Pay On Consumption in Oracle EBS – Setups

Consigned Inventory: Exists when inventory is in the possession of one party, but remains the property of another party (Manufacturer). Inventory physically at a customer site remains the financial possession of the vendor. The inventory is considered transferred when agreements specify it is physically consumed. The ownership transfer of the inventory can occur at the following places.

• Sub inventory transfer
• Back flush transactions
• Move order transfer
• Sales order pick
• Transfer of ownership transaction

Inventory Setups: After logging into INV responsibility do the following.

Create a master item (“test_consigned_item“) with the following parameters. (Items -> Master Items)

• In the inventory Tab, please enable Inventory_Item, Stockable, Transactable flags. Reservable flag can also be turned on.
• In the BOM Tab, BOM Allowed flag is turned ON(My understanding is, this is an optional one).
• In the Costing Tab, “Costing Enabled” and “Inventory Asset Value” flags need to be turned ON.
• Flag the Purchased, Purchasable, Use Approved Supplier fields ON. Enter a meaningful value in “List Price” field.
• In “Physical Attributes” Tab, enter a proper value for Unit Of Measure column.
• In “General Planning” Tab, turn on the “Consigned” check box in the vendor managed section.
• In Lead Times Tab, enter the value as 1 for field lead time lot size.
• Work In Process Tab, Build in WIP turned ON
• In Order Management Tab, Customer Ordered, Customer Orders Enabled, Shippable, Internal Ordered, Internal Orders Enabled, OE Transactable and Returnable check boxes are enabled. Also populated the Default Shipping organization.
• In the Invoicing Tab, enable the Invoiceable Item and Invoice Enabled check boxes.

Assigning the item to an organization (“Vision Operations – V1 – 204“)

Creating sub inventories (Setup -> organization -> Subinventories)

• Create 2 sub inventories (“Consigntst” and “toconsign“)
• One sub inventory (“consigntst“) should be expense only sub inventory. This means “Asset Sub Inventory” should be turned OFF.
• Second sub inventory (“toconsign“) should have the check box “Asset Sub Inventory” turned ON.

Defining Consumption Transaction Rules (Setup -> Transactions -> Consigned/VMI Consumption). Please note that this step has to be performed after having a supplier ready / created.

• Enter 1 record for each transaction type per organization (“Subinventory Transfer“, “Backflush Transfer”,” Sales Order Pick”, “Move Order Transfer”). You can enter only the transaction types that you are planning to use for ownership transfer.
• The organization has to be the item organization we defined earlier.
• The weight value allows one to set the system processing order. The system picks the transactions that have highest weight. Enter the value “1” in the column “Weight”.
• The “Consigned” check box has to be turned ON
• Enter the expense only sub inventory (“consigntst“) in “From Subinventory” column.
• Enter the second sub inventory (“toconsign“) in “To Subinventory” column.
• Enter the inventory item we created in earlier steps.

Purchasing Setups: After logging into PO responsibility do the following.

Creating a supplier (Supp_consign) with the following parameters (Supply Base -> Suppliers)

• In the Classification Tab, set “Supplier” as the value for type field.
• Create a site (S1) with proper address, contact information.
• In the general tab of Site, make sure only “Pay” and “Purchasing” check boxes are ON.
• In the Purchasing tab of Site, in the Self-Billing section select the value “Use” for “Pay On” field and “Consumption Advice” value for “Invoice Summary Level” field.
• Make sure the Ship-To and Bill-To locations are appropriately set

Creating ASL(Supply Base -> Approved Supplier List) we will create ASL and associate the blanket purchase agreement for our consigned item.

• Create ASL for item “test_consigned_item” with supplier “supp_consign” as a direct and approved supplier. This can be done by setting the value of “Business” field to “Direct” and Status field to “Approved” respectively.
• In “Record Details” Tab, ensure that the value for field “Global” is set to “Yes”.

Creating BPA(Blanket Purchase Agreement)

• Create a BPA for item “test_consigned_item” with the approved supplier “supp_consign“
• Make sure “Pay On” field in the “Terms” window is null
• Save and Approve the BPA
• Note down the BPA number “4419“

Associating ASL with BPA number (Supply Base -> Approved Supplier List->Attributes)

• Click on the attributes button in the ASL screen and this will open the Supplier – Item Attributes window.
• In the “Source Documents” Tab, enter a record by specifying the value in “Type” field as “Blanket” and “Number” field with the previously created BPA number”4419“.
• In the Inventory Tab, Turn ON the “Consigned from Supplier” check box and also specify the “Billing Cycle (Days)” field with value “0”(zero)

With the above setups, we can say that the required setups are complete for consigned inventory transactions via sub inventory transfer method. To validate if the setups are appropriate or not, try creating a Release for the BPA we created. The system should throw up a message “You cannot create releases for Consigned material”. This indicates that the setups are appropriate.

Now that setups are complete, lets see how to create some transactions for these setups…

Purchasing Transactions:

Creating a standard PO

• Create a standard PO with supplier as our approved supplier (“supp_consign”).
• Receipt routing must be defined as Direct Delivery. (Purchase Orders -> Shipments -> Receiving Controls – Miscellaneous Section -> Turn ON the “Allow Substitute Receipts” Check box and “Receipt Routing” field has to be given “Direct Delivery”)
• Ensure Consigned Flag is turned ON (Purchase Orders -> Shipments -> More -> Consigned Flag should be turned ON )

Creating a Receipt

• Receive the standard PO “4420” in the expense sub inventory we created earlier (“consigntst”). The location field is not mandatory while receiving as it is a consigned material.

Verification of On-hand quantity in INV

• Check the quantity under On-hand Quantity for the item “test_consigned_item”. It should be 100 and also ensure that the owning party is “supp_consign – S1” in the sub inventory “consigntst”. Indicating that that the owning party is supplier at site “S1”.

Inventory Transactions – Consigned Transactions

• Make a consigned transactions for the quantity say about 15 (INV -> Transactions -> Consigned Transactions with a transaction type as “Transfer to Regular” from the owning party “supp_consign – S1”
• This will automatically trigger the transfer from expense sub inventory to asset sub inventory. However we are not seeing actual transfer at sub inventory level. Possibly because of the profile “INV: Allow Expense to Asset Transfer” is set to value “No”.

 Verification of On-hand quantity in INV

• Check the quantity under On-hand Quantity for the item “test_consigned_item”. You should see the line got split into two and the owning party is not populated for the quantity we transferred. This indicates the ownership got transferred from supplier to us.

Reports / Concurrent Programs

• Run the concurrent program “Create Consumption Advice” (INV -> Transactions -> Create Consumption Advice) for our supplier “supp_consign” and site “S1”
• Run the concurrent program “Pay On Receipt AutoInvoice” (PO -> Reports -> Run -> Pay On Receipt AutoInvoice) for a transaction source “USE” or “ERS_AND_USE”
  • This will populate the payables interface tables with our transactions and also runs the “Payables Open Interface Import” program to load the invoices into Payables.

For technical users, To identify the cosumption transactions from database, please refer to the table MTL_CONSUMPTION_TRANSACTIONS. This can be joined with MTL_MATERIAL_TRANSACTIONS using TRANSACTION_ID column.