Process / document flow for an odd scenario in sales + manufacturing

[Jelena]

We stumbled across an odd and rather complex sales scenario and I'm totally fishing for the free consulting here. 🙂

One of our companies manufactures residential electric meters that are then sold to the utility companies. This is a rather straight-forward process of sales order, then production order, then delivery (where the serial numbers are captured), PGI and invoice.

Now our sales folks negotiated a very odd contract with one customer. (It's a done deal, so we can't change the requirements, unfortunately.) Instead of just buying the meters like everybody else and taking the ownership at PGI / their warehouse, for this customer we also need to install the meters and only after that they'll take the ownership and pay us.

The meters will still be delivered in bulk to the several customer's warehouses. From there, a subcontractor will do the installations and give us the results (in a text file?) which serial numbers were installed, when and where.

The challenge here is that the customer will place the PO for the large quantities to be delivered to their warehouse (they will tell the subcontractor later where to install). So it seems we still need to follow our regular process to manufacture the meters and then ship them.

But after that we need to bill the customer based on the installation. To add to the complexity, we are also liable for collecting sales tax in multiple US tax jurisdictions.

So far we only came up with an idea to use the text file with installation results and generate a debit memo with one line per tax jurisdiction. We can't combine multiple jurisdictions because it's just not feasible but at the same time neither us nor customer wants /needs to have one invoice line per installation.

But we are drawing blanks on what to do with the first part of the document flow that involves bulk manufacturing and delivery. We need to somehow "close" that part eventually and, ideally, reconcile with the billing part (even if it's in a custom table).

To add to complexity, some meters might be moved from one customer's warehouse to another, some might become damaged. It's not even an orderly process where we ship one order line and it gets installed quickly and then can be rejected or something. It's a multi-year contract for many locations.

Right now we are looking for some design level ideas on how to stuff all of this into SAP with as little pain as possible and we are at our wits end here. Rejecting the sales order after manufacturing has been completed and using an STO to move the goods (and maintain customer's warehouse as their consignment location?) is all we could imagine. This still leaves many gaps and is shaky to say the least.

Any ideas on what else could be used in this scenario? Thank you.

[Jelena]

Thank you for the replies, fausto_motter , ryan.crosby , caetano.almeida , lakshmipathi.ganesan , veselina.peykova !

I'm closing this question with no solution because I left the job where this was a business requirement before any solution was finalized. The last thing I've heard, they were planning to use customer consignment process. No doubt some custom development would be needed there. But unfortunately (or fortunately 🙂 ) I won't know how it ends.

Thanks again, everyone!

[Caetano]

Hi Jelena

From a production planning perspective, we usually map those scenarios of complex production, where we need produce a material and then manage all installation at the customer side using the Engineering-to-Order process, where a PS project manages all the manufacturing activities and aggregates the costs. Perhaps the whole ETO concept would be too much for you, but as you mentioned that this is a multi-year contract, creating a PS project could be a good idea.

The PS project could also help you from the SD side, since you have something called milestone billing, where you bill your customer based on the project progress and also the delivery from the project, which could be useful in this case.

The following wikis should help you to have a better understanding from the SD side, but unfortunately I could not find anything related to PP (maybe I should write something about ETO in the future):

https://wiki.scn.sap.com/wiki/display/PLM/Milestone+Billing

https://wiki.scn.sap.com/wiki/display/PLM/Billing+Plans+in+Project+System

Regards,

Caetano

[Jelena]

Thanks, Caetano! I've been told we'll actually use WBS to track the costs (there are other processes out of scope of this question).

I've only used milestone billing for services so far, have not seen it with the materials. Not sure how it'd look. But thank you for this information, it's good to know.

I agree there is not enough information on this and on Manufacturing (PP) in general on SCN.

[former_member330246]

Fun! My propose, looking only in the technical perspective. If it don't have a great fit, I wish that could give you a good ideas.

### Organizational Structure

Only create one storage location for each customer´s warehouse. This will be relevant for Stage 2

### Stage 1 - sales

Description: I don’t know the correct commercial rules, for example if you will bill only after delivery, or before delivery, or... But at moment my suggestion is to you create a normal sales process with only one change: in delivery, don’t use 601 movement, and try to use a consignment fill up movement.

> Leg 1 - Sales

• Sales Order 1 (could be copy from OR)
• Billing 1 (could be a copy from F2).
• Delivery (change the schedule division in to change the material movement)

In the end of this process, your material was produced, billed and are available in customer´s warehouse.

#### Stage 2

Description: Now you will create a “virtual return --return only in system”, from your material. The true is that you only will have this step to bring the material to your control, adjust it (numbering it), and after calculate the tax

> Leg 2: virtual return

Sales order to return the material, but the receipt storage location must be a storage location that you created to cover the customer warehouse. For example, if you are working on warehouse A, the return storage location will be the Storage Location A.

• Sales Order
• Delivery

At end of this process the material will be in your “virtual” stock, and ready to update the serial number and re ship to final customer. I think that you can update the material serial number without losing history in IQ02 (but I don’t have sure)

#### Stage 3

Description: Now you will move the material from your customer´s warehouse, to final customer (the customer from your customer 🙂 🙂 )

• Sales Order with special pricing only to calculate and clearance the taxes
• Delivery, when the outbound storage location will be the warehouse storage location
• Billing in order to receive the tax. Is not clear for me If you will receive the tax amount and pay it directly to government, or if you will calculate and send to customer… but in any case, you need to calculate and, I suppose, bill the tax value..

#### Issue

• a.The accounting and stock cost must be managed with care, because you will have the material cost in your stock, instead the material was shipped and are available with your customer stock. This must be handle with care, but it is possible to manage with a new Z Movement created in OMJJ.
• b.I don’t know if you are using Vertex or any other tax software (I´m Brazilian, and my US taxes knowledge is limitaded), but maybe you will need to handle the taxed in Stage 1 and Stage 2 linked.
• c. Check if settlement agreement (transaction WKOKO) could be a good way to you create a tax provision, if you need it.

#### How to control all of this?

• Option 1: SAP released a note that allow to enhance the sales order document flow. This means that you could create a rule for create and follow the material status based on this new docflow. Please, check note 2449464
• Option 2: sometimes, here in Brazil, when we have a special process like yours, that we need to have all material flow documented, sometimes we need to create a Zprogram what works as a “material check account”, with tracking all steps.

#### Final Document Flow

1. Sales Order A
2. Delivery A (special movement)
3. Billing A(bill the comercial transaction)
4. ### Leg 1 Done!
5. Sales Order B with reference from Billing A
6. Delivery B (to virtual return the material, and put all in the Customer´s Storage Location)
7. Adjust the material numbering
8. ### Leg 2 Done!
9. Sales Order C
10. Delivery C (Shipping from Customer Storage Location to final Customer)
11. Billing C to adjust the tax

Make sense? Looks good?

Fausto Motter

[Jelena]

Thank you for a reply, Fausto!

Unfortunately there are two billings in your flow and we need to bill the customer only once, after the installation has been completed. That's exactly the problem, actually, because it leaves "hanging" the first leg of the process as we can't bill the customer from it and then need to initiate the last leg with different ship-tos.

We do use Vertex and at least it takes care of the tax calculation (which is the whole other story).

Thank you for the ideas!

[former_member330246]

Jelena, after finish this "challenge" could you please share with us your draught?

Thank you, FM

[Lakshmipathi]

If I understood your requirement clearly, you need to deliver the meters to Ship-To A who is also a Sold-To A. This SH will in turn, deliver the meters to their end customers (this is out of scope in SAP) but the installation responsibility is yours. If my above understanding is correct, may be you can explore Consignment Fill-up functionality where at the first stage, you just need to transfer the meters and once the exact serial number is shared with you, you can bill the customer

[Jelena]

Thanks for a reply! There will be one Sold-to but multiple Ship-to locations (warehouses) initially. When it comes to billing, the Ship-to will have to be a specific tax jurisdiction, so that we can have the taxes applied correctly, based on the actual installation location. Unfortunately, this part messes up the whole process flow because technically we have two different Ship-tos: one we actually ship to (warehouse) and the other we have to determine taxes on and use in the invoice.

I've googled some information on the customer consignment but am not sure it offers many benefits in our case compared to just using regular sales order and delivery. It is a bit cleaner process but considering the actual replenishment will only happen few times a year and we still won't be able to use this for the final invoice, it just seemed like a moot point. Unless I'm missing something...

[VeselinaPeykova]

For consignment fill-up there is no billing, which I believe, is a significant benefit in your case (compared to standard sales). It might happen that your company needs to deliver a few days before month end and installing + sending you the installation details could take some time.

If you do consignment fill-up with sold-to/ship-to = customer's central warehouse, your inventory and ATP will be OK and your accounting, too. Then, after you receive the data from the company, which installs the meters you can make consignment pickup, return back the stocks and create documents with the final ship-tos with standard sales process. Customer consignment offers good flexibility and traceability if at some point your sales department decides that this new process can be applied to more customers.

I think, the more tricky part in your process will be treating potential differences due to damage/losses. During the whole process you have one transfer of ownership and several transfers of responsibility (I am not sure whether the same concepts are valid for USA and for the particular agreements).

Step 1 (optional): transfer responsibility to third-party transportation company, which delivers to the central warehouse. Differences/damaged goods can be discovered on the basis of signed protocols for receipt of products (transfer responsibility to the customer). Usually such differences are billed to the transportation provider, but I have seen exceptions.

Step 2: Losses/damages in the customer's central warehouse or during transportation to his other locations (you don't handle the logistics part, if I understood correctly). I think, this needs to be billed to the customer, but I do not know which should be the most appropriate ship-to for tax purposes. This is mot likely covered somewhere in the contract, which will give you information whether you could use consignment issue (initial ship-to) or you need to create documents for a completely different ship-to. I did not find explanation how you will receive information for these differences, if at all. I suppose, that if the business users notice, that some quantities remained in consignment despite that the subcontractor installed all that was available, they will contact the customer and ask about these meters.

Step 3: Installation (transfer of responsibility to your subcontractor). Damages during installation will be probably documented with additional protocols and most probably the company, which installs the equipments will be billed, unless a quality issue was found.

Step 4: Meters are installed, transfer of ownership and responsibility to the customer. This is the standard sales process, except that you will create orders/deliveries (desired ship-tos)/billing based on the file, received by the subcontractor. I assume that in addition to the files you will receive scanned copies of protocols for installation signed by the customer and the company installing the equipment as additional proof (in some countries this is required), and of course that you will do some simple matching of serial numbers (subcontractor file against what was sent to the customer).

I don't think that there is a need to do anything special with the document flow with this scenario, but I would expect that the finance/credit controllers/billing department may request additional reports, since you will be generating some documents in the background.

I am not sure that I understood the idea about STO, which you mentioned - did you mean STO between storage locations or to a virtual plant just to issue some shipping documents and reduce available stock, then deliver from it to the actual ship-tos? It is not impossible, but it does not feel right. Maybe I got it all wrong...

[Jelena]

Thanks so much for a detailed response, Veselina!

We had a follow-up meeting with the users and it seems that they are inclined to create a WBS and a contract in SAP when we get a PO from the customers. Then sales orders will be created with reference to a contract and to trigger production. This part seems to be unavoidable as we have some corporate revenue forecast reports that run based on the entered sales documents.

Then it looks like they want to create an outbound delivery (with Ship-to = warehouse) and capture the serial numbers in it. After that it seems the plan is to use goods movement to move the goods into the storage location (= customer warehouse). You're right, I mentioned STO just as the means to generate the paper documents for the shipment. We use this for internal purposes between plants and have the forms already. But I'm not sure that this goods transfer part is of much concern.

Mostly our business folks (and myself, by proxy 🙂 ) want to understand how to tie the darn serial numbers in the outbound delivery (or wherever else we capture them) and then generate an invoice with the different Ship-tos than in the original sales document.

You bring up good points about possible damages but I guess there is already some process for this that can be used. The subcontractor will provide us information (by serial number) whether a unit is installed or damaged/lost. (Damage/loss is actually rather unusual as the meters are of no interest to the thieves and they're quite solidly built.)

The reason I "wrote off" consignment was because it didn't help to eliminate the first part (sales order -> production order) and it basically only covers the inventory management. And this part seems to be of least concern to our users. The subcontractor will be responsible for tracking the inventory and they swore to provide us any kinds of reports in case of an audit or inventory.

The serial number matching is the biggest concern at the moment as we'll need to know when to "close off" the original contract/sales order line item, what to invoice and how to account for the differences. We've never had any processes at the serial number level, so it's just a whole lot of confusion. 😞

[VeselinaPeykova]

You responded to G Lakshmipathi with the last comment, but I saw that the question was updated 🙂
The biggest problem, that I can see with the consignment process, is that it could mess up your reporting. My understanding of how consignment can be used, is that the OR (or maybe ZOR) orders will be referencing the contract and they will be essentially like sales from existing stock, not a MTO process, because they will happen after you have produced, delivered, installed the meters and received the report from the subcontractor. Producing the needed quantities will be probably based on this big fill-up orders, which might not correspond fully to the total reported quantity by the installation company in one go and almost definitely will not be the same as the OR orders, which you need to generate.
I mean - you send 300 meters to the central warehouse as a fill-up, 10 days alter you get the report from the subcontractor for installed 180 meters (technically, the process is finished but not from business perspective). You will create bulk consignment return for 180 and based on ship-tos you create 3 orders: 100 for A, 50 for B and 30 for C (if verification is successful). It is probably possible to receive a report for installation of meters from more than one fill up - I hope that this is not a serious problem.
I have used WBS in sales mostly for promotions and I am in no way an expert here, but I think, that you can report execution after generating the billing for the real (OR) orders, which I am not sure how will impact the reporting procedures - it could be a month or more after you physically sent the products out.
I probably misinterpreted the question about getting the serial number into the delivery. I suppose that the warehouse will use scanners (my electrometer serial number is 20 digits long, I cannot imagine a sane person typing a hundred of these by hand every day). I don't know how meters are packaged and what information you store now, but if it is possible to retrieve multiple equipment serial numbers in a box by just scanning a barcode on it - this could help a lot. Many years ago, when I worked in a warehouse, I used to scan all serial numbers in a box of identical video cards to a file and then uploaded it to our database (we did not have SAP, of course). I suppose, that the business will ask you for some simple tool if we are speaking about a big number of entries, so that multiple people could prepare the same delivery.
Or are you concerned about the performance impact of sending huge deliveries with serialized materials via shipping? Sadly, I have no first-hand experience in a productive environment to give any useful hints.
Matching of data is doable, but (please don't flame me for saying this) it might be faster and easier for you if you store some kind of book per number/consignment delivery/consignment return/installation location/final delivery/status etc. in a z-table instead of retrieving the data when you upload the file from the subcontractor. What is more - the business will surely ask you for a report "where I can see everything I need at a glance" and such table could serve as a basis. It does not matter if you decide to use STO instead of fill-up/return - you will end up with similar challenges to track execution.I dismissed the idea to utilize just standard sales, because I could not come up with an idea, which would not make at least two departments, the developer and the support team very unhappy, but maybe other members can think of something better.

** On a side note - how lucky of you to produce and sell something, which no one wants to steal. 🙂

[Ryan-Crosby]

Hi Jelena,

Forgive me if I'm no help here as I'm not really a functional expert but I'll give it my best shot. Any thought regarding something like the following - a PO is generated by the customer for the meters which would be recorded as free goods / not billing relevant (or something like that) such that the delivery can still take place and the subcontractor can proceed with the installation. Then a follow up delivery without a sales order reference is created (can't say I would like this for a regular scenario but this seems like a tough one) where the serial numbers can be recorded based of the installation results and the follow on billing can take place.

Regards,

Ryan Crosby

[Jelena]

Ryan, thanks for the reply! Standalone SO is not a bad idea actually and we even already have a process like this for samples. I'll look some more into this.

Based on our conversation with the business, it seems they needed delivery a bit earlier, to start tracking the serial numbers when they are manufactured and shipped to the warehouse. Unfortunately I don't know of other ways than delivery to assign serial numbers in this whole process. But a delivery without order might still be a better idea than debit memo because it at least would have serial numbers included.

Actually the business users had this dream that they'll just enter a bulk SO and then some program will magically pick random serial numbers related to SO line and generate an invoice with one line per jurisdiction code. We had to disappoint them that it's not how the document flow works in SD. 🙂

Thanks again!

[former_member330246]

Regarding document flow, check sap note 2449464 - How to enhance the SD Document Flow.
Sap released one month ago a powerfull way to enhance the sales docflow.