Supplier Stock Consignment

Question:
1. We have consignment stock from a local supplier
2. They bill us after we sold
3. Buying Price fluctuate a lot
4. Supplier track consignment stock via their do

How to incorporate this consignment into the system?

Answer:
First things first, establishing some ground rules:

1) Without cost, a goods cannot be sold (you can't do business without knowing you make money or lose money selling at a specific price, agree? You can at least, estimate the cost, even though it may turn out to be different, at least, you have a price range).

2) When you do GRN, you need to stock in the cost, and otherwise, average costing, or first in first out, or whatever accounting package you use, will not compute the cost correctly.

3) You need to calculate the salesman commissions base on the gross profit (at least, the estimated gross profit base on the estimated cost). You can't really calculate the gross profit without having to know the cost.

4) When an invoice is created, any perpetual accounting would be
Debit AR credit Sales
Debit COGS, credit inventory
Hence, for the stock level to be reflected in the GL correctly, the cost of the stock, even though may not turn out to be the same as the supplier billings, you still need to have the cost.

5) For variance in stock price, when you receive the bills from the supplier, it can be recorded at a later stage using Credit Memo (debit/credit ConsignmentVariance, credit accPayable).

Recommended Procedures:
1) Stock In using GRN, base on the estimated cost.

2) Whenever the supplier send you a price update.. you need to :
i) Goto the reset-ma function in the inventory module to reset the cost of the item code, and charge it to ConsignmentVariance (a new GL Code created by yourself, belong to the category of inventory variance type of account).

3) When it is time to pay the supplier, you need to generate sales report in the Wavelet EMP, the best one would probably be SR-06 Stock Sales Report by Item Code in the "Manager Module".

4) Any price difference base on the GRN price and the Supplier Billing price... we will have to create a CM (the tricky part is identifying how much difference from the price you GRN, so that you know how much CM to create).

5) Since the order of Goods received is different from the sequence the goods are sold, that means, when knocking off the supplier invoice, you just need to knock-off base on chronological date using payment voucher and Credit Memo you created in step 4.

6) For consigned goods, you can make use of certain category , for example category level 4, or category level 5 to generate sales report,(for payment purpose) or stock balance report (to find out how much of each stock / value, you still owe the supplier).