Intercompany Business Processing is a core element for many organizations. The flexibility to consolidate orders across companies can open opportunities for cross-selling products, or simply the benefit and convenience of offering one unified face to your customers.
Standard intercompany processes have existed for years, but many organizations choose to use alternatives for a variety of reasons. However, these alternatives can create added work and confusion due to their complexities. In this article, I will illustrate one example of this process and explain how adopting the standard process can help streamline, simplify, and automate this process.
The Typical Intercompany Drop Ship Process
The Intercompany Drop Ship process (a.k.a. Intercompany Sales) allows for sales order demand to be fulfilled from a plant assigned to a different company code. There are many organizations using an arms-length model for structuring this same process. This siloed approach creates distance between the two companies by establishing a traditional customer/vendor relationship where one transaction requires two independent document flows – sales order through invoice – for each company involved.
A procurement process stemming from the customer-facing order in the first company code will typically initiate the secondary document flow executed by the second company. This separation typically requires additional manual notifications or status updates to be communicated introducing a potential point of failure. As with any complex scenario, this one lends itself to being inconsistently executed.
There can be many reasons to adopt such a process. This could be the same process used prior to SAP implementation. Or perhaps each organization feels it has more control over things in an operational silo. Perhaps there is no reason per se; that’s just the way it has always been done. Regardless of how compelling the rationale seems – or seemed – there are many benefits and efficiencies to be gained from adopting the standard process.
Intercompany Drop Ship with SAP
SAP’s intercompany drop ship scenario allows for this same process to be executed in one single, seamless document flow. Immediately, this eliminates the redundant secondary document flow, streamlining the process. When configured properly, the end product is a process amounting to little more than a slightly modified standard sale from stock.
The integrated nature of the process means there are no communication gaps. Intercompany pricing is enabled through the use of a separate Intercompany pricing procedure. Two standard pricing conditions are delivered – PI01 and PI02 – to allow for intercompany List Pricing and percent-based pricing respectively. You have the power of SAP’s condition technique to further expand intercompany pricing as needed.
Enabling this process requires both configuration setup and master data maintenance. It probably goes without saying that you will need at least 2 fully-configured company codes to make use of this process. You will need to make sure that the intercompany plants are assigned to your Sales Organization where the sales orders will originate.
It is recommended to utilize dedicated account groups for intercompany customers and vendors. You will need at least one customer and one vendor for use in intercompany assignments. Details for account group YBAC can be found in building blocks 102, 104 and 105 in Best Practices ERP607. Once you’ve established the foundations for the process, you can then complete the configuration steps in the Intercompany Billing node in the Sales and Distribution section of the IMG.
Intercompany Drop Ship Process Improvement
Another process improvement area lies within the Automatic Vendor Posting function. This capability utilizes SAP’s EDI functionality as a means to automatically create an intercompany vendor invoice in the customer company code. This will eliminate any manual intercompany invoice handling to further streamline processing.
If your organization is already utilizing EDI functionality, then you may already have the in-house expertise to setup the requisite relationships. You will need to setup an RFC port and logical address, setup the corresponding customer/vendor Partner Profiles, and then populate parameters used in creating and processing the idocs. SAP Notes are available to help guide you through the process; refer to Note 31126 for ECC and 2513980 for S/4 HANA.
You may encounter certain challenges when implementing this process. Preparation and planning for these challenges should help ensure you have a successful implementation:
- You may encounter resistance from process stakeholders stemming from a reluctance to relinquishing some perceived control over the process. This is particularly prevalent in heavily siloed organizations. Understanding the rationale for any such reservations will help confirm or establish any necessary controls. Configuration and Master Data options enabling such controls may already exist.
- Establishing rules for intercompany pricing can be a complicated process. This may not be an issue if you are already engaging in these types of transactions. If not, however, it is recommended that you define these rules up front.
- The master data required for this setup can be complicated – particularly if you are implementing Automatic Vendor Posting. The setup can be especially tedious when there are multiple relationships involving three or more companies and plants. Creating a configuration and master data guide which captures these details will help in the understanding and future extension of the process.
- Be sure to allow for sufficient time for testing. There can be many permutations of a basic intercompany sale – Discounts, Surcharges, Returns, Credits, and Debits to name a few. These variations are multiplied with each additional company code and plant and could affect testing volumes proportionally. Pay particular attention to account postings.
If you find yourself in the position of managing a transactionally taxing, complicated intercompany sales process, you may want to consider adopting the simplified, standardized solution. The process is much like a standard sale from stock which your users are probably already familiar with. Execution times are reduced and require no manual communication between companies. And, the ability to automate the Vendor invoice posting further streamlines processing.
Interested in learning more about Intercompany Drop Ship? Check out the replay of our recent Run SAP webinar!
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