Managing Honeywell’s Consignment Inventory Using Internal

Requisitions

Larry Sherrod, Marisol Bernal Jill Longhofer

EJiva Inc. Honeywell Inc.

Honeywell customers demand their production lines are kept running by insuring there is never a parts outage.
Honeywell utilizes “Consignment Inventory” shipped to customers while keeping the costs and quantities on
Honeywell’s books. This could be an inventory nightmare if not managed properly. Using “Internal
Requisitions” helps manage the inventory and invoicing.
We will present a business case calling for the use of “Consigned Inventory”. In this case we will show the
need for a way of managing inventory shipped to a customer while still carrying the inventory and costs on the
suppliers books. These presentation covers the setup steps involved in “Internal Requisitions” used in Oracle
11i. It also discusses the recommended inventory organization structure used to maintain and separate the
inventory. We will deal with issues regarding how consigned inventory is hidden from order management, how
planning is involved with consignment and how consigned inventory can move with shipping documents, yet is
not invoiced until the parts are consumed by the customer.

The setup steps cover the requirements for using Internal Requisitions in Inventory, Purchasing and Order
Management. We will show screenshots and intend to detail enough of the process so our audience can go back
and setup Internal Requisitions in their development instances. We will also provide recommendations and
shortcuts along the way.

We plan to present the client requirements we were faced with. Honeywell Automation and Control Systems
has a vast array of products. Consigned inventory is an integral part of their business practice. With a large
parts database and the fact that Honeywell did not want to implement any process requiring extensive manual
intervention, we had to utilize as much of the automated processes within Internal Requisitions as possible.

Business Case
Honeywell provides consigned inventory to their customers. This inventory is kept on Honeywell’s accounts.
As the products are consumed, Honeywell invoices the customer. Honeywell is responsible for inventory
maintenance and accuracy. Their customer is responsible for providing a forecast plan and notification of
consumed product.

Prior to Oracle implementation, Honeywell maintained the inventory balances on spreadsheets. This process
had its drawbacks. Inventory was not visible beyond the Customer Care agent maintaining the spreadsheets.
Accuracy and information to the shipping department was a problem. Forecasts were loaded into sales orders
that created false demand to the system but the sales orders were needed for invoicing purposes.

Honeywell needed a way to maintain inventory and provide shipping and shipping documents to the customer
without invoicing. Invoicing is done later based on customer usage.

The clear solution to this business need was to use Oracle’s Internal Requisitions. This provided a way to
segregate inventory housed at the customer, shipping documents to the customer and no invoicing based on
product shipped but only on product consumed.

OAUG North America Fall 2002

Copyright 2002 by Larry Sherrod

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 Process Flow

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 Setup Steps
The setup steps have been broken down into three areas: Application Prerequisites, Item Setup and Customer
Setup.

Application Prerequisites
You first need to setup a price list for Internal Requisitions. We called ours “Int Req Price List”. Do not add
any items to the list. Just setup the header and save it. We then used existing supply organizations to feed the
consignment inventory organization.

Setting up your consignment inventory organization is straight forward just like any other inventory
organization. Next you need to setup a shipping network between your supplying organization and your
consignment organization. We only created one consignment inventory organization. We used unique
subinventories for each of the consignment customers. Be sure to set up your network in both directions, in
case product needs to be returned from your consignment organization. Set your transfer charge to “none”.

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 You must now setup locations to link shipping addresses to your subinventories. Be sure to check “internal
site” for your locations. Also, set your Inventory Organization field to your consignment inventory location.
The Ship To Location field should be the same as your Location name.

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 When setting up your subinventories, you may wish to name them with your customer name for easy reference.
Be sure to assign the location from the previous step to the subinventory you are setting up now.

You now have to set up a Transaction Type for your Internal Order lines and an Order Type for Internal Orders.
Set up a Transaction Type with the name of “Internal Line Type”. Set up a Transaction Type with a name of
“Internal Order”. On the Internal Order, set the Default Order Line Type to Internal Line Type. Set the Price
list to Int Req Price List. Click the Assign Line Flow button and assign the Internal Line Type to the Internal
Order transaction type. Click on the Shipping tab and put the consignment inventory organization into the
Warehouse data field. Click on the Finance tab and set your Invoicing Rule to “Advance Invoice” and your
Accounting Rule to “Immediate”.

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 Now you must assign a Document Sequence to your Internal Order. Go to the Sequence Assignments form and
create a new row. Set the Application to Oracle Order Management, the Category to Internal Order, and the Set
of Books to [your standard set of books]. In the Assignments tab, set the Sequence to the same as your
sequence for Standard Orders.

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 Now you can setup the Purchasing Options. You can find this under the Purchasing setup menu. Open the
Purchasing Options screen and click the Internal Requisition tab. Set the fields to the data shown in the image
below.

This completes the prerequisites for internal requisitions.

Item Setup
Make sure your items are setup in the supplier inventory organization as well as the consignment inventory
organization. Your attribute settings for the supplier inventory organization should be fine. Here are the
relevant attributes for an item in your consignment organization. Under the General Planning tab, set your
Source attributes to point to your supplier organization. Under the Purchasing tab, make sure “Purchased” and
“Purchasable” are checked. Under the Order Management tab, make sure “Internal Ordered” and “Internal
Order Enabled” is checked.

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 Internal Customer Setup
You will need to setup two customers for each consignment customer. One is used as an internal customer for
shipping purposes. The other is used for invoicing.

In the Customers form, create your internal customer. In the Classification tab, set the Type to “Internal”.
Create a Ship To address for the customer. Under the Business Purpose screen, in the Details tab, set the
Internal Location data field to the location you created for this consignment customer. In the Order
Management tab set the Price List to Int Req Price List.

The settings for the customer you wish to use for invoicing should follow the standard customer setup.

This completes the setup for internal requisitions.

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 Requisitions Input
Navigate to the Requisition Input screen. You must set the Type to Internal Requisition. You can then enter the
Item, Quantity and Needed By date.

Note: The Needed By date is the customer request date.

You must then enter into the Destination Area the Destination Type, Organization, Location and Subinventory.
Enter your Source, Organization and Subinventory into the Source Area. Save your work.

The Approve button should now be lit. Click the Approve button and the Submit for Approval Screen appears.
Click the OK button to approve the requisition.

Navigate to the Purchasing Reports screen and run the Create Internal Sales Order program.

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 Once the report runs, you now must run the Order Import routine.

Note: You may wish to set up Order Import to run as a background process every few minutes.

You should now be able to see your imported orders in the Order Organizer Screen.

At this point, the order processes like any other order. The exception is once the Ship Confirm is completed, an
Inter-organization Transfer and shipping documents are generated. The material is now in-transit and must be
received into the consignment organization.

Receiving
Navigate to the Receipts screen. You can locate the Internal receipts by selecting the Source Type of Internal
and the Supplier based on the source organization. See below:

Hit the Find button to display the possible receipts.

Note: You can filter your receipts by customer by hitting the customer tab and inputting the customer number.

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 Depending on how many eligible receipts are ready in the system, you could get several records as shown in the
image below. Follow the standard receiving process to complete the items into the consignment inventory.

Standard Order for Invoice

When the customer notifies you of the parts consumed, you must create a standard order for invoicing. It must
be shipped from the Consignment organization.

Note: Be sure to use your external customer when creating this order.

Conclusion
Internal Requisitions have been production at Honeywell for two months at the time of this writing. While the
setup was a bit involved, its use in the day to day business practice is straightforward and relatively simple.
Simple on-hand inquiries reveal what are on the customer’s consignment shelves at any time. Customer care
can maintain balances based on notifications from the customer of product received and product used. Receipts
are quickly processed for shipped consignment goods, invoice only orders are then processed for product used.

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Copyright 2002 by Larry Sherrod

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