Foreign Procurement: Handling Ownership of Goods in Transit

  • by Ali Hassan, SAP Procurement Lead, ICI Pakistan
  • Talha Aftab, SAP Analyst, SAP HCM and ABAP, ICI Pakistan Limited
  • April 15, 2016
Learn how to handle goods in transit (GIT) during foreign procurement. The process starts with the transfer of ownership at the time of shipment handover. It goes on to storing it in a bonded warehouse at the port of entry (if necessary), and finally to posting it to the company’s material stock account at the time of physical receipt and clearing the GIT account.
Learning Objectives

Reading this article, you will learn how to:

  • Process invoices to transfer liability of goods in transit (GIT) into your company books and raise the vendor payable simultaneously, based on the bill of lading day exchange rate
  • Monitor GIT quantity and value during shipment duration
  • Place and monitor material in a bonded warehouse at the port of entry (if necessary)
  • Bring material into a company’s stock account at the time of physical receipt and remove it from the GIT account
  • Configure a special GIT general ledger (G/L) account to be used in this process
  • Develop three programing enhancements that are required for this process
Key Concept
This goods in transit (GIT) handling solution transfers ownership of GIT when a foreign vendor hands over a shipment to the buyer. Goods ownership is transferred by processing an invoice in the SAP system. The SAP system then records the value of the GIT under a separate GIT general ledger (G/L) account (based on shipment or bill of lading day exchange rate). It increases the vendor payable simultaneously. At the time of the physical goods receipt, the value from the GIT account is cleared and booked under a material stock account. This process helps in bringing in the GIT value in company books for legal reasons and also keeps it separate from company stock accounts while the material is still in transit during foreign procurement.

Compared with local procurement, foreign procurement brings its own set of requirements. One of them is managing ownership of goods-in-transit (GIT) after a foreign vendor hands over the shipment to the buyer or to its freight forwarding agent. At this point in time, the buying company usually records the value of the GIT in its books for financial reporting and insurance purposes.

This solution caters to the need of managing ownership of GIT and targets the critical gap of transfer of ownership in the SAP system’s standard foreign procurement process. It does so without disrupting the normal process flow of foreign procurement (i.e., purchase order [PO], advance payment, invoice receipt [IR], and goods receipt [GR]). It enables one-step transfer of ownership and provides procurement and finance departments with complete and real-time visibility into GIT quantity and value throughout the shipment duration using enhanced Purchase Orders by PO Number (transaction code ME2N) and G/L Account Line Items (transaction code FBL3N) reports, respectively.

By adopting this solution, the finance officer upon receiving shipment documents transfers the ownership of GIT by processing a vendor invoice for the shipment quantity and value (debiting a special GIT general ledger [G/L] account and crediting the vendor account). When goods arrive at the port of destination and if for the time being they need to be kept in a bonded warehouse.  A bonded warehouse stores goods duty free for a certain period, and then the store officer creates a rough GR with reference to the PO line item. Once the material is physically received at the company’s premises, the store officer processes a GR (debiting the material and crediting the special GIT G/L account).

These features of one-step ownership transfer and intermediate storage in a bonded warehouse and complete visibility during shipment duration distinguish this solution from SAP’s standard solution. The standard solution of acceptance at origin uses movement types 107 and 109 (valuated GR into blocked stock), which increases material stock account at the time of ownership transfer.

Figure 1 shows the process flow of the GIT handling process.


Figure 1
GIT process flow diagram
 

What follows is a detailed explanation of the three aspects of this GIT handling solution:

  • Configuration
  • Development
  • Process

Ali Hassan

Ali Hassan leads the SAP Procurement team in ICI Pakistan. With more than eight years’ IT experience as software engineer and SAP consultant, Ali specializes in business software in the areas of purchasing, inbound logistics, and inventory/warehouse management. He holds a bachelor’s in computing and a master’s in information technology.

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Talha Aftab

Talha Aftab is an SAP analyst in SAP HCM and ABAP. He has been with ICI Pakistan Limited since 2012. His interests are targeted toward creating a better user experience in SAP, and he is currently working on implementing SAP Fiori and SAP SuccessFactors at ICI Pakistan.

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