Customer Billing but keeping inventory to deliver to their customers

[Former Member]

Dear Experts:

We have the next scenario:

1. We sell material to one Customer (this material is only for them, we don't sell this item to anyone else)
2. Customer ask us to keep inventory in our storage.
3. Customer ask for invoice to keep control of "how much material" they have with us. (They pay this material, even if the material is still in our facilities).
4. Later, we need to ship the material (at this moment, really Customer ´s inventory) from our storage location to their customers.

Right know, what we are doing is bill to customer with a service material (LEIS) for the first invoice, and when we ship to their customer, we create another invoice with the FERT material, and then we create a credit note to cancel the first invoice....

But we don't know how much of my stock is really ours, and how much is already billed to our customer.... Also, customer isn't very happy with the credit notes....

We don't know the correct manner of doing this in SAP, and I can't find a similar scenario neither in SCN or in SAP Help....

Any help would be apreciated!...

[moazzam_ali · Accepted solution]

Hi

Thank you Veselina Peykova for tagging me here and I am also convinced with your idea of posting this as blog after mapping the scenario.

What I understood from this post is that this is two steps sales process. Company is selling products+services. Product is physical material and services is the service of keeping customer's stock in company's own premises. For this service I assume company must have some separate warehouse or space for customer's stock where they can differentiate in normal stock and customer's stock.

For product sale it is simple sales process. You create sale order > delivery > PGI > Invoice. Revenue + cost booked in same accounting period.

Now for keeping this stock in company's own premises for some certain time period we can use some additional line item in same sale order with DIEN material or we can create debit note w.r.t original invoice. This is only required if we are charging customer for keeping stock in our premises. If we are not charging customer then there is no need of it.

Now the question is how do we manage customer's stock in our stock. For this I must say that company must have separate space for such products. Printed labels with invoice details should be pasted on products or lot whatever suits as per physical materials.

If company doesn't have separate space for such sold products then it is very difficult to handle such materials physically and systematically. If you are willing to handle this in standard SAP then you should have dedicated separate space for sold materials.

This is the way we can map this keeping the accounting aspects. If company can manage revenue posting and COGS posting in different periods than you can have another solution. You create sale order, delivery but don't PGI it. It will save material under Schedule for delivery in MMBE and this material can't be sold in some other delivery. You create invoice w.r.t sale order or if you wanna create w.r.t delivery you delete the PGI check. When customer asks you to send material you PGI this delivery.

You can also use another mapping if customer and client is ok with custom invoice process. When you create delivery you reserve stock under this delivery. Invoice is required only to intimate customer that how much stock is sold on what price etc. For this purpose you create custom invoice with no accounting document. When customer asks to send material you PGI the deliver and post accounting invoice with some separate document type. Here you can also use same document type with posting block. With this there will be only one invoice.

There are multiple ways to do this. Select the best suitable as per your client's requirement.

I'd like to ask to comment on this.

Thank$

[VeselinaPeykova · Accepted solution]

Hi  , I am glad that you also find the business case interesting.

We are not sure yet if the company charges the client for the service for stock keeping - it seems the logical thing to do, but in case the company aims to keep a very important customer, they may provide it as some sort of a VIP service and post it/or not in a different manner.

Regarding addition of the DIEN item in the same invoice - in case we know in advance how long the products will remain at our premises (customer informs us for each initiated transaction or there is an agreement for the period we keep the products in the warehouse), then it can be a good solution.

The answer may vary though if there is a country-specific regulation regarding billing of services and VAT - it must be ensured that the correct date is set for the service item.

In case it is not yet known how long the products should be kept at our premises and we charge the customer for stock keeping - most probably there is a signed agreement stating on what basis (weekly, monthly) the company should issue an invoice for the service. I have never been on this side of the fence, but it seems appropriate that stock keeping can be based on type of product (some goods might have special storage requirements-keep on racks, store separately from other products, temperature conditions etc.), quantity (scale-based), high/low season prices might also be applicable. In such scenario probably the invoice for services can be created based on a report for the stocks at a specific date.

I completely agree with you on the point with physical separation or at least proper marking of the products in case the warehouse layout does not offer the possibility to separate them completely (high-rack or limited storage space). This is what I have observed in almost all warehouses I have been to - people do not trust the system completely and place labels with colouring on blocked/quality stock, they also mark groups of pallets in the pre-staging area per shipment when picking is done at night and trucks arrive early in the morning. It seems to be a good practice - I have not heard of a picker taking the wrong products by mistake when he sees a large orange label in front of him - 'quality inspection' or a red one - 'customer XXX export'.

I am a bit concerned about the idea of delaying goods issue for the sales transaction - if it is only for a couple of days, it can be fine and all requirements will be fulfilled, but during month-end closing it may be a problem, because we have not updated the finished goods account and the stocks are still considered as our property. Such decision can be taken only after confirmation from accounting/controlling department and after consulting with a legal advisor whether this is allowed by local legislation.

The proforma solution - as you pointed out, it really depends on what the customer will agree on. He most probably wishes to receive a legal invoice in the current period and will send payment with reference to the proforma number. Unfortunately we will have no open item for clearing yet, so it can remain there for quite some time. If we go in this direction, we will need to exclude it from open items overdue checks, but we need it to update credit exposure, because we will have values in S067 for the transaction. It is possible with an additional development to exclude the item, for sure.

Posting block for the billing type can be a bit tricky for the finance department, because at month end they are usually instructed not to have anything hanging in VFX3 and the logistics department tends to forget to inform the accountant on time that they have already sent the products. It is still a viable solution, but involves change management, establishing internal controls and additional procedures. For small companies I believe that it can be done, but for the larger ones it may be a challenging task. Still this needs a confirmation from the legal department to be accepted as a company procedure. This also means that you cannot register the sale in the period it occurred, but in the period when the actual delivery is performed (the posting period can be closed by that time. If the customer agrees with the option that the transaction should be treated as an advance payment, in most countries there will not be a problem (for others you are expected to repost VAT for advance payments at month end if the customer delivery would occur in the next posting period).

In case we use only one delivery for the process, the most interesting part for me is the transport planning and subsequent cost calculation. We need first to prevent this delivery from transportation planning, picking etc. by mistake - a shipment blocking reason could be sufficient if the company executes delivery processing based on shipment status. Upon removal of the blocking reason somebody would need to change the dates so that the delivery can be selected with the default settings by planners.

Transportation cost in case we use a single delivery in the process - unless the company uses a very basic calculation for these costs, which can be reliably predicted before shipment creation and entered manually in the documents, the only possible way I can think of unfortunately is a separate payment only for the transportation charges.

[Former Member · Accepted solution]

We are not sure yet if the company charges the client for the service for stock keeping

No, we don't charge it as aditional service, the service is "include" in the sales price....

I am a bit concerned about the idea of delaying goods issue for the sales transaction

In our company we have a "rule": No item is out of plant if there's not an legal invoice.... so the solutions should consider that

The proforma solution - as you pointed out, it really depends on what the customer will agree on. He most probably wishes to receive a legal invoice in the current period and will send payment with reference to the proforma number.

They ask for legal invoice. In Fact, in Mexico the "proforma" invoice is not very common.

Transportation cost in case we use a single delivery in the process - unless the company uses a very basic calculation for these costs, which can be reliably predicted before shipment creation and entered manually in the documents, the only possible way I can think of unfortunately is a separate payment only for the transportation charges.

We use LES for transportation cost. We create a later invoice to customer if the shipment should be paid by them. (We pay to freight vendor, and then we invoice the freight to customer if it should be charged to them...)

Thanks for your great effort

[VeselinaPeykova · Accepted solution]

You can try the following:

1. Perform all steps from order taking till final billing. Ensure that the delivery is not relevant for transportation planning - you can determine a suitable non-transportation relevant route with shipping condition for example.

2. Post 501 K with the same quantity and enter the original delivery number in the header text to have some basis for further reporting. Now you will have the quantities as vendor consignment stock and FI will be happy.

3. The customer calls and requests some quantity to be shipped to him. Post 502 K for the requested quantity.

4. Create a special delivery type without reference. All item categories should be not relevant for credit, no ATP, no movement type for the schedule lines, weight/volume relevant, make sure no regular pricing is applied, picking relevant. This delivery can be used for transportation planning, so determine a route relevant for transportation. In the external delivery field in administration tab enter the material document number from step 3. The field is part of an index - check with BASIS guys if it is OK to activate it if it is not currently active.

5. Finish transportation planning, execute warehouse activities as usual. You may need a special output or changes to the existing one to instruct the warehouse to take the products from the separate storage for vendor stock.

6. Post goods issue. There will be no change to stock levels.

7. Print a non-valuated delivery note to serve as a protocol for product receipt.

8. Execute deliveries to customers as usual.

9. Perform cost calculation.

10. Create an invoice for freight services to the customer if needed. As the decision for invoicing freight costs is on per-case basis, you probably already have some reports available, based on which you create billing with service material.

If this works (I have not tested it), it can be automated to some extent with a custom development + authorization concept.

[Juwin · Accepted solution]

I am not an SD consultant.....,

Wouldn't it be better to change the regular 601 in PGI, with some other movement type like a 601K, to directly move the stock to vendor stock, without having to do a 501K? Is it possible?

Thanks,

Juwin

[VeselinaPeykova · Accepted solution]

Even if it could be done, most probably FI/CO and warehouse department would not agree to such kind of 1-step posting.

The reason to have 2-step movement instead of 1-step is that it could be that two different persons/2 storage locations are responsible for the stocks owned by the company and for the stocks owned by a vendor. In this case we would have a transfer of responsibility for stock keeping between 2 persons so I would recommend not to automate the stock increase. The responsible person for vendor warehouse stocks may need to inspect and count the products before posting GR and sign a receipt document - this is why we need 501 K or similar as a separate step.

[Former Member · Accepted solution]

Dear Moazzam,

I feel your suggestion is good. I have one assumption, can we suggest make to order scenario for such kind of clients? am not sure, do you have any alternative thoughts on this.

Jagdeesh

[moazzam_ali · Accepted solution]

Hi

Make to order is not suitable here. In make to order process is totally different. We have to produce material specially for this customer and order and requirements are transferred in PP but in this post the OP wants to keep material in inventory after sale. MTO will not be suitable here in my opinion.

Thank$

[Former Member]

Hi,

I have implemented this scenario to my client and it wasn't pretty good whenever i tried to fit this into one of our SAP Std business scenarios. So i opted for customization.

My solution basically involved a user exit, a z table, a z transaction and a report.

User Exit at the time of PGI:

user exit that gets triggered when PGI is performed in VL01n, updates a Z Table (i.e in the background with the help of an ABAPer) with desired quantity that needs to be put aside. I personally named this table as "Customer stock held by ABCXXX (org name)". And i asked my ABAPer to generate a report for the end user along with all the document numbers as references. 

Report:

S.No   /  Customer   /   SO number  /   Deliv Doc no /    Material code   /    IN Cust Quantity   /     So far Delivered Qty    / Pending for delivery.

This report helps the end user to see how much stock is lying within the company's premises on any given date.

Z transaction:

This is a simple screen that we have developed to just execute the delivery when it actually goes out of the premises. this further updates the "so far delivered Qty" column in the report.

Steps:

SO --> Delivery --> PGI (Z table updated in the background bcz of the user exit) --> Billing w.r.t to Delivery num

Execute partial or full quantity using Z transaction which inturn updates the report.

User can run the Z report and know how much stock is still lying within the company and how much i sent.

[Former Member]

     First I believe that is possible. Imagine that you are using Contracts process for only this sale scenario;

It's impossible to create delivery doc. from contracts (anybody who read this correct me if i'm wrong).

So you have to define sales order type and connect it with your contract then delivery doc type and connect it with your sales order.

Btw you have to define connection billing with contracts in copy control screen. If you search in copy control about this scenario you can do it without using 501 mov. type or etc.

     First create billing (i know its seems impossible but u can customize it in VOV7 item type and material type FERT or u can use LEIS but u have to customize in it.)Then create sales order reference to same contract. Also if u maintain ctz. in copy control you can see all document process view in one screen.. 

Good luck.

[VeselinaPeykova]

Could you please provide details on the inventory management part of the solution, please?

What kind of goods movement documents will be created, at which point?

How the company will manage its own and the vendor stock separately?

[Former Member]

Hi,

I think you can use Consignment sales, this enables how much stock is being reserved for customer and how much is lying in your plant.

Thanks & Regards,

Sreekanth

[VeselinaPeykova]

Could you please elaborate a bit on your idea?

How the company will post the revenue before issuing from customer consignment stock?

Consignment sales seem to be the exact opposite - you send physically your own products to customer (fill up), which you bill at a later time (consignment issue).

In this case you are not reserving stocks for a customer, you have already sold the products, you just manage somebody else's stocks at your premises (which fits more into vendor consignment).

[Former Member]

Hi Veselina,

I just trying to give a solution the below problem here as per the requirement they have a specific material which will be sold to a specific customer. Second thing is customer will ask to reserve the material in plant storage. so in this case obviously we will not know how much will be owned by customer and how much is lying in our physical inventory. So my  way of identifying the stocks which ever is in Unrestricted stock type it is owned by plant and unallocated to customer once the user does cosignment fill-up then specific qty will get moved to consignment stock type location so in this way when he wants to bill he can do an consignment issue.

Hope you are aligned with my solution.

Thanks & Regards,

Sreekanth

[VeselinaPeykova]

The thing is the customer does not ask just to reserve stock, he asks to buy it and get an invoice.

They pay this material, even if the material is still in our facilities.

After he gets an invoice this means transfer of ownership- so it is not company stock anymore.

With customer consignment the stock is company's, but is physically located elsewhere.

The stocks should remain company's responsibility for stock keeping.

It can be tracked as special stock - on this part we are on the same page.

[Former Member]

Thanks for the suggestion, but Veselina explains perfect the issue with consignment scenario:

With customer consignment the stock is company's, but is physically located elsewhere.

It was the first thing we try, but not work for this case.....

Thanks!

[VeselinaPeykova]

Are you using the retail solution?

It can make the things a bit easier, because they support vendor consignment with shipping.

If not, then the development will be more complicated, but I believe it is still possible (if the client agrees for the additional cost).

[Former Member]

From what I know, we aren't using retail solution.

(I'm not sure if we have the pertinent configurations for that scenario ....)

[former_member207286]

i hope this scenario can be covered with the mapping of Consignment Sales.

Consignment Stock Processing - Sales (SD-SLS) - SAP Library

Thanks & Regards,

Md Faiz Abbas

[VeselinaPeykova]

This is an interesting process, which deserves to turn into a blog post after a successful implementation.

If my understanding is correct, it can happen that you transfer the ownership of the products in one month and physically transport them to the customer premises in a different period.

A couple of questions arise because of that - do you also charge separately the customer for storing the goods at your permises after he purchases them - after all he uses your resources to save storage space? If yes - what is the agreement on calculating and invoicing the stockkeeping fee? This might seem an unrelated question, but it means that you also have additional reporting requirements for this process to create debit memos for the stockkeeping service.

I suppose that it is possible to physically separate or at least to label the stocks that the customer bought from you - otherwise you will have problems with inventory counting. Do you know if this is how warehouse people currently handle the situation?

Next question - do you calculate transportation costs when shipping the products and if yes - who and when is supposed to pay for that - the company or the customer? Based on that you can determine whether you need to adapt your pricing procedure/cost calculation setup.

For the present I assume no localization packages and no specific local legislation requirements. If this is not the case, please provide feedback on these topics - after all, the process should not cause additional audit problems.

From my perspective you need to update profitability and post revenue with an invoice containing the FERT material that the customer purchases from you in the same way as you proceed with all your other customers. Since the ownership of the sold material quantity is changed, they cannot remain a part of your own unrestricted ATP stock - you have to reduce the inventory levels. If you fail do this, you can promise to deliver the same products more than once and it can be embarassing to discover that you do not have sufficient quantity at the time of shipping.

The sold products can be managed as externally-owned special stocks - it is like the other company acts as a vendor and provides you with finished goods on consignment, that you do not actually intend selling to others and you return them after some time. Which means these quantities should not be considered for ATP and MRP - there are methods to exclude certain stocks from ATP and planning.

How is the following scenario handled presently - a warehouse worker damages already invoiced products that you keep in your premises - who and how is charged, are you supposed to 'buy' these back from the customer at a specific price (if you have no stock from this material) or you simply take from your own warehouse stocks (in case you produced sufficient quantity of it) - out of the system and replace them?

Do you have a requirement in your industry for product traceability - SSCC+BBD/batches? This can be important if the customer specifically requests which packed products of his own need to be shipped.

I have not encountered your scenario during implementation, so it would be irresponsible from my side to comment on 'best practices', but I hope that this information can give you some ideas for process design/change management.

the discussion can really improve its quality if you could participate in it.

[Former Member]

Thanks for your response and sorry for the delay in my answers:

If my understanding is correct, it can happen that you transfer the ownership of the products in one month and physically transport them to the customer premises in a different period.

Yes, this could happen...

do you also charge separately the customer for storing the goods at your permises after he purchases them

Not directly, lets say that this charge is included in the sales price.

it is possible to physically separate or at least to label the stocks that the customer bought from you - otherwise you will have problems with inventory counting. Do you know if this is how warehouse people currently handle the situation?

As I know, they keep them physically separated, but not really sure about that...

do you calculate transportation costs when shipping the products and if yes - who and when is supposed to pay for that - the company or the customer? Based on that you can determine whether you need to adapt your pricing procedure/cost calculation setup.

Yes, we are responsible for the shipping... we pay the service to our vendors, and some of them are charged later to our customer. I said some, because that depends of the distance of the shipmment, there's a comercial agreement.

 a warehouse worker damages already invoiced products that you keep in your premises - who and how is charged, are you supposed to 'buy' these back from the customer at a specific price (if you have no stock from this material) or you simply take from your own warehouse stocks (in case you produced sufficient quantity of it) - out of the system and replace them?

Yes, we need to replace it... the customer should receive all the material that we already invoiced to them.... I mean, all the responsability of the inventory is still mine.

Do you have a requirement in your industry for product traceability - SSCC+BBD/batches? This can be important if the customer specifically requests which packed products of his own need to be shipped.

No, we don't.

I hope i clarify your question, if not, please let me know.

Thanks in advance.