We have received numerous questions with regards to how freight invoices and freight charges are transferred to orders and how this ideally should be set up. This is currently limited to do for customer and vendor freight charges added to sales and purchase orders.
The transportation charges calculated through the rate route workbench is apportioned to the order line when you ship confirm the load. The apportionment is handled by the apportionment engine that is set as a parameter to the rating engine used in the rating profile for the actual shipping carrier. At the same time as you ship confirm and the charges are apportioned, a freight bill is created with the same charge, which later will be used for the freight reconciliation process. Three scenarios for transferring the freight charges to the source documents will be described in this blog post, one for each order flow. Note that the figures in the scenarios are for illustrative purposes only to indicate where the freight charges are going in the scenarios, and not reflected in the shown screenshots.
Scenario 1: Purchase order flow
In this illustrative example, we are buying a product from a vendor with the price of 120, in addition to that we are responsible for paying freight and one of our contracted carriers takes care of the freight and charges 20 to bring the product to our warehouse. We add this freight charge to the purchase order and finally through generating product receipt the freight charge is added to the inventory value.
For information on how to do the purchase order flow with transportation planning there is a demo script on the demo data site on PartnerSource named SCM Demo Script - Inbound transportation planning, which gives a demo of the inbound transportation process.
First thing to think about is that when you are creating your purchase order you need to make sure to use a delivery term you’ve set to Add transportation charges to orders. Alternatively, change the preferred delivery term on the vendor account.
Next you need to make sure you have correct miscellaneous charges set up in order for the charges to be transferred to the correct debit or credit accounts. In order to set up miscellaneous charges, go to Transportation management > Setup > General > Miscellaneous charges. In order to transfer charges to purchase orders, you need to a miscellaneous charge set up with the Charges module set to Vendor. This means that the miscellaneous charge will apply to “accounts payable” and will take effect when creating charges associated with purchase order lines.
You will also need to specify a Charges code, which determines the effective credit and debit account that should apply to the freight charge. The options here are dependent on the charges module used. When using demo data, we are using the charges code Vnd Freigt when the charges module is set to Vendor. Right click on the charges code and select View details to see how it is set up.
As seen in the above picture, the debit posting is to Item, this adds the charge to the item cost. As we were responsible for paying the freight, the credit posting goes to a ledger account set up for this purpose. If we would have a contract where the vendor pays freight we could instead have set the credit type to Customer/Vendor to add the transportation charge to the vendor’s account. Additionally, if we didn’t want the transportation costs to be added to price of the item, we could have set a ledger account in the debit posting in order to record the charge as an expense as part of the total for the purchase order. For more information, see Create charges codes.
The last mandatory set up in the miscellaneous charges form is the Miscellaneous charge type, where you have three different options:
- None – Select if you want the total rate charge to be applied to the order.
- Customer – Select if you have a customer specific rate generated (for example, through discounts or override charges) and want a separate miscellaneous charge to be added on your source document lines for that rate.
- Shipper – Select if you have a vendor specific rate generated (for example, through vendor discounts) and want a separate miscellaneous charge to be added on your source document line for that rate.
If you are setting up general miscellaneous charges meant to work across all purchase orders you would choose None, as the total transportation rate will then be applied to the order
If you would like to have separate lines in the charges transactions for vendor discounts you could create separate miscellaneous charges with Miscellaneous charge type set to Shipper and set other case specific criteria (such as site, warehouse, shipping carrier, etc.) for which the charge should apply to.
The rest of the options in the Miscellaneous charges form are optional and can be used to specify certain criteria.
After you have confirmed the inbound shipment in the Load planning workbench, you can view the transferred charges. This can be done through the purchase order form in the purchase order line, where you click Financials > Charges > Maintain charges.
Purchase order transportation charges
When you generate product receipt, the transportation charges will be added to the inventory value.
Scenario 2: Transfer order flow
For transfer order scenarios where you want to use TMS to ship items from one site to another, it is not possible to add the calculated charges to the transfer order through miscellaneous charges.
We are aware of this missing capability in TMS and will support this eventually.
In case inventory is evaluated by the costing method Standard cost, you have the option to add the transportation costs to the item (Cost object=Item+Site) on the receiving Site. For more information about standard costs, see Setting up and maintaining standard costs and Working with cost accounting.
You simply include the expected transportation cost in the standard cost at the receiving site.
In the example illustrated below we have a material flow going from Site 1 to Site 2. The estimated transportation cost is 20.00. The difference in Standard cost will be posted at the main account associated with the posting type Cost change variance. This main account will act as the Transportation cost absorption account. By end of fiscal period this account should be reconciled against the actually expensed Transportation cost. Any major difference can be corrected by doing a Standard cost revaluation.
Scenario 3: Handling freight charges for sales orders
In this scenario we have a sales order for an item with a cost of 120. The shipping carrier we use are charging 20 for the transportation and we want to add the transportation charges to the sales order for the customer to pay. The final price for the customer including freight will then be 140.
For the full outbound transportation process, including adding miscellaneous charges to sales orders, see the ‘Outbound transportation planning and execution’ white paper. You can download it from PartnerSource or CustomerSource.
The basic things you need to set up in order for freight charges to be transferred to the order upon ship confirmation is to use a delivery term that are set to add transportation charges to orders and a miscellaneous charge applicable to your order type.
In order to set up delivery terms, go to Sales and marketing > Setup > Distribution > Terms of Delivery or Procurement and Sourcing > Setup > Distribution > Terms of delivery. You can either create new delivery terms or modify existing delivery term as necessary. Make sure that Freight charge terms is set and that Add transportation charges to orders is selected.
In order to set up miscellaneous charges, go to Transportation management > Setup > General > Miscellaneous charges. In order to transfer charges to sales order you need to have a miscellaneous charge set up with the Charges module set to Customer. This means that the miscellaneous charge will apply to “accounts receivable” and will take effect when creating charges associated with sales order lines.
You will also need to specify a Charges code, which determines the effective credit and debit account that should apply to the freight charge. The options here are dependent on the charges module used. When using demo data, we are using the charges code FREIGHT when the charges module is set to Customer. Right click on the charges code and select View details to see how it is set up.
In the picture above you see that for the charges code Freight the credit posting is set to a ledger account, which will account for the expenses from the transportation charges. The debit posting is set to Customer/Vendor, which will add the transportation charge to the customer’s account. For more information, see Charges code (form).
If you would like to have separate lines in the charges transactions for discounts or override charges you could create separate miscellaneous charges with Miscellaneous charge type set to Customer and set other case specific criteria (such as site, warehouse, shipping carrier, etc.) for which the charge should apply to.
After you have confirmed the outbound shipment in the Load planning workbench, you can view the transferred charges. This can be done through the sales order form in the sales/purchase order line, where you click Financials > Charges > Maintain charges.
Sales order transportation charges
EDIT: As pointed out by Steven in the comments, for scenario 3, the charges codes has been mixed. It has now been corrected and the screenshot replaced. The debit posting should be Customer/Vendor and the credit posting to a ledger account.