Consignment process

We don't have consignment inventory in Lawson but I've researched this before. You want to bring in the initial inventory at the actual cost.  How would the department get charged the first time inventory was issued if cost = $0?  Also, your consignment inventory value would always be incorrect.  

Set up your consignment with the inventory account and receipts account the same so when the initial inventory is brought in (IC20) at actual cost it's a wash; the GL shows $0 but the items have a cost.  These accounts should be separate/different from your standard inventory accounts. When items are used, inventory is issued to the department either through IC21 or requisition which credits the inventory account and debits the department (expense).  A PO is issued for the used item and when inventory is replenished upon receipt (PO30) the inventory account is debited bringing it back to $0 (assuming the cost hasn't changed) and there's a credit to the RNI account.  When the invoice is processed RNI is debited and the vendor is paid.  Below is from KB 1492424.

Setup includes the following areas:  
 -Item Master IC11: 
   Consignment flag = Y (optional if item can be stock or consignment depending on the location) 
 -Item Location IC12: 
   Main tab: Consignment flag = Y 
   Reorder tab: 
   Reorder Quantity Code = D for difference 
   Reorder Point = the stocking quantity agreed to by the vendor and the consignee 
   Source tab: Auto replenishment = Y and prime vendor defined 
   Misc. tab: Consignment Buyer code entered (if user wants to create separate PO’s for consignment only) 
 -GL Category IC04: 
   Inventory, Receipt and Adjustment Accounts should be the same. 
   Inventory and Receipt accounts MUST be the same. 
   Inventory account should be defined as a unique asset account because there can be credit balances occasionally 
   Physical Inventory account should be defined as a consignment loss account (expense) 
 -Receipts IC20: 
   To create the initial inventory balance and cost: receipts must be entered on IC20 
 
 
Post Conditions 
 -Adjustments IC24: 
   To lower the stock level of the consignment inventory use IC24       
 -Receipts IC20: 
   To increase the stock level of the consignment inventory use IC20 
 

Accounting concerns: 
 -Replenishment cost for items is higher than issued cost: a debit balance will occur in the inventory account.  
 -Journal entry required to credit inventory and debit consignment cost variance 
 -Physical inventory count is higher than stock level: a debit balance will occur in the inventory account 
 -Allow it to carry forward because it will be credited upon issuing stock that is over the re-order point 
 

Vendor Reorder Advice IC140 
 -Frequency depends on how quickly PO’s need to be created after items are issued 
 -Can be run only for consignment items 
 -Creates interface records to create purchase orders that will be received and matched for payment for items that have been issued or used 
 
Triggering Event 
 -Creating a requisition or a direct issue for consignment items will reduce the consignment stock and allow the replenishment process to create a purchase order for payment to the vendor. 
  
Main Success Scenario   
 -Create a receipt on IC20 for initial consignment quantity for item (s) 
 -Department creates a requisition for the consignment items. 
 -Issues are created and processed 
 -The replenishment process including IC140 and PO100 to create purchase orders is run for consignment items only 
 -Replenishment items are received bringing the stock on hand value back to the agreed consignment level 
 -AP matches the invoice for the replenishment purchase order and pays the vendor for consignment items used. 
 -Run IC130 to post inventory transactions to the General Ledger.

The above is our setup on IC04. We do have consignment inventory and worked with Accounting to address this issue. Our receipts go into the same account as the inventory, allowing us to use POs to bring in the consignments items (necessary for when they invoice us after the first time). Adjustments and other transactions have a separate account. That way, Accounting can tell that this is for inventory that the hospital does not own. These accounts get zeroed out as part of year end.

Hope this helps!
Michelle

Thanks for the responses. So it looks like you can assign a cost to the item and issue it in, but since your issues and receipts go to the same account, it doesn't effectively charge the department.
It also looks like the best course of action when returning items to the vendor (say, your agreement ends or you replace one item with another) would be to adjust with IC24, but how would you avoid charging for those items? Michelle, I notice that your adjustment and shrinkage accounts are the same. Would that produce the desired effect?

The adjustment dollars still hit the bottom line but because Accounting knows they are for consignment items they have no problems with zeroing that account at the end of the year. We came to this solution after trying to track millions of dollars of adjustments down (year after year) and determining that they were consignment. Unfortunately, the way Lawson is built, everything in inventory hits the general ledger, even the items that aren't owned by the hospital. So, its a trade off...you can track these items, issue them, and replenish them but .....all that activity hits the GL.

Issues wouldn't go to the same account as receipts. Issues should go to the department expense account so they are charged for the inventory used.

If you need to return consignment inventory to the vendor you use IC24 and if your adjustments account is the same as the inventory account the transaction will wash (credit to inventory, debit to inventory adjustments).

Thanks to both of you for your help! I think I can build a solid process from your suggestions.

I have one more consignment question. What is the best way to establish a paper trail for the initial inventory and the final return of consignment items?
With our prior software, purchasing would issue no-charge POs in both cases, but under Lawson, my understanding is that inventory or open receiving accounts would be hit.

You can run IC233 for consignment only for the initial value and run IC220 with Transaction Type = RC to list all the IC20 transactions that established your consignment inventory. When the consignment period is over you adjust everything out with IC24. Again you can use IC233 to verify that the consignment inventory value is $0 and IC220 with Transaction Type = AJ to show the adjustment transactions.

Thanks again!

Hi,
I know it's been several months since the last time I asked about this but one more question just popped up. Does anyone have a process regarding how the initial inventory is brought in? Not necessarily anything having to do with Lawson, but how do you initiate bringing in new (not replacement) inventory? Does your purchasing department contact the vendor or is the medical unit in charge of that? And do you keep any documentation on hand other than the IC20 record?