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Implementing Consignment Inventory (Part 2 of 3)

In the previous blog post, we covered the definition, initial setup and advantages of managing consignment inventory using Epicor ERP v9 or v10.

Below are the steps that must be done to implement a new consignment customer with a new consignment part, assuming that you already have a consignment plant (in v9) or site (in v10) set up in the system.

  1. New consignment agreement is placed by the customer
    • Create a “Consignment Warehouse” for this new customer (one time for each customer).
    • Define minimum stocking levels in the consignment plant/site; i.e., if your contract says you are to always have 100 on hand, then set 100 as the minimum on hand for the consignment plant/site.
    • Define minimum stocking level at the manufacturer’s local plant. This would be any inventory that you want to keep on hand to fulfill any rush requirements. Typically, this is less than or equal to the minimum consignment level above.
    • In the consignment plant/site, specify that this item is a “Transfer” item, and that the “Supply Plant/Site” is your main manufacturing plant. Also specify the transfer lead time (the number of days that the item will be in transit).
    • Create the MRP forecast for this customer part in the consignment plant (i.e., you are forecasting that the inventory will be consumed from consignment, not from your local stores).
    • Note: at this point, you do not have to have any firm Sales order entered… MRP Forecasting + minimum on-hand will drive the first fulfillment of consignment inventory.
  2. Run MRP
    • MRP will see that you are currently below the minimum in the consignment plant, and will generate suggested transfer order requirements from the manufacturer’s plant to consignment.
    • MRP will then add these requirements to the minimum on hand specified in the manufacturer’s plant, and will generate “unfirm jobs” to fill these demands (even without a firm sales order).
  3. Firm Job, and Make Product
    • This is a normal job in your local plant.
    • When complete, the product is received to stock.
    • Once in stock, it will show on the suggested transfer order shipments.
  4. Ship Transfer Order from the manufacturer’s plant
    • Transfer orders generate Transfer Order Packslips. These packslips show the address of the demand (the consignment plant). It is your paperwork that goes to the customer.
    • Note that this is not a customer shipment…it is a transfer, because you are not transferring ownership, only moving inventory locations.
  5. Receive Transfer Order into Consignment
    • This is done once you receive confirmation from the customer that they have received the shipment.
    • This function actually takes the inventory out of “In transit” and puts it into the consignment plant.
  6. Consumption of Consignment Inventory
    • In most cases, your customers give a report showing what items were consumed. When this happens, an order needs to be entered, shipped and invoiced.
    • There are several ways that this can be done, but easiest is to create a new “counter sale” sales order. Counter sales allow for an order to be entered, “shipped” and immediately invoiced without all the extra processing.
    • When you create the counter sales order, you tell the system that you are selling it from the “consignment warehouse” location. This then automatically reduces the quantity on hand in consignment.
    • If there are a large number of parts consumed each day, then this could be automated with a Service Connect process to create and ship the orders. Alternately, an Excel spreadsheet could be copied and pasted into the counter sale section on the sales order.
  7. Replenishing consignment locations (basically, Go to Step 2 above)
    • If the customer’s consumption above did not reduce inventory below the “minimum” on hand in the consignment plant, then nothing will happen.
    • But, if it does reduce the on hand below minimum, then when MRP has its nightly run (see step 2 above), it will create another transfer order suggestion to move more inventory from your main stock to consignment.

Consignment Summary
While there are “urban legends” that Epicor ERP v9 and v10 cannot do consignment inventory because there is not a consignment module, this is not true, and as shown above, the actual steps are not difficult. In fact, once set up, the system will self-fulfill as the customer consumes the inventory. The manufacturer may need some help from an Epicor consultant in setting this up the first time, but once the model is complete, it can be easily replicated.

In the last part of this series, we will discuss how to verify the quantities and finish the contract for consignment inventory.

Posted by Tim Shoemaker, Senior Principal Consultant, Epicor Professional Services

Introduction to Consignment Inventory (Part 1 of 3)
Definition
Consignment inventory is inventory that is:
  1. Owned by the manufacturer
  2. Shipped to the customer, but not invoiced until—
  3. Consumption of the inventory is advised by the customer—at which time, it is invoiced.

Consignment and Epicor ERP v9 & v10
Epicor ERP (v9 & v10) does not have a “consignment module” per se, but it does support consignment very well, with well-defined procedures. For example, the method described below has been used by multiple companies in the aerospace industry.

There are several deviations from this model that can cause it to malfunction.  We conclude this post by highlighting those pitfalls so they are not pursued.

Consignment with MRP-Multi-Site Advantages
By setting up consignment in the manner described here, there are many advantages and processes that can be managed within Epicor ERP v9 or v10. These include:

  1. Forecasting of consignment usage by location
  2. Management of minimum stocking levels by consignment location
  3. Management of minimum stocking levels at manufacturer’s location to fill consignment emergencies
  4. Automatic replenishment of minimum levels at the consignment location
  5. Ability to cycle count/physically inventory a specific customer’s inventory
  6. Easy shipment of “Transfer Orders” to move inventory to consignment location
  7. Material requirements for future consignment deliveries are still calculated based on the forecast that is entered into consignment

The Required Initial Setup
To process consignment inventory, there are several modules required, as well as some specific setups.

  1. Must have Material Requirements Planning (MRP)
  2. Must have Multi-site
  3. Must create a new “Plant” (in v9) or “Site” (in v10) to hold “Consignment Inventory”

Optional Setup Items
There are some decisions that are optional, depending on the customers, and the products that are shipping to those customers:

  1. You can set up either one consignment plant/site for the entire company, or one consignment plant/site for each Customer Ship-To. The reason is:
    • If you ship common assemblies to multiple consignment sites, then it is easier to track requirements if there is a separate plant for each location.
    • But if there are no common parts between customers, then creating one plant (or site), with one warehouse for each customer, is sufficient.
  2. You can alternatively create separate cost tables for each plant. This allows the plant to have its own average cost. However, many companies do not want this to happen, and tie the costs of the consignment plant to the main plant.

Pitfalls of Skipping Steps or Incorrect Setup
As stated above, there are several pitfalls that are potential causes for failure and should be avoided:

  1. Some think that these consignment locations are supposed to be “non-net inventory”… this is not true. They must be considered “nettable” inventory in order for this to work.
  2. Ignoring forecasts, or putting forecasts in the wrong location.
    • Forecasts should always be entered, and they should be entered into the consignment plant.
    • Forecasts are what drives the future purchases (and even manufactured job orders, if the lead time on purchasing/manufacturing is longer).
  3. Forgetting transfer lead time.
  4. Entering sales orders against the wrong plant. All consignment usage must be “shipped” (consumed) from the consignment plant.

In the next post, we will discuss the consignment process in action.

Posted by Tim Shoemaker, Senior Principal Consultant, Epicor Professional Services
RAPID Onboarding of Acquired Companies to your ERP

Many companies do not realize successful economies of scale and resource synergies from a merger or acquisition because they are unable to rapidly consolidate disparate organizations and business systems. Organizations currently on or considering a Merger and Acquisition (M&A) path will be tasked with bringing those companies together. One of the most critical projects in this endeavor will be implementing the selected go-forward ERP (Enterprise Resource Planning) system. A properly executed onboarding strategy will enable you to recognize ROI by leveraging the scale of the new organization, and capitalize on the synergies of the merger or acquisition.

“RAPID” in the title of this article represents an acronym and a framework for executing a fast-tracked ERP implementation. RAPID actually includes an acronym within an acronym.

  • Reports: Reports include any business intelligence output, such as: dashboards, printed reports, transactional information, external data sources, etc.
    • Interfaces: Interfaces are any systems that may push or pull information from the ERP.
    • Conversions: All activities related to data conversion or data transfer.
    • Enhancements: Any functional gaps between your current ERP and the acquired company’s ERP should be fully documented, focusing on the impacts to your value stream.
  • Actions: The near-term action items resulting from each meeting should be tracked to completion.
  • Policies: All policies—especially customer-facing ones—of the acquired company should be documented, and policy changes should be communicated to the appropriate stakeholders.
  • Issues/Decisions: As operational, personnel, or technical issues are uncovered, it is important to track those issues to completion with ownership and due dates. The resolved issues should have the decisions or solutions documented and filtered off your list.

Decreasing the amount of time to assimilate all entities onto one system will improve your timeline to return on investment of the merger or acquisition. Another tactic to rapidly implement acquired companies includes an effective project kickoff session, i.e., a Change Acceleration Process (CAP) workshop, to minimize employee resistance, attrition, and general dissatisfaction.

Communication is a key part of change management, and having an expert onsite that is skilled in this area is helpful. After all, if you fail to clearly describe the reasons for the acquisition and its expected impacts to your customers, your competitors will certainly do it for you.

Along with the technical migration, equally important projects to pursue during the
M&A process should include:

  • Human Resources Plans, Systems and Policies, such as: payroll, benefits, etc.
  • Marketing: A co-branding program is typical, with the acquired company’s logo being phased out over time
  • Sales territory alignment
  • E-commerce Web site shopping permissions

Approaching each aspect systematically, via the Actions, Policies, and Issues/Decisions execution steps of the framework above, will allow you to properly scope the project, manage the strategic deliverables, and work towards a RAPID implementation.

Posted by Jon Snow, Director, Business Consulting Services at Epicor


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