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POD – Series 3 – Inter Company Stock Transfer Scenario

A very warm Hello to all!

This document is part of the POD series that I started. The earlier two docs are referenced below for quick reference

POD – Series 1

POD – Series 2

This document will focus on the Inter-Company stock transfer process. This is basically a variation/extension of the Intra-Company stock transfer process discussed in POD- Series 1

The process of inter-company stock transfer can be divided into two parts

1. Refurbishment

2. Drop Shipment

Refurbishment:- This process is also known as Stock replenishment process. This is basically when Company A manufactures the Product and stock transfers it to Company B upon request.

As said earlier, from Logistics perspective, this is same as Stock Transfer Process. However, because the product is crossing the company code boundaries, this amounts to Sale/Purchase in the eyes of law. 

A Product ,say, P1 is manufactured in Plant A (Company 1000). For some reason (eg: further processing) it is transferred to Plant B (Company 2000).

Briefly, the process steps would be as below 

a. Plant B raises a STO (Stock Transfer Order) on Plant A

b. Plant A might have the stock ready with it or it may need to manufacture the same

c. Once stock is available in Plant A, the same will be despatched (PGI) to Plant B (Movement type 601)

Accounting entry at this stage will be:

     Dr. COGS (cost of goods sold)

     Cr.  Stock account                       

After PGI, the stock is removed from the books of Plant A and the same is shown as “Stock-in-Transit” (SIT) in the books of Plant B

d. Billing will follow after PGI in Company 1000

       Dr     Inter Co Customer (Company 2000)

       Cr     Sales revenue

e. Plant B receives the stock and does GR (MIGO – Movement type 101). At this moment, the stock shifts from SIT to Unrestricted / QI stock depending upon the system set-up

Accounting entry at this stage will be:

     Dr.  Stock account                       

     Cr.  GR/IR account

f. Invoice verification (MIRO) in Company 2000

Accounting entry at this stage will be

      Dr. GR/IR account

      Cr. Inter Co. Vendor (Company 1000)

Note that there are various options possible to automate this step.

    a. One can set-up the Idoc process whereby at Step (d), system generates an Idoc and posts a corresponding entry in the receiving company

   b. One can set up the ERS (Evaluated Receipt Settlement) process to automatically process Invoice verification using a scheduled background job. Since group company is involved in the process, it would be a trusted source of supply and hence using ERS should not be an issue (ERS process automatically does MIRO for the posted goods receipts)

Dropshipment:- This is when a customer approaches company 2000 to purchase a product. Company 2000 may not be manufacturing the product or the customer is close to the location of company 1000. Hence, company 2000 requests company 1000 to deliver the goods to the customer, on behalf of company 2000

The process goes like this:-


However, accountancy angle says there are two set of transactions involved in the above process

    1. Company 1000  selling to Company 2000

    2. Company 2000 selling to the Customer.

The process steps and scheme of entries in this case would be as below

a. Customer approaches Company 2000. Company 2000 creates a Sales Order in its system

b. Company 2000 raises a STO on Company 1000. For Company 1000, Sold-to-Party and Bill-To-Party will be Company 2000, however, Ship-To-Party will be the end Customer

c. Company 1000 ships the Product to the end Customer.

Accounting entry at this stage will be:

     Dr. COGS (cost of goods sold)

     Cr.  Stock account 

d. Company 1000 raises invoice on Company 2000

Accounting entry at this stage will be:

       Dr     Inter Co Customer (Company 2000)

       Cr     Sales revenue

e. Idoc is triggered from the invoice and this records the purchase entry in the books of Company 2000

Accounting entry at this stage will be:

       Dr.    COGS

       Cr.    Inter Co. Vendor (Company 1000).

Note that the goods are not physically received by the Company 2000. Hence, no Goods Receipt (MIGO) and PGI is posted in its books of accounts

The COGS account posted above is maintained in T code OBCB (not in OBYC)

f. Company 2000 raises invoice on the end customer

Accounting entry at this stage will be:

        Dr. Customer

        Cr. Sales revenue

g. The payment process will follow the course (between End Customer <-> Company 2000 and between the group companies)

                                                                           =====End of the Process========

Experts corner:- 

Below points are meant to provide expert knowledge about this process. These are separated from the above process steps so as to target the relevant audience.

a. Material master set up in Plant A:- (Only the settings relevant to FICO)

  – Procurement Type = E (In-House manufacturing)

  – Price control = S (Standard price)

b. Material master set up in Plant B:-

– Procurement Type = F

– Special Procurement Type = Z1 (to be configured in OMD9)

– Price control = V

Note that it is still possible to transfer the cost component split from the sending plant, provided both the companies use same cost component structure.

c. Valuation price of the material

Usually, the price at which the Product will be sold by the Company 1000 + any planned delivery costs + any non-deductible taxes would form the valuation price of the receiving company

d. A separate distribution channel can be earmarked in SD in order to distinguish the inter-company sales so as to report them separately in COPA

Thank you for reading the document. I would appreciate your feedback on the document, which will help me to improve it further.

Next document would focus on few other processes

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  • Ajay Sir,

    I am lacking in words to say thanks. Your clear vision and depth of zeal to share the knowledge is very much apparent from the document. The beauty of document is that it is shared from the bottom level up-till the experts.

    In simple words its is a great work of art.

    With high regards

    Rajneesh Saxena

  • Hi Ajay,

    A nice document with cover the steps from scratch to end of the process. The important thing is that a fresher can be easily understand and adopt it.

    Undoubtedly, it is a wonderful document.



  • Ajay,

    Exceptionally well written , and easy to follow.

    i have one question

    Can you elaborate further on below point what we maintain? Can you share the screenshot.

    The COGS account posted above is maintained in T code OBCB (not in OBYC)?



    • Hi Hrushi

      Thanks for the compliment

      I dont have a system where this is configured, so cant provide you the screenshot.. I forgot the IMG path as well, but can provide you some inputs

      In OBCB, Choose Partner Type as LI for Vendors, Enter the Partner No (Vendor No) and the Company code..You need to define the Vendor as Partner

      Inside OBCB, against Goods/Service No, you can specify the Material No and assign the COGS GL account here

      Note that this is not as flexible as assigning a GL account against Val class.. in OBCB, you can either assign a Generic COGS GL or against Material No

      Br. Ajay M

      • Financial Accounting (New)

        Accounts Receivable and Accounts Payable

        Business Transactions

        Incoming Invoices/Credit Memos


        The above is IMG path to maintain the IDOC parameters for incoming inovice.


        Murali. N

  • Ajay bro,

    Incredible.... That's why in my all replies, I will ask you to share more and more on SCN forum.

    This kind of stuff will definitely help any level of consultant.

    Thanks once again for your sharing!!!!

    BR, Srinivas Salpala

  • Great work and great document Ajay...your work on SCN is really helpful and knowledgeable.

    Thanks to you for your knowledge sharing πŸ™‚

    Regards πŸ™‚

  • Hi,

    Your series really superior to manufaturing firms to deal with their daily issues,

    You are following Best practices scenario,really appreaciated,

    With Regards,


  • Hello Ajay Sir,

    I gone through a complete series of POD and found it very helpful. As I belongs to Manufacturing Industry I specially found it amazing and easy understanding. 

    I am getting help from these documents to understand stock transfer functionalities rather I am able to relate it practically now.

    " Genius Mind - Genius Work"



  • Hi Ajay,

    Thank you for explaining such an evolved business process, you made it look so easy all the while explaining it clearly, gave the complete picture with  accounting entries too , traits of a  great teacher

    Looking forward to  learn more


  • Hi Ajay,

    You are amazing!!

    Though, I'm in SAP for a while, but I've hardly seen a few who are dedicated so much to the community with unending zeal. I'd appreciate your time mgmt.skill to strike a judicious balance between work + community.Your expert knowledge in CO has lifted and helped many in their projects at critical junctures.You broke all boundaries of SCN by your exceptional knowledge and generous intent to give back w/o any expectation. In fact, you reminded me of Amir Khan of SMJ that a Great mind with a Great Intent can do amazing wonders with his contribution to the society and in this world, SAP community!! I'm sure there are many who are benefiting from your threads, blogs, docs, PODs, articles in different capacities at regular intervals. As your name suggests, you are indeed AJAY of SAP CO!!!  

    I'd encourage you to compile your expertise & experience and write a book on SAP business processes for CO. I'm sure it'll be the best-seller overnight!!

    Thanks for your inspiration and efforts to make the (SAP) world better!

    And, in this process, you're leaving a great Legacy behind.....,

    May the Joy be with you:)



    • Hi Nirav

      I just woke up today to such a wonderful comment, perhaps the BEST i ever received..

      Am obliged to you for feeling so good about me..  You made my day today!!

      I must also give some credit to Mark Finnern about this..  I once asked him how can I be a SAP mentor.. He said apart from contributing technically, I need to mentor the people here, encourage the community through blogs and may be help in organizing some SAP events

      I will always remain obliged to the people who run and manage the SCN forum, especially Laure Cetin

      Br, Ajay M

      • Thank you so much for the appreciation Ajay! I am happy to make a (little) difference.

        The reward for me is to see people like you thrive and help others, and continue learning on the way. I love my job πŸ™‚
        Kind regards,


  • Hi Ajay,

    Thanks for the excellent document.

    I have a query regarding the Drop shipment section.

    We see two cogs here one in books of 1000 and the other in the books of 2000

    -Company 1000 ships the Product to the end Customer.

    Accounting entry at this stage will be:

         Dr. COGS (cost of goods sold)

         Cr.  Stock account 

    -Company 1000 raises invoice on Company 2000

    Accounting entry at this stage will be:

           Dr     Inter Co Customer (Company 2000)

           Cr     Sales revenue

    -books of Company 2000

    Accounting entry at this stage will be:

           Dr.    COGS

           Cr.    Inter Co. Vendor (Company 1000).

    The COGS in 1000, will come from the material price. How will the COGS in the company code 2000 reflect? Will it be equal to the Sales Revenue amount what has been posted in books of 2000?And do we call it intercompany cogs?

    Thanks in advance for your response πŸ™‚



  • brilliant article, we are implementing a similar solution, except in Company code 2000, they are using a ''virtual plant'' for legal reasons but order will be sourced via Company code 1000 plant which is not allowed to be displayed in the inter-Company sales order  raised by Company 2000 again for legal reasons, some custom logic has to be built to check the stock levels at Company 1000 plant and confirm ATP check on the Schedule line of the inter-Company sales order

    Any ideas?

    many thanks once again for your brilliant article!

  • Hello Ajay

    I have a question on intra company STO, ifΒ  we have a scenario where we want that the FI entries at the time ofΒ Β PGI from Plant A should be that it is reducing the value from the inventory of plant A but not increasing the value of inventory at plant BΒ Β but the value should go to GIT (goods in Transit) of the receiving plant.

    We haveΒ excise scenario so the value hitting the GIT account should be the inventory value + Excise .
    This actually means than when the stock moves to the GIT of Receiving plant the Excise is also out from sending plant.
    once the goods have received at the plant B than GIT value should get reduced and the corresponding value should go to inventory account of the receiving plant.

    Can you guide how can I achieve this