First of all I will give a simple definition of vendor consignments. It is when the vendor owns the inventory that you stock, up until the point that you consume the inventory. The vendor therefore expects payment based on the quantity of inventory that has been consumed. It therefore creates less of a risk to the consignee because they do not carry excess inventory unless they are consuming it. It is not as straightforward as this however, as the deal between the consignee and the vendor may specify that the consignee inherits the remaining consignment inventory after a period of time.
This is an area that many financials users do not get involved in because it is deemed as part of the logistics module. However, the settlement of consignment documents creates the same impact on the financials module as other logistics invoice verification transactions such as entering a vendor invoice. Therefore it is important to work with your logistics counterparts to make sure that vendor consignments are set up correctly and settled periodically.
From the financials standpoint there are a few things that you need to know about the vendor consignment process:
(1) The purchase price of the consignment material is maintained on the info record. The info record links the consignment vendor and material that you are purchasing, with a price. This is maintained in transaction ME11. Along with the price, make sure that the tax code is also maintained in the info record so that errors do not occur during settlement.
(2) During goods receipt of the consignment material, no accounting document is created. This coincides with the comment made above, which is that the consignment inventory is not owned until you consume the product. However, when the physically inventory is received at your warehouse, you will perform a goods receipt into a special storage location which will have a special stock type called “consignment”.
(3) When the goods are consumed then the system posts an accounting document which debits the consumption account account (indicating that the inventory is now owned by you and consumed immediately) and credits the consignment payables account (this is the equivalent of the GR/IR account for consignment transactions).
(4) On a periodic basis you should settle the consignment documents by using transaction MRKO. When you get to this transaction, enter your company code and any other relevant data such as vendor, plant, material, etc. Then check the “Consignment” checkbox and click on the “Settle” button and execute the transaction. The result of this transaction is that the consignment vendor is credited with the amount of inventory (based on the info record price) that has been consumed in that period, and the consignment payables account (which was credited in step 3 above) is debited with this same amount. This transaction therefore creates a vendor invoice which can be cleared using the usual payment processes.
One thing to note with this settlement invoice is that the system does not provide the opportunity to enter a reference (invoice) number for this document. In order to do this, you can use user exit RMVKON00 to populate the reference field in a consignment invoice document.