The consignment procedure

Step 1. Customer plans supply

The customer plans the component supply required for production. The planning is based on the customer's current inventory, the firm demand, that is, outstanding sales orders or sales schedules, and the unconfirmed forecasted demand.

The resulting supply plan consists of a range of dates and times on which particular quantities are to be delivered. Ths supply plan includes a firm part and a planned, that is, unconfirmed part. In the contract between the supplier and the customer, the dividing line between firm and planned demand is laid down. Typically, the demand dated before a particular time fence is to be regarded as firm demand.

If the supply plan includes firm and planned demand, the customer typically uses purchase schedules. If it only includes firm demand, the customer uses purchase orders.

The customer will not request replenishment while having sufficient owned stock. If the owned stock partially covers the demand, the customer allocates owned stock before supplier-owned stock.

The customer sends the supply plan to the supplier.

Step 2. Supplier commits to supply plan

The supplier checks whether they can fulfill the customer's requirements and commits themselves to the quantities that they can deliver according to the date/time schedule of the supply plan.

Optionally, the supplier commits themselves to the firm demand and the planned demand. For the planned demand, the supplier commits themselves to days rather than times. The supplier typically stores the committed and planned quantities as a sales schedule in their ERP system.

The supplier notifies the customer of the quantities they can commit themselves to. If the supplier cannot commit themselves to all requested quantities, the customer can look for other or additional suppliers, or alternative items.

Step 3. Customer sends call-off

In the purchase schedule, the customer enters a call-off against the committed quantities. In this scenario, replenishment of the component stock is triggered by purchase schedules or purchase orders and EDI/Rosettanet messages.

Step 4. Supplier replenishes the customer's stock

The supplier replenishes the VMI warehouse as required.

The customer registers the receipt of the goods in the VMI warehouse.

To notify the supplier of the receipts, the customer sends RosettaNet-XML message Inventory Report/ Receipt to the supplier. This message triggers an inventory receipt to update the inventory levels in the supplier's administrative warehouses.

Also, in the supplier's ERP system, a consumption record can be created in the Inventory Consumptions (tdsls4140m000) session, either manually or electronically after a call-off message from the customer. This consumption record handles the invoicing in the Invoicing module for the supplier. LN links the consumption record to the originating sales order to the customer. For more information, refer to Inventory consumption handling.

Step 5. Supplier sends invoice to customer

Because the supplier owns the components on receipt, the supplier invoices the customer at regular intervals; self-billing by the customer is another option in this scenario.

Step 6. Customer issues stock

The customer issues components for production or sales, because the customer is responsible for warehouse management for the VMI warehouse.

In the Process Inventory Consumptions (tdsls4290m000) session, the supplier processes the consumption record to create an invoice line linked to the originating sales order line. The invoicing lines are shown in the Sales Order Invoice Lines (tdsls4106m100) session.

If during the process no originating sales order line is found that can be linked to the consumption record, LN generates a sales order of type Consignment Invoicing to create invoicing lines.

Step 7. Customer pays supplier

The customer pays the supplier.