The Consignment process within SAP SD is a crucial functionality that differs from the typical sales order, delivery, and invoicing cycle. It presents a unique and intriguing business scenario. It has has gained significant popularity in certain industry verticals and marketplaces.
Understanding this conceptually is of utmost importance. In this tutorial, we will delve deep into the business scenarios that requires the Consignment Process. We will explore how this process runs from an end-to-end perspective, providing you with a comprehensive understanding of the cycle in an intuitive manner.
Not only will you gain a thorough understanding of the process, but you will also gain amazing insights into how things work in the background. This tutorial aims to provide you with detailed information and a comprehensive view of the Consignment Process within SAP SD.
To understand the working of the SAP SD Consignment Process, we are assuming that you know how a basic Sales Order Cycle works in SAP.
Business Scenario behind Consignment Process in SAP SD
Imagine you are Best Cellphones, a reputable and innovative mobile phone manufacturer. You are committed to expanding your sales presence in the vibrant market of New York.
In pursuit of this objective, you enter into a strategic partnership with “Brooklyn Mobile Stores,” (BMS). BMS is a well-established retail outlet known for its exceptional customer service and extensive reach.
Under this mutually beneficial agreement, BMS proudly showcases your cutting-edge handsets, providing customers with access to the latest technology and features.
In return, they keep earning a competitive 30% margin on the retail price. Thus ensuring a profitable and sustainable partnership for both parties involved.
With this collaboration, Best Cellphones aims to tap into the thriving New York market, leveraging BMS’ expertise and extensive network to reach a broader customer base. Together, you are poised to create a win-win situation. Customers can enjoy top-notch mobile devices, and both companies can thrive in the ever-evolving world of mobile technology.
However, BMS would make a payment only when they sell a phone to actual retail buyer.
Hence in this case, following could be the sequence of events.
You send 50 handsets of your mobile phone on 1st Jan to Brooklyn Mobile Stores (BMS)
BMS doesn’t pay you anything to display your handsets on their store.
Sam Roberts walks into the store and buys a handset worth $ 500 on 15th Jan.
Mary Jones buys another handset again worth $500 on 29th Jan.
A representative from Best Cellphones visits BMS on 31st and sees that only 48 handsets are in the store now.
He invoices BMS for $1,000 – $300 (BMS’s dealer margin). That is $700.
Best Cellphones replenishes 2 mobile handsets at BMS on 1st February.
You may want to note the following aspects in the above cycle.
BMS is registered as a customer within Best Cellphones’ SAP system. Best Cellphones still retains ownership of the inventory stored at BMS. However, this inventory is unique and cannot be utilized to fulfill other orders placed within SAP.
Best Cellphones may or may not receive the details of retail buyers (such as Sam and Mary in the aforementioned case). This information often comes during the registration of their handsets for warranty.
Invoicing occurs periodically as the stock depletes at the customer’s location. Best Cellphones reserves the right to recall the inventory stored at BMS and transfer it to the warehouse.
In the consignment terms, Best Cellphones is referred to as the Consignor, while BMS is the Consignee.
Breaking the SAP Consignment Process into logical sequences
To be able to understand the scenarios better, we will break the discussion into smaller steps. They are listed below.
Sub-processes of Consignment Sales
Consignment Fill Up Process – This is the process when you move the stock from your warehouse into customer’s location. This happens when you put the initial stock or you replinish the stock depletion in a periodic manner. As you would you recall, the customer doesn’t pay you anything. Only the stock moves physically.
Consignment Issue Process – This is associated with a retail customer coming and buying from the BMS. In this case, he issues the stock to the end customer. The result is depletion in customer’s consignment stock and invoicing from the Best Cellphones (Consigner) to BMS (Consignee).
Consignment Return – If the order is returned back to Consignee by the retail buyer, this leads to a situation where you would want to raise a credit memo against the Consignment Issue invoice.
Consignment PickUp – This is the case where the manufacturer recalls the products or the distributor sends it back. In the above case for example, if Best Cellphones want to keep only 25 units as stock within BMS for meeting demands from other customers, they may create a Consignment PickUp to take the stock back to their warehouse.
Understanding Consignment Fill Up Process
As we discussed, this is the process in which the Consignor issues stock to Consignee. Following are the business steps involved.
The Consignor creates a Fill Up order within the SAP system.
Consignment Fill Up Order Type
At this stage the important details like Sales Area, Customer, Line Items containing quantity and stock are entered. Kindly note that in this case, the order type KB is used and the item category KBN is determined.
Consignment fillup VA01 item category
There is Outbound Delivery Process in SAP which makes the stock go from un-restricted to Consignment Stock. This means that it is no longer available for other orders to consume the same.
When the retail buyer takes the product from the distributor, the following thing happens.
Consignment Issue order is created. The order type is KE. The item category is KEN.
Outbound delivery is created and PGI is done. It reduces the consignment stock at distributor.
Invoice is created against the distributor.
Consignment Issue VA01 Screenshot
Consignment Return Process
In case the retail buyer returns the goods (lets say he finds it to be damaged), the following process runs.
The Consignment return order is created (document type KR). The item category is KRN.
Outbound delivery is created and PGI is done. It increases the consignment stock at distributor.
Credit Memo is created for the distributor as he no longer owes the amount.
Increase of Consignment Stock after Fill Up
Consignment PickUp Process
In some cases, you may not want to keep the inventory at the Consignees premises. You may have the demand of the product elsewhere. In this case you will do the following.
The Consignment pick-up order is created (document type KA). The item category is KAN.
Outbound delivery is created and PGI is done. It decreases the consignment stock at distributor.
No financial transaction happens.
Consignment PickUp Flow in SAP
Summary and Practice
The consignment process within SAP SD is a highly valuable functionality that sets it apart from a typical sales order cycle. This process is particularly prevalent and advantageous in certain industries. This concept is also useful for marketplaces that require efficient management of consignment inventory.
In this comprehensive tutorial, we did a deep dive into the business scenario behind the consignment process. We also gained valuable insights on how it seamlessly operates within the SAP SD framework. By understanding this process in-depth, businesses can effectively manage consignment inventory.
This involves not only sending inventory to customers and handling returns but also issuing stock to retail buyers and recalling products when necessary.
With our detailed exploration of the consignment process, by now you have gained a good understanding of the topic. You would be able to futher develop your expertise by navigating through other topics in SAP SD.
To further enhance your practice, we recommend trying the following scenario
issue a consignment of 100 units to a customer.
Begin by issuing two units, followed by invoicing.
Then, proceed with a Consignment Return for the second unit.
Finally, perform a Consignment Pick-up of 10 units.
How many units do you expect to remain in the consignment stock after completing these steps?
Would love to hear your answer.
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Shilpa is an accomplished leader with 17 years of experience in various facets of IT strategy, program management, continuous improvement, business transformation, and service delivery. Her experience span over industry verticals like Manufacturing, HealthCare, CPG and Media companies. She is fond of organizing events and is also associated with Habitat for Humanity.
We started careers in software consulting after passing out from top MBA colleges in early 2000s. We were fortunate to get trained at Enterprise Solutions Academy at Infosys, Hyderabad by some highly experienced professionals.