Contract Managed Inventory (CMI)

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The Contract Managed Inventory (CMI) application deals with the handling of:

• Externally owned stock (your business partners) in your warehouse(s) which you can sell via Inventory contracts.
• Your stock in your business partner(s) warehouses which you can purchase via Inventory contracts and then sell.

Types of inventory managed by contracts

The system supports the following types of inventory which must be purchased and/or sold via an Inventory contract:

Inventory types	Description
Customer Deposit Stock (CDS)	Goods are owned by the customer but physically located at your (the wholesaler) warehouse site. With this type of inventory, the customer first “buys” the goods from you (i.e. you sell them to the customer) and then you perform an ownership transfer (i.e. transferring the ownership of the goods to the customer) but you physically keep them stored at your warehouse site. You take care of all handling of the goods. When the customer wants you to dispatch the goods that they own, you perform a call off of the dispatched quantity. From a financial standpoint, you (the wholesaler) should gain something, somewhere in order to accept this kind of business deal. The following possibility allows you to recoup the cost that you would bear to store this externally owned stock at your warehouse site. It is up to you and the customer to agree about the solution. Define a sales price on the inventory contract line which is higher than the normal sales price.
Supplier Consignment Stock (SCS)	Goods are owned by the supplier but physically located at your (the wholesaler) warehouse site. This type of inventory gives you the possibility to sell the goods to your customers, without having to pay for them in advance. You only pay for them once they have been sold. With this type of inventory, you create a logistic purchase order that is used to receive the goods into your warehouse site. The supplier ships the goods to you. You take care of all handling of the goods. When you sell from your supplier’s consignment stock, you invoice the customer who bought the goods and notify the supplier (by creating a purchase order for financial purposes) about the quantity that you have consumed (i.e. sold to your customer). Other than the benefit of only paying for the goods once you have sold them, you may want some other kind of incentive to enter into this kind of business deal. There are several possibilities in the system allowing you to justify the storage of this externally owned stock at your warehouse site. It is up to you and the supplier to agree about the solution. The following are some examples: Set up an SMS agreement for the items on your SCS contracts allowing you to claim SMS rebates from your supplier. Define a purchase price on the inventory contract line, that is lower than the normal purchase price. You accept some supplier owned items in your warehouse, and the supplier accepts some of your owned items in their warehouse (i.e. you set up and run both SCS- and WDS contracts). Set up supplier rebate agreements.
Supplier Consignment Stock (SCS) – Logistic handling only	Goods are owned by the supplier but physically located at your (the wholesaler) warehouse site. Logistic SCS contracts can be used to provide warehouse outsourcing for the supplier (i.e. store and dispatch the goods to their customer on more of an on-demand basis). The supplier informs you when their customer wants X number of items. The quantity for the contract will most likely be for the quantity that their customer wants. Hence, there will likely never be a remaining quantity. The quantity will be consumed when the request is dispatched. (Note: If the situation should arise where there is a remaining quantity when the contract ends, you decide what to do with the remaining stock. You can, e.g., transfer it back to the supplier, or take over the ownership and then sell the stock to your own customers as you normally would for your own goods, without any connection to an inventory contract.) Stock is never sold (invoiced) by you, but only dispatched and shipped to their customer. No sales invoice is sent to their customer nor payment received from their customer, and no purchase invoice from the supplier is received. You are only involved with the storage, dispatch and shipment to their customer. (Note: Although this type of contract is typically used for storage and delivery for/to the supplier’s customer, you can also use this type of contract for your own customers, if you have an agreement with the supplier that all payments must be redirected to the supplier account.) With this type of inventory, you create a logistic purchase order that is used to receive the supplier-owned goods into your warehouse site. You take care of all handling of the externally owned stock. At the supplier’s request you dispatch the goods to their customer (i.e. you create a logistic sales order which means that every sales order line is set to FOC and there are no financial transactions). There is no invoice in this process, but the invoicing routine has to run to finalize the DIS process. From a financial standpoint, you (the wholesaler) should gain something, somewhere in order to accept this kind of business deal. It is up to you and the supplier to agree about the solution. The activities that you perform, (e.g., storage at your warehouse site, quality control, re-labeling, packaging, and shipment to the customer), should be charged to the supplier.
Wholesaler Consignment Stock (WCS)	Goods are owned by you (the wholesaler) but physically located (externally) at your customer’s warehouse site. With this type of inventory, you have two choices when supplying the goods to your customer’s warehouse: External supply – the goods that you want to physically store at your customer’s site need to first be bought from your supplier (by you) and then shipped to the customer by the supplier. Internal supply – supply the goods internally via an IRO (i.e. move goods from one of your internally owned warehouses set up in your system (either a normal or a trade warehouse) to supply your WCS-warehouse (set up in your system). When the customer calls off the goods (i.e. consumes the goods) you invoice the customer for the consumed quantity.
Wholesaler Deposit Stock (WDS)	Goods are owned by you (the wholesaler) but physically located (externally) at your supplier’s warehouse site. With this type of inventory, you first “buy” the goods from the supplier via a purchase order. When you get the confirmation from the supplier you confirm the purchase order which updates the stock on hand figures for the WDS warehouse in your system, making you the owner of the goods. When you want to sell from this deposit stock that is “considered” as being located in one of your warehouses (even though it is not physically located in one of your warehouses), the sales order must run through the picking process, even though it has to be done by the personnel at the supplier’s warehouse. Instead of a pick list, a “Dispatch request” is produced which must be sent to the supplier. When you receive a signal that the goods have been dispatched, the picking can be confirmed.
Customer Buffer Stock (CBS)	Goods are owned by you (the wholesaler) and physically located at your warehouse site. With this type of inventory, you promise a customer that you will keep a certain quantity as a buffer which will always be available (reserved) for the specific customer. (This type of inventory deviates from the general rule for CMI that it only deals with externally owned or externally located stock. Even though this type of inventory is internally owned by you and (internally) stored at your warehouse site, it requires that the goods be sold from an inventory contract). From a financial standpoint, you (the wholesaler) should gain something, somewhere in order to accept this kind of business deal. The following possibility allows you to recoup the cost that you would bear to enter into such an agreement. It is up to you and the customer to agree about the solution. Define an inventory contract line sales price which is higher than the normal sales price.
Wholesaler Buffer Stock (WBS)	Goods are owned by the supplier and physically located (externally) at the supplier’s warehouse site. With this type of inventory, the supplier promises you (the wholesaler) to keep a certain quantity as a buffer, allowing you to be sure that the promised buffer will always be available. You can sell the promised buffer to your customer via a back-to-back order and/or use the promised buffer (i.e. purchase) for your own replenishment. If you want to purchase the promised buffer for your own replenishment, which means that you will physically bring the stock into your own physical warehouse and become the owner of the stock, a normal purchase order will be created. When it resides in your own warehouse you can sell the stock as you normally would for your own goods, without any connection to an inventory contract.
Deferred Indent Stock (DIS)	Goods are owned by the supplier but physically located (externally) at the customer’s warehouse site. You (the wholesaler) are only involved in the financial transactions. This means that you will be the one that: sends the invoice to the customer informs the supplier about the customer’s consumption receives the supplier invoice You do not have to be involved in any purchasing or logistics. You sell the goods at the sales price to the customer and then inform the supplier when the customer has consumed the goods. From a financial standpoint, you (the wholesaler) should gain something, somewhere in order to accept this kind of business deal. As long as the invoice to the customer holds a higher price than what you get on the supplier invoice, you will make a profit. Somehow it has to be assured that this profit is high enough for you to take on the administrative work around creating the invoices.

Graphical illustration of inventory contract types

The Stock Ownership functionality must be activated together with the Contract Managed Inventory (CMI) application, since it is this functionality that controls the setup of the warehouses. The concepts of handling physical and financial stock separately are all based on the Stock Ownership foundation which differentiates the warehouses into physical, normal and logical warehouses. There are specific Warehouse characteristic codes that must be assigned to the warehouse for each type of inventory contract you plan on entering into. Not all of the inventory contract types supported with Contract Managed Inventory involve the physical storage of external stock in your warehouse. When it does not involve the physical storage of external stock, a “Logical” warehouse must, nevertheless, be set up to control the financial aspects of the stock you are purchasing/selling.

Inventory contracts and CMI processes

All items that you intend to purchase and/or sell that fall under any of the above types of inventory must be purchased and/or sold from an inventory contract. An inventory contract consists of a header and the contracted line(s) (which holds the item, quantity and other applicable purchase or sales information). Every inventory contract you create must be linked to an inventory contract type, which dictates the CMI processes that are available to be run for the purchase or sales order cycle. Some CMI processes are mandatory to run for an inventory contract type, while others can optionally be run. The optional CMI processes depend on the task you want to perform after the quantity is purchased or sold.

• What routine you use for the purchase of an item depends on the inventory contract type and the associating CMI process available. All “Supply” purchases for a SCS, Logistic SCS, WCS (external supply only) and WDS contract can be done by running the CMI process via the Work with inventory contract routine or by manually linking the applicable inventory contract to a manually created purchase order in the purchase order entry routine. All other purchases for the other types of inventory contracts must be done by running one of the CMI processes via the Work with inventory contract routine instead of the regular purchase order entry routine.
• What routine you use for the sale of an item depends on the inventory contract type and the associating CMI processes available. In some cases the sale can take place by running a CMI process via the Work with inventory contract routine, while in other cases the regular sales order entry routine must be used. For the latter scenario, the inventory contract must be connected to the sales order. See Creating sales orders for items managed by inventory contracts below for more information.

See About the CMI processes for Contract Managed Inventory for an overview of the processes per inventory contract type.

Duration of the inventory contracts

There is substantial flexibility when deciding the duration of inventory contracts. The following possibilities exist:

Running contract without a contract quantity on the contract line(s)	This is applicable for all types of contracts except the CBS-, WBS-, and DIS inventory contracts. This gives you the possibility to have a running agreement with your customer or supplier without a contract quantity limit and time period. You can create one contract and add contract lines as the need becomes apparent. If the CMI-MULT function is activated in the Function control file, you will be able to run multiple receptions during the initialization process of all applicable contracts (CDS-, SCS-, Logistic SCS-, WCS-, and WDS), for the same contract line, thereby constantly supplying the line as needed.
Time related contract with quantity limited contract line(s)	This is applicable when you decide that you will accept such an agreement with your customer or supplier for a limited time period, and for a limited number of items. If the CMI-MULT function is activated in the Function control file, you will be able to run multiple receptions during the initialization process of all applicable contracts (CDS-, SCS-, Logistic SCS-, WCS-, and WDS), for the same contract line, as long as the summarized quantity is not higher than the contract quantity limit. You will also be able to increase the contract quantity when needed and then perform a “supply” to initialize that increased quantity.
Quantity limited contract line(s), but no time related contract	This is applicable when you decide that you will accept such an agreement with your customer or supplier without any time period restriction, but only for a limited number of items. If the CMI-MULT function is activated in the Function control file, you will be able to run multiple receptions during the initialization process of all applicable contracts (CDS-, SCS-, Logistic SCS-, WCS-, and WDS), for the same contract line, as long as the summarized quantity is not higher than the contract quantity limit. You will also be able to increase the contract quantity when needed and then perform a “supply” to initialize that increased quantity.

If you choose to not have a running contract without a contract quantity limit (for the applicable types of contracts), the time span for how long the Inventory contract is valid is determined by the following:

1. The contract quantity on the inventory contract line denoting that you want a quantity limit for the contract. (A contract quantity must be defined for a CBS-, WBS-, and DIS inventory contract but is an optional entry for the other types of contracts.) If an inventory contract was not set up to be valid within a specific date range, the contract line will be closed (i.e. cannot be used on any orders) as soon as the contract quantity is consumed (e.g., you have sold the quantity). You can always create a new line for the same item with a new quantity.
2. (Optional) Specific date range on the contract header and/or contract line. The end date is the controlling date for the sale of the goods. You can leave the start/end control fields blank on each level; or define them only on the contract header; or only on contract line. If you define them in both places, the dates on the contract line must be within the dates on the header. If the quantity is consumed before the end date is reached, the contract line will be closed. If the end date is reached before the quantity is consumed the contract line will be closed. If the latter occurs, you will have to make some decisions about what to do with the left-over stock, depending on the type of contract.

   Example: If, for a Supplier Consignment Stock (SCS) contract, the end date was reached before the quantity on the contract line was sold, you have three possibilities from which to choose when determining what to do with the remaining externally owned stock in your physical warehouse:

1. Extend the end date
2. Take over the ownership
3. Send it back to the supplier

All inventory contracts and inventory contract lines receive a status, which is automatically updated by the system, denoting the progress. Every action that is performed for an inventory contract and inventory contract line is logged and can be viewed via a log file. On inventory contract header level, the log file displays the status progression for the contract. On inventory contract line level, the log file displays the actions taken/achieved for the line.

Creating sales orders for items managed by inventory contracts

There are five different ways to create the sales orders for items that are managed by (applicable) inventory contracts. It will never be possible to create a sales order line for a CMI-related warehouse, without linking the sales order line to an inventory contract. If auto-sourcing is configured in your Iptor.com system, the fifth alternative uses auto-sourcing.

1. The first alternative is when customer call-offs or charge consumptions are created from the Work with inventory contracts routine. With this alternative the sales order line has already been provided with a warehouse from which to source from the inventory contract. Auto-sourcing is not applicable.
2. The second alternative is when a reference is made to the inventory contract on the sales order header, alternatively on the sales order line during sales order entry. When such a reference is defined, the entered lines are validated against the inventory contract and the warehouse is retrieved from the inventory contract. Auto-sourcing is not applicable.

   A setting on the Inventory contract header controls the possibility to combine sales order lines (i.e. lines connected to an inventory contract and others not connected to an inventory contract) on a sales order when the user defines the contract number on the sales order header.

   If the Off-contract sales flag is set to YES, and the warehouse for the non-contract item is included and activated in your sourcing policy, a warning will be issued, (denoting that the item is not found on the inventory contract and that normal sourcing will take place), but the user will be able to add sales order lines for non-contract items to the sales order as well as items from other inventory contracts.

   If the Off-contract sales flag is set to NO, an error message will be issued and it will not be possible to add a sales order line for a non-contract item to the sales order. It will also not be possible to add a sales order line for items from other inventory contracts. However, if this flag is set to NO and if the inventory contract is only defined on line level, it will still be possible to mix lines for this inventory contract together with non-contract items and/or items from other inventory contracts.

3. The third alternative is by using the Inventory contract availability program during sales order entry. The panel can be accessed via the Inventory contr availability program function on the Order lines panel. All contract lines with an available quantity for a specific inventory contract will be listed. The inventory contract can either be the contract which was referred to when the sales order was created, or another inventory contract which can be defined on this panel. It will be possible to select lines and enter quantities for these lines, giving the user an easy and user-friendly way to create sales order lines that are to be linked to a specific inventory contract. Auto-sourcing is not applicable.
4. The fourth alternative is by entering a warehouse manually during sales order entry. When a sales order is created, it is possible to enter a default “From warehouse”. It is also possible to manually enter a warehouse on the sales order line panel. If the defaulted or entered warehouse is a CMI-related warehouse (i.e. a warehouse with warehouse characteristics code equal to 3, 4, 5 or 6), a search will take place to find an inventory contract automatically. This will be done even if auto-sourcing is not on for the sales order.
5. The fifth alternative is when no reference against the inventory contract is made during sales order entry. Items are entered and if auto-sourcing is configured to be processed it will be processed. As a result of the auto-sourcing, the sales order line may be sourced using an inventory contract.

Related topics

• About the CMI processes for Contract Managed Inventory
• Setting up the basic data and warehouses for Contract Managed Inventory (CMI)
• Setting up and initializing the inventory contracts for Contract Managed Inventory (CMI)
• About consuming goods from Contract Managed Inventory (CMI)
• About the stock ownership functionality
• Setting up the stock ownership functionality
• About Supplier Marketing Support (SMS)
• About Customer/Supplier Rebates