Inventory consumption handling

In vendor managed inventory (VMI) and subcontracting environments, consumptions are recorded to view and maintain consumption data in the supplier's or manufacturer's administrative warehouse. This warehouse mirrors the customer's or subcontractor's warehouse from which the customer/subcontractor consumes materials supplied by the supplier/manufacturer.

Handling inventory consumptions includes the creation and processing of these consumptions.

Note

In this topic, supplier refers to the supplier or the manufacturer, customer refers to the customer or the subcontractor, and VMI warehouse refers to the customer's or the subcontractor's warehouse from which the customer or the subcontractor consumes goods supplied by the supplier or manufacturer.

Consumption master data

To record inventory consumptions in the supplier's administrative warehouse, to update the inventory levels, and initiate invoicing:

  1. In the Implemented Software Components (tccom0100s000) session, select:

    • The VMI (supplier side) check box to maintain consumptions in VMI environments.
    • The Subcontracting with Material Flow and Service Subcontracting with Material Flow check boxes to maintain consumptions in subcontracting environments.
  2. In the Terms and Conditions (tctrm1100m000) session, specify terms and conditions for the relevant business partners, warehouses, and items.
  3. In the Schedule Terms and Conditions (tctrm1131m000) session, select the External Packing Slip is Mandatory check box if the consumption line must include an external packing slip for a schedule. If the Duplicate External Packing Slip Allowed check box is selected for a combination of sold-to business partner, ship-to business partner, and item, an external packing slip can be used that is already used.

  4. To create consumptions for subcontracting scenarios in the Inventory Consumption (tdsls4140m000) session, you can set the values in the Method of Inventory Update field of the Logistics Terms and Conditions (tctrm1140m000) session to:

    • Receipts and Consumptions
    • Receipts, Consumptions and Inv. Balance
    • Inventory Balance as Consumption
    If, for VMI scenarios, you do not specify this optional field, received quantities are not displayed in the Inventory Consumption (tdsls4140m000) session; material consumptions are updated through backflushing.

For further information on how to set up the VMI functionality, see VMI customer forecast - setup and VMI supplier forecast - setup. For information on subcontracting, see Overview of subcontracting.

Consumptions

Consumption records are generated or manually created. They show the received quantities provided by the supplier and the subsequent consumptions by the customer.

A consumption record includes a header and one or more lines.

  • Consumption header
    When the VMI warehouse is replenished, LN generates a consumption header. Headers of consumption records contain the name of the customer, the VMI warehouse, and the aggregated received and consumed item quantities. You can view and maintain these headers in the Inventory Consumptions (tdsls4140m000) session.
  • Consumption line(s)
    When the customer consumes material, a consumption line is created. You can view and maintain details of individual consumptions in the Inventory Consumption Lines (tdsls4141m000) session.
  • Consumption lines are generated after receiving the LoadInventoryConsumption Business Object Document (BOD), or you can manually create them based on an e-mail or phone call from the customer.

After the consumption is specified, it must be processed to:

  • Invoice the customer for the consumed quantities, if invoicing is applicable.
  • Decrease the inventory levels of the administrative warehouse.
Note

In the customer's LN system, consumptions are generated in the Consigned Consumptions (whwmd2551m000) and Inventory Consumptions (whina1514m000) sessions. For more information, refer to Consumption records.

Processing consumptions

To determine whether invoicing is applicable, to start up invoicing for the relevant customer, and to lower the inventory levels in the administrative warehouse, you must process the inventory consumptions.

You can process:

  • Consumption lines, by selecting Process Consumption Line from the appropriate menu in the Inventory Consumption Lines (tdsls4141m000) session.
  • Consumption lines of an item, by selecting Process Inventory Consumption from the appropriate menu in the Inventory Consumption (tdsls4140m000) session.
  • A range of consumptions in the Process Inventory Consumption (tdsls4290m000) session.

After the consumptions are processed, the orders and schedules that are linked to the consumptions are displayed in the Orders by Inventory Consumption Line (tdsls4142m000) session.

Note

You can start all of these sessions from the Inventory Consumption - Lines (tdsls4640m000) session.

How LN processes consumptions - outline
Step 1. Link consumption record to replenishment order/schedule

To determine whether invoicing is applicable and to start up invoicing for the relevant customer, LN links the consumption to the order/schedule with which the item was received in the VMI warehouse as follows:

  1. If a Subcontracting Reference is available on the consumption line, the consumption is linked to the corresponding purchase material supply line in the Purchase Order Material Supply Lines (tdpur4116m000) session.
  2. If a Reference, Shipment Reference, or both fields are specified, LN searches for a matching sales schedule for a combination of these fields and links the consumption to the schedule. If no schedule can be found, a message is displayed.
  3. If a Packing Slip is available, LN searches for a matching sales schedule shipment and links the consumption to the schedule. If no schedule shipment can be found, a message is displayed.
  4. If a Customer Reference is available and a matching sales order is found, the consumption is linked to the order using the order's payment conditions.
  5. If no matching sales order can be found, LN checks whether the Customer Reference has a matching sales schedule (line) that can be linked to the consumption.
  6. If the Invoicing Required check box is selected, LN searches for a Pay on Use sales order line to which the consumption can be linked.
  7. If no Pay on Use sales order line can be found, LN searches for a Pay on Use sales schedule line to which the consumption can be linked.
  8. If no Pay on Use sales schedule line can be found, a consignment invoicing sales order is created to settle the invoicing of the consumed quantity.

If the Invoicing Required check box is cleared on the consumption line, LN automatically lowers the inventory level. For more information, refer to Adjusting inventory level in the administrative warehouse.

Step 2. Process returns

If the Return check box is selected on the consumption line, no invoicing is required.

If the sales order found is Pay on Use, an invoicing line is created that is not invoiced. On the invoicing line, the returned consumption quantity is displayed in the Returned Consumption Quantity field of the Sales Order Invoice Lines (tdsls4106m100) session.

If the Subcontracting Reference is filled or the returned item is a packaging item, the consumption line's Processed check box is selected, and no further action is taken.

To return quantities, you must manually create a sales return order and link it to the relevant order/schedule. For more information, refer to Sales return orders.

Linking consumptions to the replenishment order

The following can apply to a consumption record:

Subcontracting order

To link a consumption line to a subcontracting purchase order, LN first utilizes the subcontracting reference, and then the consumed item to locate the relevant material supply line matching the subcontracting purchase order. The material line with an item that matches the inventory consumption line's item is selected.

For costing purposes, the used material must be booked on the correct subcontracting purchase order. Therefore, the Subcontracting Reference field in the Inventory Consumption Lines (tdsls4141m000) session is mandatory.

Usually, the subcontractor is not invoiced for material that is supplied by the manufacturer and consumed by the subcontractor to produce the items for the manufacturer.

For consumption lines that are linked to an operation subcontracting, item subcontracting, or service subcontracting material supply line, the Consumed Quantity field is updated in the Purchase Order Material Supply Lines (tdpur4116m000) session, after receipt of a consumption message from the subcontractor. Consequently, the inventory levels are updated. For more information, refer to Adjusting inventory level in the administrative warehouse

For more information, refer to Subcontracting in Procurement.

VMI order/schedule

To link a consumption line to a vendor managed inventory (VMI) order or schedule, LN first uses the combination of reference and shipment reference to search for a matching sales schedule. Next, the packing slip is used to search for a matching sales schedule shipment. Finally, the customer order/schedule reference is included in the search.

In VMI environments, the customer order/schedule reference is not mandatory. If an inventory consumption line contains a customer order/schedule reference, LN searches for a sales order or sales schedule with a matching Customer Order. If no match is found, LN searches for the first sales schedule line with a matching Customer Schedule Number. Consumption lines are linked to this specific sales schedule, although consecutive schedule lines can have a different customer schedule reference.

If the payment found is Pay on Use, inventory levels are updated and invoicing is triggered. For the order/schedule lines linked to the consumption line, LN creates invoicing lines in the Sales Order Invoice Lines (tdsls4106m100) session or Sales Schedule Invoice Lines (tdsls3140m200) session.

If the payment found is Pay on Receipt or No Payment, only the inventory levels are updated. For more information, refer to Adjusting inventory level in the administrative warehouse.

If no packing slip or customer order/schedule reference is available and the Invoicing Required check box is selected:

  1. LN searches for the oldest sales order/schedule with payment type Pay on Use that is not yet fully consumed. If a matching sales order/schedule line is found, LN creates an invoice line linked to that sales order line or sales schedule.
  2. If no matching line is found, LN creates a consignment invoicing sales order based on the Consignment Invoicing Order Type field in the Sales Order Parameters (tdsls0100s400) session.

If a Pay on Use sales order/schedule line is used and the total consumed quantity exceeds the ordered quantity, LN creates an invoicing line for the part that "fits". For the remainder, LN searches for other Pay on Use sales order/schedule lines to create invoicing lines. For the consumed quantities for which no sales order/schedule line is found, LN creates a consignment invoicing sales order.

For each invoice line created, LN updates the inventory levels with the invoiced quantities. For more information, refer to Adjusting inventory level in the administrative warehouse.

Note

LN searches for Pay on Use sales order/schedule lines only if the Ownership External check box  is selected in the Implemented Software Components (tccom0100s000) session.

Sales consignment invoicing orders with origin Consumption

If a consumption cannot be linked to a replenishment order, a sales consignment invoicing order is generated to settle the invoicing of the consumed quantity. For these orders, their origin is Consumption and their order type is retrieved from the Consignment Invoicing Order Type field in the Sales Order Parameters (tdsls0100s400) session.

Updating inventory levels for these orders is handled by Warehousing, because warehouse activities are part of the order procedure of a sales consignment invoicing order.

After a consignment invoicing order is released to Warehousing, inventory level adjustments are handled by the outbound process. You should set the activities of the warehousing order type that are linked to the consignment invoicing order type to automatic. For more information, refer to To define warehousing procedures.

Note
  • The price for sales consignment invoicing orders is based on the consumption date.
  • You cannot cancel or delete sales orders for which the origin is Consumption, nor cancel, delete, or add corresponding lines or change the item and quantity.
Adjusting inventory level in the administrative warehouse

LN automatically updates the inventory levels of the administrative warehouse without performing the outbound and shipment procedures. To register the inventory reduction, a sales order of type Sales (Manual) and a shipment are created.

You can view this sales order and shipment in the Item - Warehouse - Inventory Transactions (whinr1510m000) and Inventory Consumptions (whina1514m000) sessions. The ownership of the sales order is Customer Owned, because invoicing and payment is performed based on the originating Pay on Use sales order/schedule, the consignment invoicing order, or the subcontracting purchase order.

Prices and discounts

When LN creates an invoicing line:

  • Sales order
    LN determines prices and discounts based on the values of the originating sales order line, using the consumption or replenishment date, which depends on the Price Determination Based on parameter setting in the Order Terms and Conditions (tctrm1130m000) session.
  • Sales schedule
    LN determines prices and discounts based on the values of the first schedule line linked to the originating sales schedule.
Note
  • In the Sales Order Invoice Lines (tdsls4106m100) session, consumption invoice lines are linked to a sales order line. In the Sales Schedule Invoice Lines (tdsls3140m200) session, consumption invoice lines are linked to a sales schedule header. When you release consumption invoice lines to Invoicing, required information, such as prices and tax, are retrieved from the first schedule line linked to the sales schedule. Information from successive schedule lines is not taken into account.
  • The price for sales consignment invoicing orders is based on the consumption date.
Pay on Use sales order/schedule lines

Sales order/schedule lines for which the payment type is Pay on Use and the activity Release to Invoicing is part of the order procedure, can:

  • Register consumptions.
  • Be invoiced, that is, invoicing lines are created for the consumption lines to which they are linked.
  • Have the Self Billing check box selected.
Note

This is applicable in an extended consignment setup, in which you directly link the invoicing for a consumption of consignment inventory to the replenishment order or schedule.

In a basic consignment setup, in which the order and schedule procedures are split into a replenishment and invoicing part, these rules apply:

  • Invoicing is not available for consignment replenishment orders, which are sales orders for which the Consignment Replenishment check box is selected in the Sales Order Types (tdsls0594m000) session.
  • Because for consignment replenishment orders Release to Invoicing is not part of the order procedure, consumptions can be invoiced using a Consignment Invoicing sales order. These are sales orders for which the Consignment Invoicing check box is selected in the Sales Order Types (tdsls0594m000) session.

For more information, refer to Consignment in Sales and Procurement.

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