In SAP SD or MM, what is meant by consignment stock in a typical sales and distribution scenario?

Introduction / Context:
Consignment processes in SAP SD and MM allow a vendor or supplier to place goods at a customer location while retaining legal ownership until the customer actually consumes or withdraws the goods. Questions about consignment stock test whether candidates understand the special nature of this stock and how it affects billing and inventory valuation in SAP.

Given Data / Assumptions:

• Consignment stock is managed in SAP using specific movement types and document types.
• The physical location of the stock is at the customer site, but ownership remains with the supplying company until consumption.
• Billing usually occurs when the customer settles for the quantity actually withdrawn from consignment stock.
• The question is asking for the basic definition of consignment stock in business terms.

Concept / Approach:
In a consignment arrangement, goods are moved from the vendor plant to the customer location, but the vendor keeps ownership. The customer can draw material as needed for production or sales, and only the quantity actually taken is billed. In SAP, this is reflected by special stock indicators and separate stock segments per customer. This arrangement benefits the customer by reducing capital tied up in inventory and benefits the vendor by increasing product presence and potential sales.

Step-by-Step Solution:
Step 1: Consider a scenario where a company places raw materials at a customer facility so that the customer can consume them whenever required. Step 2: While the materials sit in the customer warehouse, they remain legally owned by the supplying company and appear as consignment stock in that company records. Step 3: When the customer withdraws a quantity for production or sale, that quantity is converted from consignment stock to customer stock, and a billing document is created for the consumed quantity. Step 4: SAP supports this process with specific documents such as consignment fill up, consignment issue, consignment return, and consignment pickup. Step 5: Option a captures this logic by stating that consignment stock is physically at the customer site but remains vendor owned until withdrawal and billing. Step 6: Options b, c, and d either assign ownership incorrectly, place the stock in transit only, or restrict it to spare parts, which does not match the general definition.

Verification / Alternative check:
In SAP SD configuration and documentation, consignment stock is explicitly described as vendor owned stock stored at the customer premises. Movement types such as 631 and 633 are used to fill and issue consignment stock. Reports distinguish consignment stock from normal unrestricted stock. This confirms that the definition in option a is correct and that other options misrepresent either location or ownership.

Why Other Options Are Wrong:
Option b is wrong because ownership does not transfer at the moment goods leave the vendor plant; transfer occurs when consignment issue takes place. Option c is incorrect because consignment stock is stored physically at the customer, not always in transit. Option d is too narrow and incorrect; consignment agreements can cover many product types, not only spare parts in vendor warehouses.

Common Pitfalls:
A common pitfall is to treat consignment stock exactly like normal sold stock in accounting, which would misstate inventory and revenue. Another mistake is confusion between consignment stock and customer owned stock stored at a vendor location, which is a different scenario. Understanding consignment stock helps configure SAP processes correctly and ensures accurate financial and inventory reporting.

Final Answer:
Consignment stock is inventory that remains the property of the vendor or company but is physically stored at the customer site and is only billed when the customer withdraws it for use.