Overage and Debit process

[Former Member]

Hi Everyone

Here is the scenario on overage process ,,, Warehouse ships excess products to customer but we have billed them what was initially ordered , we will come to know once the cycle count or customer might them call the company say they have received excess and they want to retain it , now we need to create order without delivery and bill the customers, if anyone has come across the this scenario please let me

Thanks

[VeselinaPeykova · Accepted solution]

In most companies and business scenarios it is not allowed to take products out of the warehouse unless you have a document stating you have to deliver them somewhere.

How would you know when the driver takes some goods that they are to be shipped to a customer and are not stolen? This is one of the reasons why people place gate security in the first place.

Please explain in details your business case.

There is a process where the driver takes a full truck of products and goes to visit a list of customers (it is possible to use also one-time customers as well) without knowing whether the goods will be purchased or not - this is called van sales/traditional sales. In this case there is a speculative load delivery created for the driver and he is responsible for the products between the timeframe of leaving the plant premises and returning back with products/invoices and he is charged for any discrepancies discovered. Is this what your company does?

There is another process - a driver goes with presold deliveries for several customers, but the first customer does not accept some of the goods (for example cannot pay) and the driver can offer these excess products to some of the remaining customers for sale.

Variant 3: you have defined tolerances for overdelivery and deliver more products than the customer requested originally. Then you bill the actual delivered quantity.

Double-check with your client - the way you describe the situation, it means that they have no control over their sales, their inventory, their finance. Such company would be in need not of mapping the current  ways of working in an ERP system, but of business consultants and change management if it aims to stay in the business. I hope that you have omitted some part of this overage process, which is kept on paper at the moment - at least recording the actually loaded products on the truck by the gate security in some book and signing an acceptance protocol form both by the customer and the driver.

In the system you can create a debit memo request and bill it of course (would be nice to know what billing date and service render date to use) and you can continue to post inventory losses instead of posting the products as sold and updating the correct accounts, but this hurts the business  and could be considered as problematic during an audit.

In addition: if I am your customer and you call me stating that some products are missing from your warehouse and ask that I pay for them (how would the price be calculated by the way) without presenting any documents signed by me proving that these goods were shipped to my company and we have not agreed at that time on the product prices .... can you predict what would be the result?

[Former Member · Accepted solution]

HI Peykova

I really appreciate , thank so much for the detailed explanation and i agree to what to said yes it is true to all the industry but this is typical processes in Pharma , and the volumes of this kind of orders is not too high ,to your point the reason why call customers call back is due to DSCSA regulation incase he end to sell it to end customer he has account all the details where the product was purchased from the lot number ,expiration date , GTIN number etc. , so customer cant sell it until he purchased .

Either he two options --one to return the product or purchase , he cant dispose the as it is medical product there are lot of regulations associated to it .

Customer who received many not know until he use it this might take months or even distributor may not know it until he does the cycle count this is happening quite lot in the pharma sector in order to avoid this there is new regulation came into effect which need to need implement by pharma industries by 2017

Coming to the point --in this scenario customer will call back say he had overage and wants to use it ... now we need to come up with kind order and do the dummy delivery and debit memo to the customer or order with debit memo -- this needs to be done because we need to send ASN to the customer with all the details lotnumber, expiry date etc is there is better process you think of

Once again i really appreciate for the detailed explaination

[jignesh_mehta3 · Accepted solution]

Hello Venky,

What happens to Stock in the case you described above?

I mean say for example, the Customer places Orders for 100 Tons. The Factory has produced 150 Tons and the Warehouse ships 105 Tons to this Customer who places order for 100 Tons.

Now, based on your explanation, the Invoice Quantity will be 100 Tons, but the Delivery is done for 105 Tons. Is there not a stock mismatch in this case?

Offcourse you can create Debit Memo without Quantity movement (without Delivery) and create Debit Memo (Invoice) for this. But what happens to Stock mismatch within your company is still the question.

Normally, in my experience of working with Pharma Companies, Credit Memo with out Good Movement is used for medicines destroyed in transit (e.g. borken glass bottles) or expired goods. Also Debit Memo without Quantity is used only in cases of under-invoicing done my mistake.

Thanks,

Jignesh Mehta

[Former Member · Accepted solution]

HI Mehta

Thanks for the response

1. Yes there would be mismatch in the warehouse qty ...we will come to know only when there is cycle count done at warehouse or customer calls back

2.We have third party warehouse system , once we come to know about it either customer call in or we will call the customer and ask him he want to retain the overage qty. if he say yes we need to bill him and warehouse needs to get updated

3. this scenario is neither credit memo with out goods movement nor debit memo done in case of under invoicing

since customer wants to retain the excess instead of returning the product we want to come up with the best possible solution

[VeselinaPeykova · Accepted solution]

I have never worked with Pharma before, but it seems that it may happen to have over- and under- delivery (if the customer does not check what he receives, we cannot be 100 % sure that he gets the whole quantity with a specific delivery).

Is it really impossible from business point to check in the plant during picking/loading of products what quantity with certain product identification exactly is going out to be shipped to a certain customer?

To me it would make the most sense to work with overdelivery tolerances and perform goods issue on the actual quantities instead of guessing whether the stock levels are correct at some point in time or not. In case the quantity difference from overages is not big or if you execute daily counting (most probably you do not), this may not have a serious impact on sales and it does not necessarily mean that the warehouse staff will be charged for these losses (still looks pretty bad in company reporting). Unfortunately this tolerance approach means to reach some agreement with the customer on handling overages - e.g. he agrees to buy all upto a certain percentage of overage.

I assume POD is not a viable option since the customer finds discrepancies after more than a month. Consignment process, I believe, does not fit well into your business model either.

The main challenge with both options that you present - debit memo vs. dummy order+delivery is that you need to know whether you should adjust your inventory levels or not for each specific case. Since you already track the products in SAP or in an external system - is it possible to determine this at the time you create the adjustment order? If you need always to process some special delivery outputs even if you are not supposed to impact the inventory levels, you can also use manual item categories with schedule lines without goods movement.

[Former Member · Accepted solution]

Venky,

In this whole scenario, I wonder how your company can purport to certify traceability (e.g. lot numbers, expiration dates, etc) when you don't even know for sure how (or if) the original error occurred.

If it were my company, I would be disinclined to certify traceability for these overages.  An unscrupulous customer could be using this method to bypass legal restrictions.

Best Regards,

DB49

[Former Member · Accepted solution]

HI

Thanks for the reply ...in order support the lot( number and expiration dates etc) as soon the customers provides us with the details we will create ASN documents which has the all the details

Thanks

[VeselinaPeykova · Accepted solution]

Having the products for free on stock without the proper certificate just means that they cannot be sold legally.

Product recall from market in case of a problematic production run is going to be a challenge as well - you wait until/if somebody discovers the physical location of your missing products and tries to sell them instead of checking to whom you sold the goods with a specific lot and contact the customers directly.

[phanikumar_v3]

What if customer forgets to update you on the excess qty received??

When an order with 100 qty-But delivery for 105 Qty-what if drug department stopped the truck on road for verification???(That to Phama drugs like sedatives)

Also Normally once Under/Over delivery assigned at CMR-with delivery relevant billing-System always copies delivery qty into billing but not Sales order qty--Is this not happening in your case???Have you checked VTFL data transfer routines in your system???

No company can initiate either Credit/Debit memo based on the ""customer confirmation of additional stocks"""(may be that kind of genuine customers you can find 1 out of 100,000)(Here please don't take my comments to your heart)

I really feel you are not getting sufficient information from your client/May be your understanding issue.

Pl involve more & Update us..

Phanikumar

[Lakshmipathi]

Warehouse ships excess products to customer but we have billed them what was initially ordered 

I really felt that it is strange system being followed by your client.  For any seller, whatever quantity billed, only to those extent, materials are allowed to cross the gate and not sure, knowing such things are happening, whether your client has initiated any action.

Nevertheless, coming to your requirement, you can create a debit memo request with reference to the parent billing document, based on which, a debit memo can be raised on that customer to the extent of quantity despatched in excess of original invoiced quantity.  May be, suitable order reason maintained in debit memo request.

G. Lakshmipathi