field is populated with the name of the party that the vendor account is associated with, and this cannot be changed.

Inventory management > Setup > Dimensions > Inventory owners

FIGURE 5.11 INVENTORY OWNERS

Consignment Replenishment Order

A consignment replenishment order is a document that is used to request and keep track of inventory quantities of products that a vendor intends to deliver within a certain date interval by creating ordered inventory transactions. Typically, this will be based on the forecast and actual demand of the specific products. The inventory that’s going to be received against the consignment replenishment order remains in the ownership of the vendor. Only the possession of the products related to the physical receipt update is recorded and therefore no general ledger transaction updates occur.

The Owner dimension is used to separate information about which inventory is owned by the vendor and which is owned by the receiving legal entity. Consignment replenishment order lines have an Open order status as long as the full quantity of the lines has not been received or cancelled. When the full quantity has been received or canceled, the status is changed to Completed. The physical on-hand inventory that’s related to a consignment replenishment order can be recorded using a Registration process as well as a Product receipt update process. Registration can be done as part of the item arrival process or by manually updating the order lines. When the Product receipt update process is used, a record is made in the product receipt journal, which can be used to acknowledge the receipt of goods to the vendors.

Procurement and sourcing > Consignment > Consignment replenishment orders

FIGURE 5.12 CONSIGNMENT REPLENISHMENT ORDER

Procedure: Create and Add Lines to a Consignment Replenishment Order

To create consignment replenishment order, follow these steps:

1. Open Procurement and sourcing > Consignment > Consignment replenishment orders
2. Click New, to create new replenishment order.
3. Select vendor account US-104
4. Click Add line on the Replenishment order lines section.
5. Select item M9211CI.
6. Select Warehouse 24.
7. Enter 800 in to Quantity field.
8. Save the record.
9. Click Product and supply and then select Explosion.
10. Verify information and close the form.

Consignment Replenishment Receipt

If the products on your consignment replenishment order are linked to an inventory model group that requires registration, you will need to complete the registration process. This is very typical for products that are batch or serial number controlled. When the products are not configured for registration, you can still optionally use the registration process before you complete the product receipt process. The product receipt process is very similar to the product receipt process that is used with a standard purchase order. However, it's important to note that the consignment replenishment order does not support advanced warehouse management processing for the product receipt.

Procedure: Register and Process a Product Receipt

To post product receipt, follow these steps:

1. Open Inventory management > Inbound orders > Arrival overview.
2. In the Receipts section click Select for arrival checkbox for selected order.
3. Click Start arrival.
4. Click Journals and then select Show arrivals from receipts.
5. Click Edit.
6. Change Quantity to 700.
7. Click Post and then click OK.
8. Close the form.
9. Open Procurement and Sourcing > Consignment > Consignment replenishment orders.
10. Open selected replenishment order.
11. Click Product receipt on the Action pane.
12. Update Quantity to 700.
13. Clear Delivery remainder field.
14. Click OK.
15. Verify that order status changed to Completed.

Initialize Production

The production line inventory transactions can become reserved and even updated to the status of picked and have the owner dimension value different from the current legal entity. When reserving, the on-hand inventory owned by the current legal entity will take precedence over the vendor-owned inventory.

Inventory Ownership Change Journal

The process of changing the owner of the inventory from the vendor to the receiving legal entity is done using an Inventory ownership change journal. No expected inventory transactions are created for the journal. The only inventory transactions created are those that relate to a posted journal. When the journal is posted:

• The vendor-owned inventory is issued using an Ownership change reference with a Sold status.
• On-hand inventory is received by the legal entity that’s consuming it using a product receipt updated inventory transaction on the purchase order. This sets the status of the order to Received. Purchase orders used for consignment have the Origin field set to Consignment.

It’s not possible to update the quantity on consignment purchase order lines after the order has been created.

Procurement and sourcing > Consignment > Inventory ownership change

FIGURE 5.13 INVENTORY OWNERSHIP CHANGE JOURNAL

Vendor Collaboration in Consignment Process

If your vendors are using the vendor collaboration interface, they can use this to monitor the consumption of inventory at your site.

The vendor collaboration interface has three pages related to the inbound consignment process:

• Purchase orders consuming consignment inventory – Shows detailed purchase order information related to the ownership change from the consignment process.
• Products received from consignment inventory – Shows information about the items and quantities that have product receipts updated during the ownership change process.
• On-hand consignment inventory – Shows information about the consignment items that they are expected to deliver, and the items that are already physically available at the customer site.

Vendors collaboration > Consignment inventory > On-Hand consignment inventory

FIGURE 5.14 ON-HAND CONSIGNMENT INVENTORY

Inventory Transactions for Consignment Inventory

To help manage your consignment inventory, it may be necessary to perform cycle counts or transfers of the inventory within your warehouse. The warehouse worker or supervisor can use the tag counting, counting, transfer, or adjustment journals to manage the inventory quantities for your consignment inventory. Let's take a look at the process for count and consignment inventory. Similar processes are used for other types of journals.

Procedure: Create and Post a Counting Journal

To create counting journal, follow these steps:

1. Open Inventory management > Journal entries > Item counting > Counting.
2. Click New to add new journal.
3. Select Journal name and click OK.
4. Click New on the Journal lines section.
5. Select Item number M9211Cl.
6. Enter 100 in to Quantity field.
7. Select Owner.
8. Click Post.
9. Close the form.

Keep in mind that the way the journal lines are created varies, depending on the dimensions that have been selected on the counting by FastTab of the create inventory journal page. And if the owner dimension value isn't selected, the line won't be split according to that dimension. There are also a couple of other important notes. You can't create counting journal lines based on expired batches because the owner dimension and batch numbers can't be enabled at the same time. You can monitor the adjustments only as part of the on-hand consignment inventory for vendors, and you can't use retail POS counting together with an owner-enabled item. You can also create counting journal lines by using the items and on hand creation processes and also tag counting.