ERS - Evaluated Receipt Settlement is a process where we agree to pay to the supplier on receipt of the cargo based on the received quantities. We do not require a physical invoice for the vendor payment. The absence of a physical invoice saves precious business time engaged in Invoice Verification and Vendor communication. But we only pay for what we have received, we cannot make a advance payment in this process.
How it started : General Motors in the 1990s, was posting around 1.5 million vendor transactions per month. Following a horizontal Supply Chain, they were working with thousands of vendors for their purchasing requirements. The whole podium was chaotic with invoices being parked or blocked due to errors.
This led to delays in vendor payments which further meant litigations against GM. GM was losing 1 USD in litigation costs against a 1USD earned in automotive sales. This was a GRAVE Concern.
The GM Team huddled together to find a solution, no they did not call Mckinsey or Bain for this. After several brainstorming sessions, they came up with the ERS Process. GM said we will pay to the vendors based on the GRN, we dont need a physical invoice. The payment liability will be triggered once the goods are received in the warehouse. The elimination of the Physical invoice saved a lot of dollars and made the entire purchasing invoice more fab and agile. GM implemented this process and significantly saved dollars in the procurement process.
But there were some riders for this process :
A. ERS could be implemented only with trusted vendors. In case of returns, we have to get our money back easily.
B.All terms and conditions must be mentioned in the PO. Specific payment terms are to created with the baseline date as the GRN date.
C. ERS can be used only for warehouse items, not for cost centre purchases
D. ASN must be made mandatory to ensure a smooth execution of the process
E. This cannot be used for estimated price purchases like gas, petrol, gold.
F. The tax information has to be entered in the PO
G. You cannot make Asset Purchases by ERS since a physical invoice is required for a Asset as per the CFA Rules.
H. You cannot use ERS for Import Purchases. It will be too risky.
Soon this process was adopted by the major US manufacturing companies and became a huge hit with the Supply Chain / Purchasing community. Subsequently APICS ( Association for Production & Inventory Control Society) adopted this ERS framework and migrated it to SAP as a collaboration effort. APICS is a global apex body which defines a framework for Supply Chain processes, ERP softwares like SAP refer to this framework to design their system coding. Benefits of using ERS : A clear absence of a Physical Invoice means you do not engage any resources in Invoice Verification. Imagine no Invoice Posting, Invoice Courier, Invoice Printing, Tax code errors. This saves significant purchasing dollars.
ERS ON SAP ERP :
A. Standard POs are raised to the vendor. Payment Terms, tax code details are made mandatory in the PO
B. ERS Indicator must be checked in the PO Item details. “ NO-ERS”indicator must not be checked in the Info Record
C. GR BASED IV must be checked
D. PO Price must not be marked as Estimated Price.
The vendor must be informed that this is a ERS PO. ASN Confirmation must be required from the vendor after goods are shipped. Normal GRN will be done for the PO
For posting the vendor payments, we will use Tcode MRRL. MRRL can post both the material and logistics cost. If you want to specifically post only logistics cost, you can use Tcode MRDC.
For ERS Returns, you can use same Tcodes MRRL and MRDC. For return shipments, system will create credit memos. ERS and ERS returns indicators have to be checked in the vendor master of the primary supplier and the logistics vendor.
ERS can be a potent weapon by your side if you want to streamline your purchasing process.
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