Free goods – When gifts and bargains become a problem
In this blog post I will discuss “free goods”. They play an important role both in projects which we implement for our customers and also in our dab:AnalyticSuite, and form the subject of many queries. Important factors include profitability in terms of calculating profit in a customer’s business, compliance (bribery through payments in kind, formation of black accounts, undue advantage) or simply monitoring possible IT interface errors which can result in proper deliveries inadvertently not being invoiced.
My blog will consider different associated facets, how these issues can be addressed from a data analyst’s perspective, and how the results can be interpreted. I will also discuss SAP® data structures (tables, fields).
1 What exactly are free goods?
The question of free goods mainly arises in connection with the 02C (Order to Cash) process. In simple terms, the issue is whether
- “someone” has received
- "free of charge*“
It is a compliance matter – whether the item which has been supplied free of charge complies with internal and external rules. (* I will discuss the term “free of charge” in more detail later.)
In sales, the focus is on recipients of goods and services. These can be end customers, distribution partners, or field staff.
This can involve samples, low-priced marketing goods, or expensive products.
1.3 Free of charge
Although the attribute “free of charge” is widely used, it is only one aspect. Products supplied at a very cheap price (or even at dummy prices) are also relevant in this context.
2. Variants, examples and valid reasons
Various scenarios can be relevant here from a data analytics perspective. These include goods or products which are supplied at no charge, or at an unrealistically low price. Both cases may be shown accordingly on invoices. Deliveries for which neither an order nor a billing document exists can also be considered. Whether inventory discrepancies (stock withdrawals without a corresponding entry) should also be discussed as part of the subject is a matter of opinion, although we do not consider it applicable here. While it is an important risk management issue which merits close consideration, there are naturally also valid reasons why such transactions exist in the system. I have listed some examples here:
2.1 Free goods
An example of products which carry a zero price is materials which belong to a core product but are not sold and priced independently. For example, the operating manual for a washing machine could be listed on the customer order because it is enclosed with the delivery, but quoted at the price of EUR 0. Another example is an advertising campaign, when every television which is purchased during the short campaign period also comes with a Blu-ray disk containing the latest film in the Star Wars series. A third possibility is a discount in kind for distributors or possibly also for end customers. If 10 items are purchased, an 11th item is supplied free of charge and listed separately on the order and on the invoice at a zero price. Samples which are provided to field staff free of charge can also fall under this category.
2.2 Items delivered at an unrealistic price
A certain product which is actually billed albeit at an excessively low price (way below the production costs) should also be taken into consideration. Discounts in kind can of course also play a role here, in a similar way to that described above (e.g. “buy 10 items, get the 11th for EUR 1.00” instead of “buy 10 items, get one free”). Another option is trade-fair exhibit items which are supplied to distribution partners against payment of a flat-rate handling charge. For example, 3 wine coolers could be supplied as exhibit items for a price of EUR 50 each, with an agreement that they be returned to the manufacturer at the end of the event.
2.3 Delivery without invoice
From a terminology point of view, a distinction should be made between “delivery free of charge” and “delivery without invoice”. The first is a conscious transaction where a precursor document (e.g. an invoice) exists, but where the price for individual goods or the overall amount is zero. For deliveries without invoice, however, there is no precursor document. The delivery makes no reference to either an order or a billing document. Here, the question arises as to whether this is a conscious action, or whether there has been a processing error or an error in the IT systems. Even where goods are to be consciously delivered free of charge, ERP systems such as SAP® offer the option of using an order type “free goods”, and of initiating the billing document (no value) and delivery on this basis.
3. Clarification of certain aspects using the example of SAP® data
As can be seen from the introduction, the subject of free goods involves the sub-processes order, delivery and of course invoicing. In terms of detail, the individual conditions (master records and history) are also important factors.
The following aspects, tables and fields are of interest when examining the issue from an analytical perspective. At this point, it is of course also appropriate to mention our predefined reports, which we offer as part of our product dab:AnalyticSuite.
For an initial introductory overview, however, the following information is useful:
3.1 Free-of-charge order versus free-of-charge item
When considering documents and items, a distinction can be made between “free-of-charge order” and “free-of-charge item”.
With a free-of-charge order, every individual item is free of charge, whereas with a free-of-charge item, only the respective item is free of charge. The distinction is important because free-of-charge orders can be determined via the document category in SAP®, whereas free-of-charge items can be hidden in documents with “normal” document categories.
Strictly speaking, the process here is not always quite so linear, as it can also include partial invoices or partial deliveries. Moreover, since a distinction can also be made between order-based and delivery-based billing documents, the invoice can be derived from the order and not from the delivery. However, since this is not vitally important for our purposes, we will present only the simplified view here. Let us now consider the individual steps in more detail:
In SAP®, orders are stored as standard in the tables VBAK (Verkaufsbeleg: Kopfdaten / Sales Document: Header Data) and VBAP (Verkaufsbeleg: Positionsdaten / Sales Document: Item Data).
The following screenshot shows a free-of-charge order
The table KONV includes the condition records for each sales document and sales document item, as actually used. It can obviously be very large. In addition to this record of transaction data, the condition master records may also be relevant – these can, inter alia, be found in the tables KONH and KONP, which contain the master records. If, however, you wish to consider condition determination, this involves numerous additional condition and customising tables which would exceed the scope of this blog post.
Overall, the interaction between the individual sub-processes in SAP® is more complex than can be conveyed in a blog post. Nevertheless, I hope I have provided a good overview of the subject of “free goods” to include different facets, analytical approaches and possible interpretations for results. If you have any questions or suggestions, please contact us at any time using the contact options provided on our website.