POD – Series 3 – Inter Company Stock Transfer Scenario

A very warm Hello to all!

This document is part of the POD series that I started. The earlier two docs are referenced below for quick reference

POD – Series 1

POD – Series 2

This document will focus on the Inter-Company stock transfer process. This is basically a variation/extension of the Intra-Company stock transfer process discussed in POD- Series 1

The process of inter-company stock transfer can be divided into two parts

1. Refurbishment

2. Drop Shipment

Refurbishment:- This process is also known as Stock replenishment process. This is basically when Company A manufactures the Product and stock transfers it to Company B upon request.

As said earlier, from Logistics perspective, this is same as Stock Transfer Process. However, because the product is crossing the company code boundaries, this amounts to Sale/Purchase in the eyes of law. 

A Product ,say, P1 is manufactured in Plant A (Company 1000). For some reason (eg: further processing) it is transferred to Plant B (Company 2000).

Briefly, the process steps would be as below 

 

a. Plant B raises a STO (Stock Transfer Order) on Plant A

b. Plant A might have the stock ready with it or it may need to manufacture the same

c. Once stock is available in Plant A, the same will be despatched (PGI) to Plant B (Movement type 601)

 

Accounting entry at this stage will be:

     Dr. COGS (cost of goods sold)

     Cr.  Stock account                       

 

After PGI, the stock is removed from the books of Plant A and the same is shown as “Stock-in-Transit” (SIT) in the books of Plant B

d. Billing will follow after PGI in Company 1000

       Dr     Inter Co Customer (Company 2000)

       Cr     Sales revenue

e. Plant B receives the stock and does GR (MIGO – Movement type 101). At this moment, the stock shifts from SIT to Unrestricted / QI stock depending upon the system set-up

Accounting entry at this stage will be:

     Dr.  Stock account                       

     Cr.  GR/IR account

f. Invoice verification (MIRO) in Company 2000

Accounting entry at this stage will be

      Dr. GR/IR account

      Cr. Inter Co. Vendor (Company 1000)

Note that there are various options possible to automate this step.

    a. One can set-up the Idoc process whereby at Step (d), system generates an Idoc and posts a corresponding entry in the receiving company

   b. One can set up the ERS (Evaluated Receipt Settlement) process to automatically process Invoice verification using a scheduled background job. Since group company is involved in the process, it would be a trusted source of supply and hence using ERS should not be an issue (ERS process automatically does MIRO for the posted goods receipts)

Dropshipment:- This is when a customer approaches company 2000 to purchase a product. Company 2000 may not be manufacturing the product or the customer is close to the location of company 1000. Hence, company 2000 requests company 1000 to deliver the goods to the customer, on behalf of company 2000

The process goes like this:-

However, accountancy angle says there are two set of transactions involved in the above process

    1. Company 1000  selling to Company 2000

    2. Company 2000 selling to the Customer.

The process steps and scheme of entries in this case would be as below

a. Customer approaches Company 2000. Company 2000 creates a Sales Order in its system

b. Company 2000 raises a STO on Company 1000. For Company 1000, Sold-to-Party and Bill-To-Party will be Company 2000, however, Ship-To-Party will be the end Customer

c. Company 1000 ships the Product to the end Customer.

Accounting entry at this stage will be:

     Dr. COGS (cost of goods sold)

     Cr.  Stock account 

d. Company 1000 raises invoice on Company 2000

Accounting entry at this stage will be:

       Dr     Inter Co Customer (Company 2000)

       Cr     Sales revenue

The COGS account posted above is maintained in T code OBCB (not in OBYC)

f. Company 2000 raises invoice on the end customer

Accounting entry at this stage will be:

        Dr. Customer

        Cr. Sales revenue

g. The payment process will follow the course (between End Customer <-> Company 2000 and between the group companies)

                                                                           =====End of the Process========

Experts corner:- 

 

Below points are meant to provide expert knowledge about this process. These are separated from the above process steps so as to target the relevant audience.

 

a. Material master set up in Plant A:- (Only the settings relevant to FICO)

 

  – Procurement Type = E (In-House manufacturing)

  – Price control = S (Standard price)

 

b. Material master set up in Plant B:-

 

– Procurement Type = F

– Special Procurement Type = Z1 (to be configured in OMD9)

– Price control = V

Note that it is still possible to transfer the cost component split from the sending plant, provided both the companies use same cost component structure.

c. Valuation price of the material

Usually, the price at which the Product will be sold by the Company 1000 + any planned delivery costs + any non-deductible taxes would form the valuation price of the receiving company

d. A separate distribution channel can be earmarked in SD in order to distinguish the inter-company sales so as to report them separately in COPA

Thank you for reading the document. I would appreciate your feedback on the document, which will help me to improve it further.

Next document would focus on few other processes