Feb 16, 2014

What is 'Receipt Routing Method'?

In my previous article on ERP Concepts, I discussed 'Matching Level'. In today's session, I am discussing 'Routing Method'.

As usual, I am restricting myself to Oracle Applications, eventhough, the concept is applicable to all ERP Applications.

Let us first look at the flow of material into a company.

The first step in the receiving process is called 'Gate Entry'. The truck is verified at the gate and the entry of the truck to the Factory Premises is documented. There may be a 'Weight Entry' as well, where the 'Gross Weight' of the truck is checked and documented. Once the truck enters the company premises, the material in the truck becomes the responsibility of  the company.

At this point the material in the truck has not been inspected and delivered in the inventory. Just that the Truck has entered the company premises and since the Truck has been received, a potential liability has been created. In accounting terms, a potential liability is called 'Accrual'. This means that 'Gate Entry' Creates an Accrual in the system.

Every accounting transaction has to have two sides. One side of the Gate Entry is Accrual, what is the other side (Debit Side)?

The other side is the material in the truck itself. The material is yet to be inspected and hence is grouped under 'Goods Under Inspection' or 'Receiving Inspection'.

So the Gate Entry process causes a transaction named 'Receive' in Oracle and a corresponding accounting entry is generated.

Now the material will be inspected. Upon completion of the inspection, the material will be 'Delivered' into Stores. This process creates the 'Deliver' transaction in Oracle where Inventory is recorded and the 'Receiving Inspection' is reversed.

Receipt Routing Method refers to the number of transactions that we create in ERP to record the above flow.

There are three values for 'Receipt Routing Method'.

1. Direct Delivery: In this case the user performs only one transaction in ERP. When the user creates a 'Receipt' in ERP, both the 'Receive' and 'Deliver' transactions are generated automatically in the system. Physically, organization may be doing 'Gate Entry', 'Inspection' and 'Deliver' but in the ERP system, all of them are condensed into one transaction. This reduces transaction load on the system. Normally 'Direct Delivery' is associated with either 2-Way or 3-Way Matching.

2. Standard Receipt: This is used when the user entering the Gate Entry in ERP is different from the user entering the Delivery into Inventory in ERP. This will create two separate transactions in ERP vis. 'Receive' (Gate Entry) and 'Deliver' (into Inventory). Normally this is associated with either 2-Way or 3-Way matching.

3. Inspection Required: This is used when Inspection Certified is required while making payment to the Vendor. In this case, 'Accept' and 'Reject' decisions are taken based on Inspection Certificate. Also based on the quality of the material inspected, the payment will vary. This is used mostly in procurement of Process Chemicals where payment is based on the Concentration of Acid received, for example.

This routing method require three tasks to be done for each receipt. Receive, Inspect / Accept, Deliver thereby increasing the procurement lead time.

Please note that 'We do Inspect the material' is not a good enough reason to go in for 'Inspection Required' routing method. This routing method is to be used only when Payment is linked to the Inspection Certificate and the match type is 4-Way Matching.


RVSinfosoft said...

Nice post
valuable information here.
Thanks for sharing.
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Brainbyte seo said...

Very Nice Post. I really appreciate with your blog.Thanks for sharing.

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BatchMaster said...

This is a very simple way of explanation about ERP Receipt Routing method. These four steps – receipt, accept, inspect and deliver can be understood even by the common businessmen.

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Microlabs said...

Nice explanation with image. thanks for writing a nice post.

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Ramaswamy V Krishnamurti said...

@RVSinfosoft,@Brainbyte seo,@BatchMaster,@Microlabs....
Thanks a lot for your comments. Apologies for the delayed response.
Pl. get in touch with me (Preferably by raising comments in the blog) so that I can respond to you.

Subramanyam Gadena said...

Hi Ramaswamy,

Nice Post and i have one question regarding matching option.

If Matching option is 4 way and receipt method is "Purchase" and the same quantity in PO not received fully then how the invoice will happen?


Ramaswamy V Krishnamurti said...

Hello Subramaniam, I do not have answer to your question. You could do a test scenario and let us know if possible.