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SAP Vendor Consignment Process Guide

SAP Vendor Consignment Process Guide

A visual, step-by-step guide for implementing and managing vendor consignment in SAP

What is Vendor Consignment?

Vendor Consignment is a business arrangement where a vendor stores their materials at your location, but the vendor still owns the materials until you use them. You only pay after consumption. It's like having a vendor's mini-warehouse inside your facility!

Your Plant/Facility

Vendor-Owned Space

Material is physically here but legally belongs to vendor

Key Points to Remember

Essential Takeaways

Ownership Remains with Vendor

Consignment stock physically exists in your premises but remains the vendor's property until consumed

Item Category K is Critical

Always use item category K in purchase orders for consignment materials

No Financial Impact at Receipt

Goods receipt for consignment creates no accounting entries

Financial Impact at Consumption

Finance entries are created when material is consumed or transferred to own stock

Settlement is Required

Use transaction MRKO to settle consumed consignment and create vendor liability

Proper Configuration is Essential

Account determination and procurement type settings are crucial for consignment processing

Benefits of Vendor Consignment

  • Improved cash flow – payment only when material is used
  • Reduced storage costs and warehouse management effort
  • Immediate material availability with no transportation delays
  • Lower overall inventory costs and improved working capital
  • Risk sharing with vendors for slow-moving items
  • Avoidance of obsolete stock as vendor manages product lifecycle
Process Step Standard Procurement Vendor Consignment
Purchase Order Standard item category Item category K (Consignment)
Goods Receipt Valuated (101) Non-valuated (101K)
Accounting at GR DR: Inventory, CR: GR/IR No accounting entry
Stock Ownership Customer owned after GR Vendor owned until consumption
Consumption Direct from own stock From consignment or after transfer
Invoice Processing MIRO (invoice verification) MRKO (settlement)
Payment Trigger Goods received Goods consumed
Financial Visibility Inventory value shown No inventory value until consumed
Frequently Asked Questions
What happens if consignment stock gets damaged?

If consignment stock gets damaged while in your possession:

  • You are typically responsible for the damage even though the material belongs to the vendor
  • Use movement type 551K to post a "Scrapping of Consignment Stock"
  • This creates accounting entries similar to consumption
  • The material needs to be settled in MRKO to create the vendor liability
  • Your agreement with the vendor should specify how damage is handled
Can I return consignment stock to the vendor?

Yes, you can return consignment stock to the vendor:

  • Use movement type 122K for return of consignment material
  • No accounting entry is created as the stock is not valued
  • You do not need a return purchase order as the stock still belongs to the vendor
  • Make sure to document the return with the vendor for their records
How is consignment stock counted in physical inventory?

When conducting physical inventory for consignment stock:

  • Consignment stock should be physically counted like any other material
  • Use transaction MI01 and select the stock type "K" for consignment
  • Any differences found during counting are posted as usual
  • Inventory differences for consignment do not affect your financials until consumed
  • Communicate significant discrepancies to the vendor
How do I handle consignment price changes?

For price changes in consignment materials:

  • Update the price in the consignment info record (ME12)
  • The new price will apply to future consumption/settlement
  • No revaluation is needed for existing consignment stock as it's not valued
  • For already consumed but unsettled materials, the price at the time of settlement will apply
Is consignment stock included in financial statements?

For financial reporting:

  • Consignment stock is NOT included in your balance sheet as inventory
  • It does not appear in the inventory value reports
  • You may need to disclose it in the notes to financial statements
  • Some companies maintain a memo record of consignment values for management reporting
  • Only consumed or transferred consignment appears in financial statements

SAP Vendor Consignment Process Guide | © 2025 | A comprehensive guide to vendor consignment process in SAP

Consumption/Usage

Payment Triggered

You only pay after you've used the materials

Stock Visibility

Full visibility of consignment stock for planning and monitoring without financial commitment

Improved Cash Flow

No payment until material is consumed or transferred to own stock, enhancing working capital

No Financial Impact

Consignment stock doesn't appear in your financial books until consumption, keeping balance sheet lean

Immediate Availability

Materials are immediately available without transportation delay when needed for production

Important Distinction

In Vendor Consignment, the material remains the property of the vendor even though it's physically in your premises. Your company only assumes ownership (and financial liability) when the material is consumed or transferred to own stock. Think of it like a vendor's "store" inside your warehouse!

Vendor Consignment in SAP

In SAP, vendor consignment involves specific configurations and processes that help track materials without financial impact until consumption:

Vendor Consignment Stock

Not valued in financial books

Visible for planning

Physically in your facility

Own Unrestricted Stock

Valued in financial books

Available for all purposes

Ownership transferred

Key SAP Features for Vendor Consignment

  • Special Item Category 'K' - Marks purchase orders specifically for consignment
  • Non-valuated Goods Receipt - Tracks material receipt without financial postings
  • Consignment Stock Indicator - Clearly identifies consignment in inventory management
  • Settlement Process - Creates financial liability to vendor after consumption
  • Special Procurement Key - Allows MRP to create consignment purchase requisitions

Standard Procurement Process

  1. Create Purchase Order with standard item category
  2. Receive Goods - materials valued in your inventory
  3. Financial Posting - Inventory account (DR) / GR/IR account (CR)
  4. Process Invoice - clears GR/IR account
  5. Pay Vendor

Consignment Procurement Process

  1. Create Purchase Order with item category 'K' (consignment)
  2. Receive Goods - materials stored as non-valuated consignment stock
  3. No Financial Posting - No accounting entries during goods receipt
  4. Consume/Transfer to Own Stock - Now inventory is valued
  5. Settlement Process - Creates financial liability to vendor
  6. Pay Vendor
Complete Vendor Consignment Process Flow
1
Master Data Setup
Create material, vendor, purchase info record
2
Purchase Order
Create PO with item category K
3
Goods Receipt
Receive as non-valuated stock (101K)
4
Consumption
Consumption or transfer to own stock
5
Settlement
Settle with vendor using MRKO

Step 1: Master Data Setup

Set up the necessary master data for consignment processing:

  • Material Master - With relevant views (Basic, Purchasing, Accounting, MRP)
  • Vendor Master - Extended to company code and purchasing organization
  • Purchase Info Record - With Consignment category
  • Special Procurement Key - For automated consignment requisitions (optional)

Step 2: Create Purchase Order

Create a purchase order for consignment:

  • Item Category K - Identifies this as a consignment purchase
  • Purchase Order Creation Options:
    • Manually create PO with item category K
    • Convert from purchase requisition (from MRP or other source)
  • No Pricing Required - Pricing comes from info record during consumption

Transaction: ME21N (Create Purchase Order)

Step 3: Goods Receipt

Receive goods into consignment stock:

  • Transaction: MIGO (Goods Movement)
  • Movement Type: 101K (GR for Consignment PO)
  • Non-valuated Stock - Material is now visible in stock but not valued

Key Point: No accounting document is generated during consignment goods receipt

Step 4: Consumption/Transfer to Own Stock

Two main ways to consume consignment stock:

  • Direct Consumption - Material used directly from consignment stock
    • Production consumption
    • Cost center consumption
  • Transfer to Own Stock - Transfer from consignment to own inventory
    • Transaction: MIGO
    • Movement Type: 411K (from consignment to own stock)

Financial Impact: Now accounting entries are created

Accounting Entries:

DR
CR

Step 5: Settlement with Vendor

Settle the consumed consignment material with the vendor:

  • Transaction: MRKO (Settlement for Pipeline/Consignment)
  • Selection Options:
    • By company code
    • By material
    • By vendor
    • By document
  • Settlement Process: System shows all unsettled withdrawals for selection

Result: Creates settlement document and accounting entries

Accounting Entries:

DR
CR
Step 1: Master Data Setup (Detailed)

Here's a detailed breakdown of the master data setup for vendor consignment:

Material Master Creation

Transaction: MM01

Material Type: Regular material type (ROH, FERT, HALB, etc.)

Views to Maintain:

  • Basic Data
  • Purchasing Data
  • Accounting Data (with valuation class)
  • MRP Data (with special procurement key - optional)
  • Storage Location Data
Vendor Master Creation

Transaction: XK01 (Create Vendor) or BP (Business Partner with Supplier Role)

Views to Maintain:

  • General Data
  • Company Code Data (accounting info, payment terms)
  • Purchasing Organization Data
Purchase Info Record Creation

Transaction: ME11 (Create Info Record)

Info Record Category: Select "Consignment" category

Key Fields:

  • Vendor
  • Material
  • Purchasing Organization
  • Plant
  • Price and Conditions
  • Text Information (important for settlement)
Special Procurement Key Configuration (Optional)

Purpose: When MRP runs, it will automatically create consignment purchase requisitions

Transaction: SPRO (IMG) or directly via transaction OMD4

Configuration Path: Materials Management → Material Master → Consumption-Based Planning → Define Special Procurement Type

Steps:

  1. Copy standard consignment procurement type (typically '10')
  2. Assign to your plant
  3. Assign to material in MRP view

Important Note on Special Procurement Key

Setting the special procurement key in the material master's MRP view is only necessary if you want the MRP system to automatically create consignment purchase requisitions. If you plan to manually create consignment purchase orders, this setting is not required.

Step 2: Purchase Order Creation (Detailed)

Creating a purchase order for consignment materials requires using the special item category 'K':

1
Transaction ME21N (Create Purchase Order)

Enter the vendor and purchasing organization

2
Item Details

Enter material and quantity

Most important: Item category must be 'K' for consignment

3
No Price Required

Price is not mandatory as it will be taken from the info record during consumption

4
Additional Details

Specify plant and storage location

5
Save Purchase Order

The system saves the consignment purchase order

Automated Purchase Order Creation

Alternatively, you can create the purchase order automatically:

  1. Create Planned Independent Requirements (MD61)
  2. Run MRP (MD01N) - generates purchase requisition with item category 'K' if special procurement key is configured
  3. Convert Requisition to Purchase Order - via ME21N or directly from stock/requirements list (MD04)

Important Notes

  • Even if the price appears in the purchase order, it doesn't affect valuation during goods receipt
  • The consignment info record must exist for the material and vendor
  • Item category 'K' is crucial - without it, the process will follow standard procurement

Example Purchase Order Creation

Transaction: ME21N

Vendor: 4128

Material: RM02_CONSIGNMENT

Item Category: K (Consignment)

Quantity: 10

Plant: SG05

Storage Location: IWH (Inbound Warehouse)

Step 3: Goods Receipt (Detailed)

Receiving goods for consignment involves using a special movement type to indicate non-valuated receipt:

1
Transaction MIGO (Goods Movement)

Select "Goods Receipt" and reference the purchase order

2
Check Movement Type

System automatically selects movement type 101K for consignment receipt

Important: The "K" suffix indicates consignment

3
Enter Quantity and Storage Location

Specify the quantity received and storage location

4
Post Goods Receipt

System creates a material document but NO financial document

Stock Display After Goods Receipt

After posting the goods receipt:

  • The material will show in your inventory as "Vendor Consignment" stock
  • Check stock using transaction MMBE or MB52
  • The stock will appear under the stock type "Vendor Consignment: Unrestricted Use"
  • This stock is visible and available for planning but has no financial value
Accounting Impact

Key Difference: Unlike standard goods receipt, consignment goods receipt creates NO accounting entries

To verify this:

  1. Display material document
  2. Go to "Document Info" → "FI Documents"
  3. There will be no financial document listed

Example Goods Receipt

Transaction: MIGO

Document Type: Goods Receipt

Reference: Purchase Order 45077

Movement Type: 101K (GR for Consignment PO)

Material: RM02_CONSIGNMENT

Quantity: 10

Plant: SG05

Storage Location: IWH

Result: Stock updated, no financial posting

Step 4: Consumption/Transfer (Detailed)

There are two primary ways to consume consignment stock in SAP:

1
Transaction MIGO (Goods Movement)

Select "Transfer Posting"

2
Select Movement Type 411K

"Consignment to Own Stock" movement type

3
Specify Material Details

Enter material, plant, storage location

4
Specify Vendor

Select the consignment vendor

5
Enter Quantity

Specify how much to transfer from consignment to own stock

6
Post Document

System creates material document AND financial document

Accounting Entries Created:

DR
CR

Note: The GR/IR account will be cleared during settlement

Direct consumption means using the material directly from consignment stock, such as for production or cost center:

Direct Consumption to Cost Center:

1
Transaction MIGO (Goods Movement)

Select "Goods Issue"

2
Select Appropriate Movement Type

For example, 201K (Issue to Cost Center from Consignment)

3
Enter Material Details and Quantity

Specify material, plant, storage location, quantity

4
Specify Account Assignment

Enter cost center or other cost object

5
Post Document

System creates material document AND financial document

Direct Consumption to Production Order:

1
Transaction MIGO (Goods Movement)

Select "Goods Issue"

2
Select Movement Type

For example, 261K (Issue to Production Order from Consignment)

3
Enter Material Details and Quantity

Specify material, plant, storage location, quantity

4
Specify Production Order

Enter production order number

5
Post Document

System creates material document AND financial document

Accounting Entries for Direct Consumption:

DR
CR

Key Point

All consumption postings (whether direct consumption or transfer to own stock) create a financial impact. This is the first time in the consignment process where accounting entries are posted, and the GR/IR clearing account is credited.

Example Transfer to Own Stock

Transaction: MIGO

Movement Type: 411K (Consignment to Own Stock)

Material: RM02_CONSIGNMENT

Vendor: 4128

Quantity: 1

Plant: SG05

Storage Location: IWH

Result: 1 piece transferred from vendor consignment to own unrestricted stock

Step 5: Settlement (Detailed)

The settlement process creates a liability to the vendor for consumed consignment materials:

1
Transaction MRKO (Settlement for Pipeline/Consignment)

This transaction is used for both pipeline and consignment materials

2
Enter Selection Criteria

You can select by:

  • Company Code
  • Plant
  • Material
  • Vendor
  • Posting Date Range

3
Display Unsettled Withdrawals

The system shows all unsettled withdrawals that match your criteria

Each line shows:

  • Material document number
  • Quantity withdrawn
  • Value based on info record price

4
Select Documents to Settle

Select the withdrawals you want to settle - typically all of them

5
Execute Settlement

System creates a settlement document and accounting entries

Accounting Entries Created During Settlement:

DR
CR

Result: GR/IR account is now cleared, and a liability to the vendor is created

Important Note

The tax code in the purchase info record is crucial for the settlement process. If not maintained, you may get an error "No tax information found" during settlement.

Checking Settlement Status

To view settlement status in MRKO:

  • Unsettled Withdrawals: Shows material documents not yet settled
  • Settled Withdrawals: Shows previously settled documents

Each settled withdrawal shows:

  • Original withdrawal document
  • Settlement document number
  • Settlement amount

Example Settlement

Transaction: MRKO

Company Code: SG05

Display: Withdrawals not settled

Material: RM02_CONSIGNMENT

Unsettled Quantity: 1 piece

Value: $2.00

Result After Settlement: Document created, vendor liability generated

Important Configuration Requirements

Critical Configurations for Vendor Consignment

Several SAP configurations are necessary for the vendor consignment process to work properly:

The special procurement key enables automated creation of consignment purchase requisitions:

Special Procurement Type Configuration

Transaction: SPRO (IMG) or directly via OMD4

Path: Materials Management → Material Master → Consumption-Based Planning → Define Special Procurement Type

Standard Consignment Procurement Type: 10

Configuration Steps:

  1. Copy standard entry for your plant
  2. Special procurement key = 10
  3. Procurement type = F (External procurement)
  4. Special procurement type = K (Consignment)

Example Configuration

Plant: SG05

Special Procurement Key: 10

Procurement Type: F

Special Procurement Type: K

Assignment to Material

After configuring the special procurement key, assign it to materials:

  • Transaction MM02 (Change Material)
  • Go to MRP 2 view
  • Enter special procurement key (10)
  • Save material

Account determination configuration ensures the correct accounts are used during consumption and settlement:

Account Determination Configuration

Transaction: OBYC (Account Determination without Wizard)

Required Configurations:

Transaction Key Description Required For
BSX Inventory Posting Transfer to own stock / consumption
GBB + VBR Consumption to Cost Center Direct consumption to cost center
GBB + AUF Consumption to Production Direct consumption to production order
KON Consignment Stock Consignment-specific accounting

Common Account Determination Errors

  • "Account determination for KON + YB00 not possible" - Missing entry in OBYC for valuation class
  • "Account determination for GBB + VBR + YB00 not possible" - Missing entry for expense account

Example Account Determination Entry

Chart of Accounts: SG05

Transaction Key: BSX

Valuation Class: YB00

Account: 101000 (GR/IR Clearing)

Chart of Accounts: SG05

Transaction Key: GBB

Account Modifier: VBR

Valuation Class: YB00

Account: 400000 (Expense)

Additional configuration settings required for vendor consignment:

Purchase Organization Assignment

Transaction: SPRO (IMG)

Path: Enterprise Structure → Assignments → Materials Management

Configuration: Assign Purchasing Organization to Plant

This linkage ensures the system can find the correct purchase info record for a plant.

Movement Types for Consignment

Ensure these movement types are active:

  • 101K - Goods Receipt for Consignment
  • 411K - Transfer from Consignment to Own Stock
  • 201K - Goods Issue to Cost Center from Consignment
  • 261K - Goods Issue to Production from Consignment
Purchase Info Record Category

Ensure the consignment info record category is active in your system.

When creating an info record (ME11), you should be able to select "Consignment" as an info record category.

Tax Code in Info Record

Always maintain the tax code in the consignment purchase info record. Without this, the settlement process (MRKO) may throw an error "No tax information found".

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