Vendor Managed Consignment Process

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Susheel Tiwari
September 23, 2014 6 minute read
Vendor Managed Consignment process

14 Likes 5,977 Views 9 Comments
Introduction: Vendor consignment process in SAP-MM is a special kind of external procurement

process. Consignment order is placed to external vendor who delivers the materials at company premises on a
given schedule but ownership will remain with vendor. In normal procurement, liabilities to company is booked as
soon as good is received by company but liabilities to company is only booked in case of consignment process
when actual goods are consumed.
In normal consignment process, company has to keep on placing the order against any increase in demand or
any future forecast which is very time consuming process to place the PO every time.
This document will explain about How we can set up a process where vendor can take care of complete
Management of consignment inventory. Vendor will have complete responsibility to ensure availability of stock.
Company will place only one time PO for 1 year. Vendor will take care of all further requirement without any
further PO even if demands are raised more than PO qty.
Company will place a consignment PO of lump-sum qty for complete year based on historical consumption data.
Vendor will plan for delivery based on requirement on daily basis unlike normal consignment process where
complete lot is delivered at company process.
We will have to set up some con guration and master data to dispatch current stock and future demand
information to vendor on daily basis so that vendor is updated about current stock and replenishment needed to
meet the demand.
This process will have following bene t:

https://blogs.sap.com/2014/09/23/vendor-managed-consignment-process/ 1/18
1) Lower Inventory level
2) Less over head
3) Lower Inventory handling cost
4) Vendor will have better information about customer demand which will help vendor in planning
5) Reduced replenishment duration
Below Process has been mapped without any development. This will set up automation between Vendor
and Customer.
Process Involved: We can Understand complete process ow chart from below picture:
We can see from the ow, there are following steps are involved in the cycle.
1) Manual Blanket PO creation: Blanket PO is created manually with some validity and item
category K. Tolerance in PO is also de ned to give exibility to vendor to adjust the delivery in case any short
fall or additional demand is ascertained through PROACT message type. Tolerance limit is de ned as 99.9%.
2) Purchase Order output through EDI: PO is transmitted to vendor via message type ORDERS
3) Transferring stock and sales data via EDI: Message category PROACT is used to send
current stock and historical/forecast sales data for a particular material to vendor
4) Planning replenishments at vendors end: Vendor can plan replenishment qty based on
current stock and future demands.
5) Confirmation from vendor side: vendor will send confirmation against delivery. A IDOC will be
created with message type ORDRSP and create a line item under confirmation tab in PO.
6) Despatch Advice: When material is ready to be despatched, vendor will send advice to customer.
Information will come in the form of an incoming IDOC with message type DESADV and will create inbound delivery
number against PO placed to vendor. This IBD will be updated under confirmation tab
7) Good Receipt : When material arrives at company premises, GR is done against IBD and stock will be
posted with movement type 101 K and stock will be appearing under consignment stock
Configuration Involved to set up Vendor managed Consignment process:
1) Creation of output message for PO: As PO has to be transmitted to vendor via EDI so an output type should be
created followed by maintenance of condition record so that when PO is created, system should propose an output
type for EDI. It is simple to set up output type for PO so I will not touch upon configuration process. Standard output
type is NEU so we can create our own message type ZNEU copying from NEU followed by NACE set up for EDI with
partner type LS.
2) Setting up partner profile for EDI for message type ORDERS: We need to set up partner profile for
electronic transmission.
Menu Path: SPRO–>Material Management–>Purchasing–>Messages–>EDI–>Set up Partner Profile.
We can also access it via transaction code WE20
A new screen will open where we need to maintain Partner no and partner type.
1) Partner no-Logical .System name
2) Partner Type-LS
Once it is done, we need to maintain information for Outbound Parameter which are given below
1) Partner Role-LS
2) Message Type-ORDERS
3) Receiving port- As de ned
4) Transfer IDOC-Immediately
5) Basic Type-ORDERS05
We also need to maintain message control as listed below:
1) Application-EF
2) Message type-ZNEU (As de ned above for PO)

3)Process Code-ME10
3) Setting up partner pro le for PROACT message type sending to vendor: Here we also de ne
partner no, partner type as de ned above.
We need to maintain following outbound parameter:
1) Partner Role-LS
2) Message Type-PROACT
3) Receiving port- As de ned
4) Transfer IDOC-Immediately
5) Basic Type-PROACT01
Once Partner pro le is maintained, we also need to maintain pro le for sending stock/sales data to vendor.
We can access SPRO via following path
SPRO–>MM–>Purchasing–>Messages–>EDI–>Pro le for sending stock/sales data
We need to maintain control pro le on screen appeared. Say XYZ pro le was maintained.
We also need to maintain controlling parameter
Transfer STOCK level
Forecast of Qty sold

Once it is done, maintain Stock Type as shown below
Stock Type-INSME
Stock type-LABST
Now Maintain Sales data Access
Quali er-004
Info Structure-S094
Version-XXX
Plant-WERKS
Qty-MNG02
4) Version Activation for Info Structure S094: Now we need to activate version created above
A00.
Access following Con guration Path
SPRO–>Integration with other MySAP.com components–>Data transfer to the SAP Business information
Warehouse –>Settings for Application specific data source (PI) –>Logistics–>Managing transfer Information
structures –>Setup of Statistical data –>Application specific set up of statistical data –> Perform Set Up – Inventory
Controlling
5) Set up for Message type ORDRSP for con rmation from Vendor: Here we need to set
up for incoming IDOC in partner pro le. Run We20 transaction and set up inbound parameter
Partner no-XXXX
Partner type-LS
Inbound Parameter:
Message Type-ORDRSP
Process Code-ORDR
6) Set up for Message type DESADV for Delivery Advice from Vendor: Here we need to
set up partner pro le for incoming IDOC for IBD against PO.
Partner no-XXXX
Partner type-LS
Inbound Parameter:
Message Type-DESADV
Process Code-DELS
Now System is ready for consignment process.
Now Create a blanket PO for full year
When PO is Released, System will send EDI to vendor for PO information.
Now Create PROACT message to send current stock and future demand information to Vendor
Run WVM2 transaction and enter all required details
When you execute the report, System will output all stocks details as shown below
Now Click on Send IDOC button to trigger PROACT IDOC to vendor. We can see IDOC created via WE02
transaction as shown below:
Now When Vendor sends con rmation against PO, Incoming IDOC with message type ORDRSP is received
as shown below
This Information is updated in PO under con rmation Tab as shown below. System insert AB line
Now When Delivery is ready to get dispatched, vendor sends information via DESADV message type and
system create IBD and update in PO as shown
below:
Now Receive the goods against IBD
PO will be updated with IBD qty
Alert Moderator
Assigned tags
MM (Materials Management) |
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9 Comments
You must be Logged on to comment or reply to a post.
Kunalesh Roy Choudhury
September 25, 2014 at 6:45 am
Hi Susheel
Nice Document....
Regards
Kunalesh
Like(0)
Susheel Tiwari | RSS

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author Like
September 25, 2014 at 8:39 am
Hi Kunalesh
Thanks for sharing your views.
Thanks
Susheel
Like(0)
Former Member
September 25, 2014 at 1:33 pm
Very informative Susheel, thanks for sharing
Like(0)
manoj kedem
October 13, 2014 at 6:10 am
Very useful documents
Like(0)
kumar kumar
October 13, 2014 at 6:28 am
Hi Susheel Tiwari, Thanks for Sharing a Such Good Document. Keep post such Documents Regards Kuamr.
Like(0)
Former Member
November 26, 2014 at 5:40 am
Hi Susheel,
Its a really good document, I am also working for drop ship PO scenario with interface .And after reading this
I get inspired to post document for my process.
Like(0)
Mehmet Ozgur Unal
January 30, 2017 at 10:19 am
Hi Susheel Tiwari ,
Good attempt.
Keep it up !
Regards.
M.Ozgur Unal
Like(0)
Emery Parsons
October 23, 2018 at 9:16 pm
I agree with Mehmet that this is a good job....if you could clean up the introduction section and more fully
explain bene ts by linking them to your explanations the user/customer would have a better grasp on your
thinking. Quanti cation of the bene ts would also be easier to de ne. For instance, in #1 of bene ts, would
inventory actually decrease when you are expecting delivery of a full year of inventory? #2 may be a ected if
#1 is not accurate but certainly expediency and e ciency of the manufacturing process increases as well as
time to customer.
Like(0)
Bruce King
December 22, 2019 at 6:24 pm
I think you did a great job. There is very little with consignment stock and EWM. The questions I have are
EWM related. How would you return vendor consignment stock? When you inbound a material into EWM
showing one material number (di erent only by stock type K for consignment) How would you send it to
QA. QA needs to send the results of inspection A or R to consignment bins not regular stock bins.
Like(0)
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Introduction: Vendor consignment process in SAP-MM is a special kind of external procurement

when actual goods are consumed.

This process will have following bene t:

Follow RSS feed Like

1) Lower Inventory level

2) Less over head

3) Lower Inventory handling cost

5) Reduced replenishment duration

Configuration Involved to set up Vendor managed Consignment process:

Follow RSS feed Like

Menu Path: SPRO–>Material Management–>Purchasing–>Messages–>EDI–>Set up Partner Profile.

We can also access it via transaction code WE20

1) Partner no-Logical .System name

1) Partner Role-LS

3) Receiving port- As de ned

We also need to maintain message control as listed below:

2) Message type-ZNEU (As de ned above for PO)

We need to maintain following outbound parameter:

1) Partner Role-LS

3) Receiving port- As de ned

SPRO–>MM–>Purchasing–>Messages–>EDI–>Pro le for sending stock/sales data

We also need to maintain controlling parameter

Transfer STOCK level

Forecast of Qty sold

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Once it is done, maintain Stock Type as shown below

Now Maintain Sales data Access

Access following Con guration Path

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Now System is ready for consignment process.

Now Create a blanket PO for full year

When PO is Released, System will send EDI to vendor for PO information.

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Run WVM2 transaction and enter all required details

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Now Receive the goods against IBD

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PO will be updated with IBD qty

Related Blog Posts

Two Di erent payment Term for one vendor in External Procurement

Vendor Rebate process and settings

Vendor Managed Consignment

Vendor consignment stock process

You must be Logged on to comment or reply to a post.

Kunalesh Roy Choudhury

September 25, 2014 at 6:45 am

Susheel Tiwari | RSS

September 25, 2014 at 8:39 am

Thanks for sharing your views.

September 25, 2014 at 1:33 pm

Very informative Susheel, thanks for sharing

October 13, 2014 at 6:10 am

Very useful documents

October 13, 2014 at 6:28 am

November 26, 2014 at 5:40 am

Mehmet Ozgur Unal

January 30, 2017 at 10:19 am