Blog Series – SAP S/4 HANA Supply Chain for Transportation Management – 06 – Integrated consignment process and consolidation opportunities

[Bimal_S]

One of the key advantages of having professional shipping functionality of SAP S/4HANA Supply Chain for Transportation Management (embedded TM) is the ability to consolidate inbound and outbound movements. Previous blog focused on the opportunity and benefits of consolidating inbound and outbound movements in MM subcontracting process. Similarly, there are processes in SD (sales and distribution) area where we can consolidate/combine inbound & outbound movements. This blog focuses on one such scenario – integrated customer consignment process with embedded TM.

Customer consignment is the process of keeping the stock at customer premises, and until the customer consumes or sells it, it will be a part of the seller. The customer is not obliged to pay for these goods, until it is removed from the consignment stock. Since consignment stocks still form part of valuated stock, one must manage this stock in the system. However, consignment stock must be:

• Managed separately from the rest of your stock, so that we are aware of the stock which is stored at the customer location

• Managed separately for each customer

Advantages - Shipper	Advantages - Customer
Introduces new/unproven products within current/new sales channels Potentially ensure long-term business with a retailer Judge what levels of inventory are turned over in particular time periods Reduced inventory holding costs	Only pay for what is consumed Generally, avoids lag times between using stock and new orders arriving Opportunity to establish a more traditional bulk order system in realistic order quantities Access to a wider range of inventory could draw new business
Disadvantages - Shipper	Disadvantages - Customer
High investment in logistics for large amount of new inventory If it does not sell, the supplier faces a loss because they are still the owner With no monetary risk, the customer may not be motivated to aggressively promote the inventory	If the inventory fails to be consumed, customers could waste floor/shelf space Management and logistics of consignment stock along with others The supplier owns the stock, but the customer will be responsible as keeper.

Consignment process is used in most of the industries and is very common in consumer goods industry, where there is a requirement to display products at the store fronts. Additionally, consignment process can act a catalyst for the demand driven supply chain process. Company can use the pull method in supply chain, as consignment issue process (consumption) represents the actual sales of the product. Most inventory management systems do not handle consignment inventory very well. However, SAP has a robust solution for consignment process. Additionally, SAP consignment process integrates seamlessly with SAP Transportation Management and provides a strong end-to-end solution for various SAP clients.

SAP Solution:

The consignment process in SAP consists of four small processes:

1. Consignment fill-up: Send materials to customer consignment stock
2. Consignment issue: Issue materials from customer consignment stock to the customer
3. Consignment return: Return materials (from customer ownership) to customer consignment stock
4. Consignment pickup: Pickup consignment stock and move it to plant stock

In 'Consignment fill-up' and 'Consignment pickup' invoices are not generated, since there is no change of ownership for the materials. SAP provided various sales and delivery order types, item categories and movement types for these 4 processes.

Scenario	SO Type	SO Item Category	Sch line Category	Delivery Type	Del Item Category	Movt Type	Ownership (After the process)
Fill Up	KB	KBN	E0	LF	KBN	631	Shipper
Issue	KE	KEN	C0	LF	KEN	633	Customer
Return	KR	KRN	D0	LR	KRN	634	Shipper
Pick Up	KA	KAN	F0	LR	KAN	632	Shipper

The framework for the standard consignment process which is regularly used in the industry is detailed below.

In this scenario, as a part of ‘Consignment Fill-Up’, the shipper moves the material to the warehouse which is under the ownership of customer. Once the customer uses the materials, the ‘Consignment Issue’ process is executed to remove the stock from the shipper’s inventory. Moreover, customer can return the material to the consignment stock using ‘Consignment Return’ process. 'Consignment Issue' and 'Consignment Return' processes are not relevant for transportation, as there is no physical movement outside the warehouse. In case the shipper has to take the material back from customer warehouse to shipper’s plant/warehouse, 'Consignment Pickup' process can be used. This is a TM relevant process. Majority of the consignment scenario follows the above process, and the integrated process flow is detailed below.

Integrated SD-TM process flow (for order based planning scenario):

*  A generic process flow is available in SAP best practice explorer for for Customer Consignment (1IU). However, this process does not detail the integrated process with SAP TM. https://rapid.sap.com/bp/#/browse/categories/sap_s%254hana/areas/on-premise/packageversions/BP_OP_EN...

TM set up to activate

The set up to activate consignment orders for transportation management are same as any other scenario. Using integration profile and control key settings various consignment order and deliveries can be integrated, depending on whether it is order based or delivery-based planning. It is crucial to activate the correct order or the delivery type depending on the scenario. For example, for above scenario, the control key activation setting for order-based planning is shown below.

Only KA – Consignment Pickup and KE – Consignment Fill -Up are activated for Transportation planning and execution. Other settings for planning, execution and settlement are similar to a standard TM processes. For Consignment Returns & Consignment Issue processes, TM planning and execution are not relevant. Hence the control key activation is not set up for these order types.

Inbound and outbound consolidation opportunities:
If you analyze the above processes, it is evident that Consignment Fill-up and Consignment Pickup orders can be combined. Generally, there will be many independent orders moving from shippers’ plant/warehouse to customer warehouse (Fill Up). Similarly, some orders will require the materials to be brought back to shipper’s plant/warehouse. If we can combine these 2 types of movements in a single cockpit profile, using optimizer (or manually) these orders can be consolidated. This significantly reduces the empty moves and transportation cost(depending on the transportation volume).

Integrated process flow and the stages of a consolidate freight order with Consignment Pick Up and Fill up is shown below.

Other Scenarios:

Even though above scenario is the most common process in the industry, there are some variations. In order to cater to the various requirements such as Just In Time etc…, certain shippers setup exclusive warehouses near big customers plants/warehouses.

In certain situations, customer expects the warehouse to have only the consignment stocks. Also, the movement from this consignment warehouse can be under the ownership of the shipper. In this case all the 4-consignment process are Transportation relevant as there is physical movement from shipper’s consignment warehouse to customer plant(detailed in above diagram). So, the activation of orders/deliveries using integration profiles and control keys should incorporate this aspect. From a consolidation perspective, Issue and Return can be consolidated in addition to fill up and pick up.

 

Another variation of the consignment process is when the consignment stock is at shipper’s plant or warehouse itself. This may be requested by customer to make sure that the stock is reserved for them.

In this case, only the Issue and Return process are relevant for transportation. Fill up and Pick up are not TM relevant, as the movement happens within the warehouse (detailed above). The control key activation has to be maintained accordingly and the consolidation opportunities are available for Issue and Return orders.

In addition to these variations other processes can also be possible. For example, customer may pick up the material from shipper's warehouse and shipper may not own the transportation. Similarly, some of the returns can be handled by the customer. All these processes may not be transportation relevant and the control key/integration profile activation has to be setup to incorporate these variations. Moreover, some shippers/customers may not use Consignment Return and Pick-Up to return the material to the shipper’ plant. They can use the regular return order as a one step process to return the issued material to the shipper. SAP can support all these processes and if we can design and activate the TM relevance of orders and deliveries as per the requirement, we can realize the integrated process with Transportation Management.

Conclusion:

In short, consignment process can have many variations. SAP has provided some standard setting which can cater to most of the scenarios. Additionally, the seamless integration of SAP SD with SAP TM is one of the biggest advantage when compared to other ERP products. As part of the implementation, it is critical to understand all these variations and set up the transportation management system accordingly. Similarly, we can model the vendor consignment process for the inbound scenarios. Hence, there are lot of opportunities in the consignment process where inbound and outbound shipments can be consolidated.

In SAP LE-TRA or S/4 HANA basic shipping, it is not possible to combine inbound and outbound movements. Planning inbound and outbound FU in FU work list (or transportation cockpit) is considered as professional shipping functionality. Combining and consolidating inbound and outbound movement (using TM optimizer or Cockpit) can reduce the empty moves, improve the vehicle utilization, and help in reduction of carbon footprint. This can significantly reduce the cost if the freight volume and spend are high. Hence professional shipping in ‘S/4 HANA Supply Chain for TM (embedded TM)’ can be a compelling business case and is critical to achieve efficient transportation process for many shippers/manufacturers.

[Narender_khatri]

Thanks. A very insightful post covering multiple variations of consignments and the involvement of TM within them.

I'm assuming these processes don't use the new S4HANA functionality of consignment object (in TM) yet though, right?

Thanks,

narender

[Bimal_S]

That's correct. The consignment object is just released (Q4 2020 - Q1 2021) and it was not considered in the above blog post.

[former_member791415]

Dear Mr Bimal  Thank you for your excelent SAP Blog

I am really interested by the variation of the consignment process when the consignment stock is at shipper’s plant or warehouse itself. This may be requested by customer to make sure that the stock is reserved for them.

Could you please tell me the Customizing to use to make it  ?

Thank you  Best regards

[Bimal_S]

Hi Cathy,

What is the TM version? S/4 HANA embedded TM or decentralized TM (S/4 or TM 9.X)

Secondly, is this requirement for a specific customer Or for a specific plant?

Or for all consignment fill up scenarios irrespective of customer or plant?