Consignment Process in SAP MM

In Consignment Process, the vendor provides material and stores them on the Company premises. The vendor remains the legal owner of the material until the Company withdraw materials from the Consignment stores. Only then does the Vendor requires payment. The Invoice is due at set periods of time, for example, monthly. In addition, you can also arrange with the vendor that you take over ownership of the remaining consignment material after a certain period of time.

In this Consignment Process, we will not create purchasing document for the vendor, vendor himself send the material to our plant, though the material is available to our plant, the responsibility and ownership of the material is of vendor. A liability only arises when the material withdrawal (consumption) is posted in the system from Consignment Stock.

Some important points to Note:-
1. We don't write price in the Consignment Purchase Order. The price is taken from the Consignment Info Record.

2. Consignment Stock is the special kind of stock. The stock is lying at the Company Storage Location but the responsibility belongs to vendor.

3. Consignment Stock are not valuated. When the material is withdrawn it is valuated at the price of the respective vendor from Consignment info record.
4. Info records with info category Consignment is required to create before creation of Consignment Purchase Order. Here maintain the Price and Tax Code mandatory in the Info Records for material against vendor.

Configuration required for Consignment Process:

- Assign standard purchase organization to Plant (T. Code - OMKI)
SPRO path > SAP reference IMG > Enterprise Structure > Assignment > Materials Management > Assign Standard Purchasing Organization to Plant

Assign Plant code with the Purchase Organizations

- Activate the Consignment Info Record (T. Code - OMEV)
SPRO Path > SAP reference IMG > Materials Management > General Settings for Material Management > Activate Consignment Prices via Info Records

Activate the radio button of Consignment Info Record Active

- Maintain Automatic Account Assignment for Material Posting (T. Code - OBYC)

SPRO Path > SAP reference IMG > Materials Management >Valuation and Account Assignment > Account Determination > Account Determination without Wizard > Configure Automatic Posting

Consignment Payable    KON

Expenses/ Revenue from Consignment Material Consumption AKO

Offsetting Entry for Inventory Posting GBB-VBR

Consignment Process Step by Step:

1. Create Consignment Infor Record (Mandatory)

2. Create Consignment Purchase Order

3. Create Goods Receipt to update the Vendor Consignment Stock

4. Issue Material from Consignment stock to Unrestricted stock through Transfer Posting

5. Consignment Settlement 

1. Create Consignment Info Records (T. Code - ME11)
Create the Consignment Info Record using Info Type Consignment. Maintain the Price and Tax Code which are mandatory in the Info Record

2. Create Consignment  Purchase Order (T. Code - ME21N)
Create Consignment Purchase Order with Item Category K against the vendor. Here we not maintain the price, it will automatically pick from the Consignment Info Record. Conditions and Invoice Tab are not available in the item level at the Consignment PO.

3. Post Goods Receipt (T. Code - MIGO)
Post Goods Receipt against Consignment PO using 101 K Mov. Type (GR for Consign. Stock), this will update the Consignment stock of the vendor. After Goods Receipt, we can see the stock of the material using T. Code MMBE, the stock of the material shows in a Consignment Stock.
No Account Posting at this time since the material still belongs to the vendor.

We can also enter the Goods Receipt without Purchase Order in the Consignment stores using Transaction MB1C/ MIGO with 501+K Movement Type.
And for initial update of Stock for Consignment using Transaction MB1C/ MIGO with 561+K Movement Type.

To view Consignment Stock for vendor use T. Code MB54

4. Transfer Posting (T. Code - MB1B/ MIGO)
Perform Transfer Posting manually using Mov Type 411 Special Stock K (without reference of PO) on the material when the stock is ready to be transferred to company own's inventory. This Transfer Posting deduct (consume) the stock from the Vendor Consignment Stock and update the Company own Stock. We can view the stock from T. Code MMBE.
Alternatively, Consignment stock can also be consumed by Production Order using 261 K Mov. Type.

Accounting Entries:
Inventory Account (BSX)          Dr.
Consignment Liabilities (KON)       Cr.

5. Consignment Settlement (T. Coder - MRKO)
Run the Transaction MRKO to settle Consignment liability and pay the vendor. Think of this transaction is the self service invoice. The Consignment settlement is based on the quantity of stock which was consumed by Company. After settlement, the system will generate the Invoice Document.
First, we choose to Processing "Display" the available Document for settlement and select "Withdrawals not Settled" from Display options, then the information text is "Not Settled"
Go Back and select the Processing "Settle" and select "Withdrawals not Settled" from Display options and Execute, this will create the Invoice Document and information text is "Document Created"
Go Back and choose Processing "Display" and "Settled withdrawals" from Display options and Execute, then the Information Text is "Settled"

Accounting Entries
Consignment Liabilities (KON)        Dr.
Vendor Account                        Cr.

Consignment settlement is not connected to the purchasing information system, because the purchase order history is not updated during consignment settlements.

Cancelling Consignment Document
Cancel the Inventory Document (Doc. created using 411+K) in the Inventory Management and start Consignment settlement. The system will generates the Credit Memo for the returned document.
To include the cash discount in the accounts, include these in the consignment price. This ensures that the cash discount is implicitly posted during the goods withdrawal and settlement.
Delivery costs cannot be settled.
The Consignment liability account cannot be flagged as Post automatically only and must not be defined as a Reconciliation Account.

Note: Consignment settlement cannot be performed simultaneously by several users. The material documents are not blocked during settlement, which means duplicate settlement documents can be created.