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

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.

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4 Answers

  • Posted on Aug 09, 2017 at 06:59 PM

    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):



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    • 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.

  • Posted on Aug 09, 2017 at 06:56 PM

    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.


    Ryan Crosby

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  • Posted on Aug 10, 2017 at 08:27 AM

    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

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    • 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. :)

  • Posted on Aug 10, 2017 at 08:10 PM

    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

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