AISI OP Council Evaluated Receipts Settlement ERS Process

STANDARD BUSINESS PRACTICES GUIDELINE

FOR TRADE BETWEEN STEEL PRODUCERS, OUTSIDE PROCESSORS AND WAREHOUSES

November, 1998

TABLE OF CONTENTS

Page
1) FORWARD

3

2) INTRODUCTION

5

3) THE RECOMMENDED ERS BUSINESS/EDI
          PROCESS FLOWS

5

          ERS MODEL

6

4) PROCESS NARRATIVE GUIDELINES
          PROCUREMENT FUNCTION

7

          MATERIALS MANAGEMENT FUNCTION

8

          PAYMENT FUNCTION

8

          EDI CONTROLS

9

5) EDI TRANSACTIONS
          PROCUREMENT FUNCTIONS

10

          MATERIALS MANAGEMENT FUNCTIONS

11

          PAYMENT FUNCTIONS

13

          EDI CONTROLS 13
6) APPENDIX
          EXCEPTIONS AND OTHER ADVICES 15
          ERS MODEL REFERENCES 16

EVALUATED RECEIPTS AISI/OP COUNCIL

SETTLEMENT (ERS) PROCESS

FOREWORD

Evaluated Receipts Settlement (ERS) is specifically designed to eliminate or minimize the processor/warehouse invoice as a costly and unnecessary document.

The benefits of ERS include: reduced clerical personnel, fewer clerical errors, elimination of duplicate and lost invoices, reduced mailing and paper costs, and most importantly, improved cash flow.

The following is the recommended standard business practice for an evaluated receipts settlement (ERS) process between the AISI Steel Producers and Outside Processors and Warehouses. This recommendation is considered to be the preferred electronic process.

Recognizing that each producer, processor and warehouse is at varying stages of development in their business and EDI systems, this model is provided as a standard toward which all steel producers, processors and warehouses can work to achieve a more uniform, cost effective process.

The recommended model is designed to recognize all key-supporting transactions. This is illustrated with the use of ASC X12 transactions. Ideally this will provide the most efficient ERS process. It is recognized that each trading partner will have legacy systems that will have to be considered. No doubt various combinations of paper-based, COMPORD and ASC X12 transactions will be used to satisfy the ERS process until the ultimate ASC X12 model can be realized. It is also important to note that some key components of the processes can be implemented earlier than others without the entire process being in place at one time.

The recommended model will likely address about 80% of the business volume between any producer and processor or warehouse. The remaining 20%, not covered by the recommended process, can result from:

  • unique information requirements of a producer or processor,
  • additional processing work performed that was not initially anticipated, or
  • Legacy system requirements

(How to handle some of these conditions is noted in the appendix).

Each producer/processor should develop a trading partner agreement. The agreement spells out the policies and rules on how business will be conducted and can supplement the recommended model by identifying how the remaining 20% of the business volume are to be handled via EDI or alternative systems.

The recommended model follows the basis AIAG (Automotive Industry Action Group) guidelines. However, it eliminates irrelevant portions and offers more definitive solutions and more familiar terminology pertinent to the steel producer/processor/warehouse working relationship.

A joint task force of the AISI Outside Processors Committee and the Outside Processors Council developed this recommended ERS business practice model.

 

INTRODUCTION

Evaluated Receipts Settlement (ERS) is a payment method designed to eliminate or minimize the need for processors and warehouses to provide an invoice to steel producers for services performed.

In lieu of an invoice, ERS payments are calculated by the producer based on the Advanced Shipping Notice (ASN) sent to the producers from the processor or warehouse. The ASN data, subject to the producer’s verification, is applied by the producer against the purchase price and terms that are in effect at the time of shipment. This determines the amount owed to the processor. The producer then makes a remittance to the processor for that amount. The steel producer may elect to use the receipt document of the customer or next outside processor as additional verification to the ASN before authorizing payment.

Essential to the efficient operation of an ERS process is the timely:

  • Agreement of price by the trading partners
  • Issuance of a purchase authorization document by the producer
  • Issuance of accurate shipping information by the processor
  • Establishment of a Trading Partner Agreement

 

THE RECOMMENDED ERS BUSINESS/EDI PROCESS FLOWS

The diagram below depicts the recommended basic material and EDI flows. Following the diagram is a narrative explaining the flows and application of the appropriate ASC X12 transactions sets or COMPORD transaction sets.

 

 

Physical Material Flows ----------------------
EDI Information Flows

Supplementary transaction sets recommended for material management may include 861 Receipt, 870 Production, 867 Re-application, and 846 Inventory Status.

Supplementary transaction sets recommended for EDI control may include 997 Functional Acknowledgement and 824 Application Advice.

 

PROCESS NARRATIVE

For ease of understanding and clarity, the process narrative is divided up into 4 component parts:

  • The procurement function
  • The materials management function
  • The payment function
  • The EDI control function

The Procurement Function

The ERS process essentially begins with the establishment of a purchase document of some type. This document can take the form of a price catalog, a purchase order, a purchase order release, a work order or the response to a request for quote.

The procurement process can be initiated by the steel producer requesting a price catalog and terms from the processor or warehouse or by making a specific Request for Quotation (840) to the processor for a specific item. The procurement process can also begin by moving directly to the Purchase order phase. The steel producer would send a purchase order to the processor with work instructions and pricing.

Once the response is received in the form of a Catalog (832) or Quotation (843), the producer can acknowledge agreement or acceptance of the price and terms via a Purchase Order (855), Purchase Order Change (860), Purchase Order Release (850), or Work Order (850) that contains the price,

The processor, in turn, can acknowledge the PO or PO Changes with an Acknowledgement Advice (855 or 865) respectively.

Both the producer and the processor retain the pricing information in his system.

The price information can be maintained in various ways including storing the price and terms data in a readily accessible database that could be updated electronically by the processor via the various EDI pricing documents such as the Catalog (832).

When the price is not known in advance, the processor must provide a price advice via a purchasing transaction, otherwise, the producer will not be able to calculate and remit payment.

 

The Materials Management Function

The materials management function is that part of the process that monitors the inventory and its status as it moves from steel producer to processor, to customer.

Material is shipped from the steel producer to the processor or warehouse and an Advanced Shipment Notice (856) is sent at the same time advising the processor of the pertinent information concerning the material including material identification number, order number, weight, and dimensions.

Upon receipt of the material, the processor or warehouse then issues a Receiving Advice to acknowledge receipt of the material (861). In addition to the confirmation to the steel producer that the steel has arrived, this information may be used in the determination of storage charges that may be calculated based on the days in residence at the warehouse, starting with the date on which the material arrives.

Once the material is put into production at the processor, the processor or warehouse should then report the in process Production status of the (870). Material status involves not only the position of the material within the various processes stages, but also requires an accounting for the condition of the material and the yield losses incurred during the process via the Inventory Status (846). This information may also be used to reconcile inventories.

In the event that the material is found not to be correct according to ordered specifications, or due to changes in steel producer order schedules, the processor or warehouse may be required to reassign the material to a different status via a Reapplication message (867). The processor may also be required to hold the material for future release via a Production (870).

Once the material is shipped, the processor or warehouse notifies the steel producer of the shipment via the ASN (856). It is this message that then triggers the payment to the processor or warehouse.

 

The Payment Function

The payment process begins when the material is shipped from the processor to the ultimate customer and sends the ASN (856) message to the producer.

The producer then matches the messages against his own inventory information and verifies that the information received is correct. Any errors are reported back to the processor via an Application Advice (824) for correction and future error avoidance.

Once the information is matched to the steel producer’s inventory system; the data is sent to the steel producers accounts payable system for payment.

From the mill order, and/ or the Production report, the steel producers’ accounts payable system will extract the processes that were to be preformed, extract the charges for the processes from the purchase document and pay the processor.

The payment function for a warehouse may function differently. In some cases, because of the purchase agreement, the payment process is initiated with receipt of the Receiving Advice (861). Upon receipt, and verification of data by the producer certain storage charges may be paid up front. The 861 will also start the clock for the steel producer to accrue certain storage charges based on time in residency. At the end of each month, the warehouse may transmit an inventory hand-off to the steel producer who will match the data and in-turn initiate a storage payment for those items identified in storage. If material is shipped during the month, final payment for storage will be triggered by the ASN (856) transmitted by the warehouse.

 

EDI Controls

Because an Evaluated Receipts System will only work when the appropriate messages are sent and received, the use of a Functional Acknowledgement message (997) throughout the system is highly encouraged. This ensures that messages have been received and the syntax is correct.

Because steel producers will not pay processors in an ERS system unless all data is in sync between the processor and the steel producer, the use of a (824 Application Advice) is also highly encouraged. This will avoid payments being delayed because of inaccurate data.

 

EDI TRANSACTIONS

PROCUREMENT

Request for Quotation (ASC 840 - COMPORD None)

The Request for Quotation is used within the ERS process by the steel producer as a means of obtaining accurate pricing information from the outside processing/warehousing facility. It is used to obtain a specific price for work that cannot be accurately priced through a generic catalog, such as coating or blanking which is priced on a per job basis.

This document is the important first step in the ERS model as it represents a unified means of initiating the delivery of pricing information to the steel producer

 

Response to Request for Quotation (ASC 843 - COMPORD None)

The Response to Request for Quotation is used within the ERS process by the outside processor/warehouse as a means of communicating pricing information for work that cannot be accurately priced through their generic pricing matrix. This information is pertinent to the ERS because it provides the steel producer with the final piece of information necessary to submit a purchase document to the outside processor/warehouse.

 

Price/Sales Catalog (ASC 832 - COMPORD None)

The Price/Sales Catalog is used within the ERS process by the outside processor/warehouse as a means of communicating pricing information for established processes according to industry practice in the form of a price catalog. This information is pertinent to ERS as it allows the steel producer to store generic pricing information that can be accessed to complete a purchase document without the need to use the Request for Quotation.

 

Purchase Order (ASC 850 - COMPORD None) / Purchase Order Change (ASC 860 - COMPORD None)

The Purchase Order and Purchase Order Change is used within the ERS process by both the steel producer and outside processor to communicate work order requirements and any changes thereto. Information including size and dimension of incoming and outgoing material, end usage, related order and part numbers, facility line-up, processes to be performed and price to be paid is related between the two parties.

The Purchase Order and Change documents are vital to the ERS model as they serve as the contract for the work performed as well as the basis for determining the performance of non-standard processes.

 

Purchase Order / Purchase Order Change Acknowledgments (ASC 855/865 - COMPORD None)

The Purchase Order and Purchase Order Change Acknowledgments are used within the ERS process by the transaction receiver to report confirmation of the terms set forth in their counterpart transactions. They function as a necessary control procedure surrounding the creation and maintenance of contract information in the ERS model.

 

MATERIALS MANAGEMENT

POTENTIAL PAYMENT TRIGGERS:
MATERIAL TRANSFER (ASC 856 – COMPORD 90)

This document is sent from the outside processor/warehouse to the steel producer and is used by the steel producer to verify that the material was shipped along with pertinent information on the material including identification number, current order numbers, size and dimension information and the shipment destination. Additional information includes the load weight, dunnage weight, and dimensions of each individual item being shipped, mode of transportation, shipping company, container or trailer number and packaging instructions.

This document is to be used for ERS purposes by the steel producer as notification of shipment of goods by the outside processor/warehouse, and may be used to trigger payment to the shipping party in an evaluated receipt settlement system.

 

RECEIPT (ASC 861 - COMPORD 91)

The receipt document is used in an ERS environment to convey to the steel producer that the material was received by the outside processor/warehouse along with pertinent information on the material including identification number, previous identification number, current order numbers, size and dimension information, receipt time and condition, weight discrepancies disclosed upon receipt and the shipment from and to locations. This is pertinent for warehouse storage charges to document "Start date" for storage costs.

PRODUCTION (ASC 870 – COMPORD 92)

Production reporting is used in an ERS environment to convey production information from the outside processor/warehouse to the steel producer. Information including description of current and previous identification numbers, process performed, related order numbers, and dimensions of the produced product, scrap information and current status and classification of the material.

The data is intended to be used by the steel producer to verify that the appropriate processes were performed, and to track the exact status of material throughout the production process. While payment is usually triggered at shipment time, there are exceptions when payment may be initiated upon completion of production. This would be established in the trading partner agreement. Production data may also be used to trigger ERS payment for services by the steel producer to the outside processor/warehouse. Payment may also be triggered at shipping time, based upon the contract between the steel producer and the outside processor/warehouse.

 

OTHER SUPPORT TRANSACTIONS:

REAPPLICATION (ASC 867 – COMPORD 97)

This document is used in an ERS environment to convey information describing the reassignment of material by the steel producer or outside processor/warehouse to a new order status. This information is critical to ERS because the order will determine the cost of the function(s) performed by the outside processor/warehouse. Information sent in the reapplication document includes the new order identity, material identification and effective date of order change.

This document is intended to be used to keep all parties synchronized regarding the applyication of material to specific steel producer or end customer orders

 

HOLD OR RELEASE (ASC 870 – COMPORD 96)

For ERS purposes, this transaction is sent by the steel producer or outside processor to provide notification of changes in the status of the material. It is also used to release material to prime or secondary status for disposition decisions when it is held for quality or other reasons. This proces may determine the order and pricing of the material for payment to the outside processor/warehouse. It conveys information describing identification numbers, order numbers, status and classification of the material. It can be used by the steel producer or outside processor/warehouse to change the status of material throughout the entire process.

 

INVENTORY STATUS (ASC 846 – COMPORD 89)

This document is used to inform the steel producer of pertinent information on the material currently in inventory, including identification number, current order numbers, and dimension information, status and condition, and the specific location of the material.

This document allows the steel producer to verify that each item in inventory at the outside processor/warehouse location has the correct status regarding orders, location or dimension. In an ERS environment it is used to reconcile the inventory and order status of material residing at an outside processor/warehouse site. And, is a key element in validating storage charges for ERS payments by the steel producer.

 

PAYMENT PROCESS:

INVOICE (ASC 810 – COMPORD None)

The EDI Invoice transaction is used to supplement the ERS process as a support transaction to convey charges for additional processing or services not specified in the steel producer purchasing document. Information contained in the invoice is consistent with customary paper-based invoices relative to goods and services provided. Usage and timeing should be documented in the trading parnter agreement.

 

PAYMENT ORDER/REMITTANCE ADVICE (ASC 820 – COMPORD None)

The Payment Order/ Remittance Advice is an optional transaction to supplement the ERS process. It is used to enhance and expedite the payment process and improve the efficiency and accuracy of cash application by the payee to their accounts receivable. The transaction can be used to make a payment, send a remittance advice (Check stubb information) or to make a payment and send a remittance. The transaction can be used to order a financial institution to make payment to a designated payee or can be sent to the payee directly.

 

EDI CONTROLS:

Functional Acknowledgment (ASC 997 - COMPORD None)

It is recommended that all EDI transaction sets used to support the ERS process require the Functional Acknowledgment in response to the receipt of the applicable transaction. The Functional Acknowledgment reports the syntactical correctness of the given transaction as a result from compliance validation to the ASC X12 Standard. The Functional Acknowledgment can report transactions as "Accepted", "Accepted with Errors" or "Rejected" at the batch or transaction level as agreed upon by the trading partners. ASC X12 codes are used to convey syntax error messages and a copy of the "Bad" data can be returned to the sending partner.

 

Application Advice (ASC 824 - COMPORD None)

The Application Advice is used within the ERS process by the EDI transaction receiver to report data errors detected upon processing by the receiving computer application. It’s usage is optional for all applicable ERS transactions except in response to the ASN from the outside processor upon material shipment. It is mandatory in this situation for the steel producer to confirm the receipt and accuracy of the outside processor’s ASN thereby ensuring synchronization of the identity and billing weights of the shipment; i.e. payment triggering device. Under this mandatory usage the Application Advice will confirm both positive (correct) and negative (errors detected) occurrences. The Application Advice for ERS processing will utilize AISI Steel Code Table 65 "Application Error Codes" to convey the given error(s). Also available is an option to return a copy of the "Bad Data" as well as corrected data.


APPENDIX

 

Exceptions and Other Advices

  1. When additional processing is required that was not originally anticipated by the work order, and if a price document is not in place to cover the added work, it is suggested that the producer pay for the originally scheduled work upon receipt of the ASN. The trading partners can then handle the additional process charges outside the ERS system as separate charges at the end of the month. This way, a majority of the work is paid for in a timely manner and only the exceptions are delayed.
  2. The criticality of some information fields may vary between steel producers. Before beginning and ERS program, the processor should have an understanding of what fields are key to a successful information match in each steel producers system.
  3. Data that is provided by the processor to the steel producer should not override the steel producers system. All discrepancies must be resolved before payment can be made.
  4. In all cases where the exact price is not known in advance, the processor must provide a price advice before the producer can calculate payment.
  5. There is also the option for the producer to pay on production; however, this is not a current practice in the industry.
  6. Unique to the model for processors is the fact that quotation responses are not always confirmed in a purchase order. Therefore, the quotation response can become the basis of reconciliation triggering the payment. Also, the Work Order can provide the PO price in lieu of a purchase order.
  7. Unique to the model for warehouses is the need to provide data to the producer that indicates when the material arrived at the warehouse and when it shipped from the warehouse so that storage charges, which are based on a various in-residence storage terms, can be determined.
  8. Processors will get paid as soon as all data matches with steel producer data and the producer has cut an invoice to the customer. The period of time required by a EDS system can be substantially shorter that today’s methodology whereby the producer does not act on payment until an invoice is received from the processor or warehouse.

 

ERS Model References: