Purchase order charges

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Hi,

We send parts out to vendors for repair and create a purchase order to pay for the repair. Purchase order has two lines both are service items for products being repaired. The physical parts are sent to the repair vendor for inspection and repair. Vendor determines if parts can be repaired. If one of the parts are determined to be un-repairable they scrap the item and charge a fee for the inspection of one part the other part is repaired and returned. What is the best way to handle this on the PO? Thinking of zero the price on the PO for the scrapped part and add a charge for the inspection fee/charge. Any suggestions are welcomed. Thanks.

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André Arnaud de Cal... 301,037 Super User 2025 Season 2 on at

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Hi,

It's not clear to me what you are exacly doing with the PO. What is the purpose of the PO? Can you explain about the two items you use for the two lines? Why two lines? Is this the same for each repair PO? Are you keeping track of sending and receiving the goods? If so are you keeping track of cost? Are the repairing costs increasing the value of the goods? You are talking about service items and charges. What would be the difference here? Please elaborate.

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Brandon Wiese 17,788 on at

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This is a common scenario and good use for a Purchase order.

First, I often recommend that the item being returned is put on the Purchase order itself, as a negative to represent the shipment of the item to the vendor, and as a positive line to represent the shipment of the item back from the vendor. This has the benefits of removing the item from inventory while it is at the vendor, and also producing the necessary paperwork in the form of a packing slip.

You can further use a future due date for the return of the item from the vendor, which can act as a reminder and/or feed master planning, etc. Use the same price on the negative and positive item lines so they net to $0. You can use exactly $0 as a price, but you might want to use its standard price for average cost or purchase price variance reasons.

To cover the additional fees, you can use misc. charges applied to the Purchase order header, or the lines directly, or service type items added to the Purchase order either as it is created or later when the invoice arrives. Often time the disposition of the item and/or the associated fees are not known at entry as they require inspection by the vendor and the additional materials and labor required for rework is fluid.

All of these ways work to create a payable for the vendor that matches the invoices, but there are some advantages of each approach. For example, if you are using average cost, then adding a misc. charge directly to the positive item line can be used to simultaneously increase the inventory value (debit type item) and provide the payable (credit type vendor). In other words, you can absorb the rework fees back into the inventory value instead of taking them as an expense. You can also apply the same type of misc. charge to the header, and then later allocate it across the lines according to an allocation mechanism, i.e. apportion by weight, quantity, total value, etc. Adding additional service type items is the easiest approach, and lets you control the offset account of the fee directly on the purchase order line, but does not impact the inventory value of the returned item at all. I generally recommend service type items when the repaired item uses standard cost, since anything you try to do to the value generates a purchase price variance anyway.

Hope this helps.

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Brandon Wiese 17,788 on at

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And, of course, if the item is scrapped, then you can delete the positive item line from the purchase order instead of leaving it not received forever. In some cases, the failure to return the item (say, for example, that the item wasn't defective at all but you were paying the vendor to change the color, and they accidentally destroy it during rework) can result in a debit memo for the inventory that was scrapped, and thus the negative item line services this purpose naturally.

Finally, I've always found this a great use case for turning one item into another, i.e. cutting down obsolete 10 foot pieces of plastic extrusion into 8 foot pieces, or again turning an item of one color into another. In this case the negative item line and positive item line are for different item numbers, but its most useful here to match the total line amount of the two lines, which under an average cost model allows the new item to absorb the full cost value of the old item plus the rework fees. You might even send out 6 broken units, and the vendor uses the good parts among them to send you back 4 or 5 working units, and matching the line amounts naturally handles this also.

As you can see, there is much variety to your scenario.

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Purpose of the PO is to pay the vendor for time & material. The two lines represent two separate items, could be the same or different. The sending & receiving of the goods is being handled by a 3rd party solution outside of AX. We only want to capture the cost of the repair for each item's repair cost. If an item can't be repaired the vendor charges a fee less than the original PO price and we want to be able to capture that cost.

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Brandon Wiese 17,788 on at

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Then you have the simplest scenario. Use service items as needed to generate the payable for the fees and charges accordingly. Misc. charges often will not work in that case because you cannot create a purchase order with only misc. charges, there must be at least one line. Create as many service items as you need to control the accounting properly.

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Brandon Wiese 17,788 on at

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You could even consider not using a purchase order at all in your scenario, since you're not managing the inventory and are using a 3rd party solution to manage communication with the vendor. Once the vendor invoice, create a Vendor invoice journal, add the total amount due as a Vendor type line, and then offset each of the fees to the proper main account and financial dimension using Ledger type lines. With this approach, there's nothing to fix because there's no purchase order at all.

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Thanks, gives me some things to consider.

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André Arnaud de Cal... 301,037 Super User 2025 Season 2 on at

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I do agree with the last two posts from Brandon. The use of a PO has an advantage that you know which repair orders were created and sent out. You don't get unexpected invoices and can do some matching.

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Thanks, appreciate the help.

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