I have a question about something that I’m seeing come up for us lately. This shows up when a Raw Material item is sent to a manufacturer/supplier for the creation of a more complex part. I’ve followed the process as described in the ERPNext docs to create the material transfer from the PO
Scenario “A” Breakdown: Working Correctly - Most items accepted
Step 1 - When the item is sent out, a Stock Entry Type of “Send to Contractor” is created from the PO. Then two entries are made in the Stock Ledger.
- Raw material is subtracted from the Default “Stores” warehouse
- Raw Material is added to the Supplier Warehouse
Step 2 - When the Work is complete and the finished new items are delivered, a Purchase Receipt is created with up to three entries in the stock ledger:
- Raw Materials are removed from the Supplier’s Warehouse
- Accepted new Items are added to the “Default Stores” Warehouse
- Rejected new Items are added to the “Rejected” Warehouse
Scenario “B” Breakdown: Not working - All items rejected
Step 1 - Identical …
Step 2 - When the Supplier delivers the finished new items, but they are all rejected as unusable, on the Purchase Receipt. One, instead of two, entries are created in the stock ledger:
- Raw Materials are NOT removed from the Supplier’s Warehouse.
The raw materials remain in the Supplier Warehouse. This becomes an issue when you attempt to use the supplier again for another run and send another batch of raw material. Now the amount in the Supplier Warehouse is incorrect.
- The total amount of rejected items are added to the “Rejected Items” Warehouse
So my question is what would be considered a good practice or even a legitimate way to work around this constraint? I want to maintain accurate accounting of inventory and also try to be as efficient as possible with the time it takes to manage these processes.
How does the community handle this type of issue?
You have two options. Either use ERPNext the way it is designed (and I don’t think it supports the scenario you illustrated). Or you change ERPNext to support what you need from it.
For hacking your process do that ERPNext works for you the way it is designed: I think you have to address who pays for this defective item? If it is the supplier, does the supplier pay for the cost of the raw material?
If yes, you are better off doing that purchase receipt and dropping the rejected item into a Rejected Warehouse. That will ensure that the raw material for the item is flushed out of the supplier warehouse addressing one of your requirements.
Now you can send back this item to the supplier and charge the suppliers account for the cost of the raw material.
If you want to change ERPNext, well you first have to decide what you want ERPNext to do and then get the consensus of the community and then either build it or get it built.
Hope this helps.
Thanks for your feedback and time Jay.
Option A : I’m not looking to change ERPNext. I’m just trying understand how it works so our team can work efficiently.
Option B: As far as ERPNext not supporting this functionality, I think this may just be, as you’ve noted, a matter of our people learning how to work within the system parameters. I can’t imagine that we are the only company that supplies raw materials to a supplier in order to receive a sub-assembly. I assume that this is why ERPNext has the option to provide suppliers with raw materials. This part of the process is clear and I’ve followed it faithfully from the ERPNext Documentation.
Thanks for bringing up the point of who will pay for the wasted material. That is very important after all and I can see why this would help with the process flow.
So within that understanding, let’s look at the two routes of payment.
The Supplier pays for the raw materials consumed:
Based upon the steps first described in the post, what would you say should happen In ERP?
We pay for the the raw materials consumed:
You mention above that a purchase receipt would suffice and that the items would be removed from the supplier warehouse. But this is exactly what I described as not happening above in Scenario B.
If you can clarify by going into more detail, I would be grateful.
You send raw materials to a supplier that transforms that into a Sub Assembly (Let’s call that SA1. Let’s say SA1 needs RM1 and RM2 as the Input Items. Let’s say 1 Nos each). Let’s look at two scenarios:
The Sub Assembly is acceptable to you. So, you do a Purchase Receipt (using the Sub Contracting Process that works on ERPNext and that ERPNext is designed for) and drop it into your WIP warehouse. So now in your WIP warehouse you have 1 No SA1. In the Supplier Warehouse you have one less of RM1 and RM2. You report that this is working fine. Now let’s delve into the valuation rates.
The valuation of SA1 on your Books will be x+y+z where x is the valuation of RM1, y the valuation of RM2 and z is the value add by the supplier in terms of labor, parts, etc. etc.
SA1 is not acceptable to you. Now in the chronology of things, I don’t know if you will do the Purchase Receipt for SA1 first and then do the quality inspection. Or whether you will wait to do the Purchase Receipt till it clears quality (you should consider this option, though it might open up other complexities).
I am trying to answer all the situations and I realize that it’s getting a little bit too intense, so I will wait to hear back from you about this:
When do you do a Purchase Receipt for SA1? - After Quality Inspection? Or Prior to it? Or are you still writing the SOPs for this whole process.
Once you respond I can address your specific approach or situation.
Hope this helps.
Thanks for this dialog and no it’s not to intense at all. This is what I’m looking for. It’s a complex system and that means that a complex explanation is often required.
So Let’s carry on shall we?
Everything you describe above the line “SA1 is not acceptable to you” is accurate and I follow this process exactly. So let’s go on from there.
So far none of this is regarding the party to be billed for the materials. The focus is on locating where the materials are in the Stock Ledger.
SA1 is not acceptable to you…
Historically, we have proceeded in this fashion.
We require Quality Inspection (QI) prior to delivery for SA1.
We perform the QI and determine that we will not accept the item. Normally, this halts the ability of the “Purchase Receipt” to be Submitted.
However, I have customized the QI Form ( Not the Doctype) by adding another possible status. “Unacceptable - Place in Nonconforming Warehouse” .
This new status is selected whenever we are not going to reject outright and send back the shipment, but rather keep the defective SA in the rejected Warehouse.
Selecting this allows for an accurate QI to be attached to the shipment, while also allowing the submit for the “Purchase Receipt”
Next … In the Purchase Receipt, I choose the total amount as rejected and make sure that the rejected warehouse is applied. “Submit” without errors.
The seems to work according to planned until I go to the Stock Ledger and examine the trail.
What I See is the following;
RM1 and RM2 remain in the Supplier Warehouse
SA1 total amount is added to the Rejected Warehouse
But when you accept the item, the quantities of RM1 and RM2 is reduced? Or doesn’t it work then either?
I’m just trying to focus on that part before we move further.