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Financial inventory for Intercompany deliveries in transit at year-end

  • 11 November 2019
  • 3 replies
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J
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We have different manufacturing companies in IFS that are individual legal entities. Companies have Intercompany relations with intersite Order flow handled with MHS messages. Ordering companies order with purchase orders at supplying companies, that sell with customer order. Companies are located on different continents. Transport is done via sea freight with transport lead times from 6 to 10 weeks.

For the finance consolidation at year end, we face an issue, that components shipped before year end, that are still in transit at year end, are missing in inventory value for the group. At time of shipment,  customer order is delivered and immediately invoiced. Delivery note is sent with MHS dispatch advice. That means, Supplying company does not have the inventory value anymore. Ordering company has not yet received the purchase order. Therefore, components are not in their inventory value.

What is the correct process or setup to handle this scenario from finance perspective and still following the real logistics process?

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Best answer by Kanishka Dilana 12 November 2019, 06:57

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Kanishka Dilana
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In the IFS Inter-company flow (Inter-site flow between Sites belonging to two different Companies), you don’t talk about any transit Stock/use the Transit concept. In other words, when Goods left Supply/Manufacturing Site, though they are physically in Transit, IFS system does not create any Transit record within IFS Applications.

 

Therefore, the Inventory value of that Transit Stock has no affect on the Demand site Inventory value/valuation reports until the Goods are Received at Demand end (Either by Registering Transit Arrival in IFS or by Processing Dispatch Advice Message as in your case). Until that happens, from Demand sites perspective, all they see is an outstanding ‘Release’ or ‘Confirmed’ Purchase Order that is neither Received nor Invoiced.

 

All in all, your observation of not including Components value in the Demand end Inventory value during IFS Inter-company flow (while they are ‘Physically’ in Transit) is Correct from the finance perspective I should say. This makes it quite different from Normal Inter-site flow (happens between two Sites belonging to same Company), where the Components Inventory value is considered as a Part of Demand end Inventory value even when Goods are in Transit.

 

In Summary, IFS Inter-company flow is more like External trading (At a given time, it is only a matter of having set of ‘Open’, ‘Outstanding’ Customer/Purchase Orders; waiting to be Paid/Received/Returned) than Intersite trading, where you need to think about the Transit Stock value as well. So, no matter whether you are in a year-end or mid-year, you need to only think about your Outstanding sales and GRNI (Goods Received Not yet Invoiced) as the impact on Inventory side of the business is minimal when it comes to  ‘Physically’ in Transit stock.

 

In that aspect, IFS Inter-company flow is a straight forward thing to understand and easy to use, compared to Normal Inter-site flow.

J
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Thanks for the explanation. This confirms my understanding of this topic.

GRNI (Goods Received Not yet Invoiced) often happens for receipts from 3rd party suppliers.

In our scenario, it is the other way - GNRI (Goods Not received but Invoiced). How is this handled by the application?

 

Piyal Perera
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How about Manual Supplier Advance invoice? Created for the purchase order and can be paid as well. Then when we receive the order advance invoice can be setoff. 

Piyal

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