As a business strategy to leverage the tax treaties between US and Mexico, implementing a maquiladora program in an SAP system can help companies meet regulatory requirements. Certain regulatory requirements must be met per the North American Free Trade Agreement (NAFTA). The maquiladora companies usually get the raw material on a duty-free basis, manufacture the parts in Mexico, and distribute them to the company’s country of origin via distribution plants. (The country of origin is always the US.) For this to happen, many system transactions occur to move the material from one place to another and finally complete the shipment to the customer.
I cover the best practices for getting the customer demand at distribution plants located primarily along the US-Mexican border, transferring the demand to the manufacturing plants, and fulfilling the demand from manufacturing to distribution plant. The maquiladora process involves various transactions involving the movement of material from one plant to another. I focus on best design consideration for automating the maquiladora transactions so that the plant can focus on satisfying customer demand rather than putting effort or time into the maquiladora transactions.
(In this article I use the abbreviations FR for France, MX for Mexico, and US for the United States.)
The US Maquiladora Shipment Process
In a scenario for my example, the customer shipment process is from US 21 company code. Figure 1 is a diagram of the US maquiladora shipment process.
The US maquiladora shipment process
I describe each of the six stages of the US maquiladora shipment process:
- The customer releases updates into sales scheduling agreements via electronic data interchange (EDI) at plant 2001 (automatic).
- A material requirements planning (MRP) run (via a batch job) is completed to transfer the requirement from US21 to FR11 (FR - France) plants. The system then updates the purchase scheduling agreement between the US21 and FR11 plants (automatic). (In my scenario, the raw materials are delivered via a third entity not located in the US or Mexico. The materials come from a European entity of the business. In this case, the materials come from France.)
- Based on MRP, the manufacturing process at FR11 plants (1001) are finished and stock is placed into finished storage in plant FR11.
- The outbound delivery process from FR11 plant (MX warehouse) to US21 plant (US warehouse) is manual and whenever the user wants to move the stock from FR11 to US21, delivery creation is done manually using transaction code VL10F.
- Goods receipt and invoice receipt at the US21(2001 plant)
- Customer delivery processing (manual and multiple times as per each customer delivery)
Execute transaction code VL10F. This action opens the screen in Figure 2.
Enter input delivery dates
Enter the input delivery dates and click the execute icon to display the results in Figure 3.
Activities due for shipping
The pick list is printed with system-proposed handling units (HUs) as per the standard first in, first out (FIFO) strategy.
To complete this step, execute transaction code LT13. This action opens the screen in Figure 4.
Transfer order confirmation
Picking HUs are confirmed using a scanner.
To post the goods issue, execute transaction code VL02N. This action opens the screen in Figure 5. In the Outbound Delivery field, enter the number of the order and then click the Post Goods Issue button.
Enter a number in the Outbound Delivery field
The inter-company billing doc is posted via the batch job automatically.
For the goods receipt process at US21 (2001 plant), stock placement into REC Storage Type (interim) is performed by the system. Until the post goods receipt (PGR) process is done manually, the stock is displayed as in-transit stock. To view the in-transit stock, execute transaction code MB5T.
To do the PGR process manually, execute transaction code VL32N. This action opens the screen in Figure 6. In the Inbound delivery field enter the number of the order and then click the Post Goods Receipt button.
Enter a number in the Inbound delivery field
After the PGR process is completed, the HUs are transferred from the REC (Receiving) to the FP (Finished Part) storage type using a scan. To complete this step, execute transaction code LT09 (scanning).
For customer delivery processing (manual and multiple times as per each customer delivery), create a delivery by executing transaction code VL10E. Input the delivery date criteria and click the execute icon in Figure 7 to display the results in Figure 8.
The sales order schedule line
The list of materials due to be shipped (sales)
Figure 8 shows the list of materials that are due to be shipped to the customer per the entered delivery dates criteria in Figure 7.
To create a transfer order, execute transaction code LT03. To create a transfer order delivery document, enter data in the Warehouse number, Plant, and Delivery fields in Figure 9. (Note that the system automatically selects the Activate Item check box and Foreground/Background fields.) After entering the values, press Enter to save your entries to complete the transfer order.
Create a transfer order for the delivery document
To create a shipment document, execute transaction code VT01N. This action opens the screen in Figure 10. Enter data for the standard carrier alpha code (SCAC) in the FwdAgent field. Enter data in the Shipment type field and enter data for the trailer ID in the external ID 1 field. Click the Planning button and then click the Shpmt completion (shipment completion) button. Click the save icon (not shown) to save your data and complete the creation of the shipment document.
Enter details for the shipment document
Now you complete the post goods issue (PGI) process by clicking the save icon (not shown in Figure 10). The customer billing document is created using an automatic batch job.
The Mexican Maquiladora Shipment Process
In my example, I describe the customer shipment process for a Mexican maquiladora from MX 31 company code (Figure 11).
The Mexican maquiladora shipment process
I describe the nine stages of the Mexican maquiladora shipment process:
- Customer Release updates are placed into the Sales Sch. Agreements via EDI at MX31 plant (3001) – Automatic
- An MRP run (batch job) transfers the requirement from MX31 to US21 plants. The system updates the Purchase Sch. Agreement between the MX31 and US21 plants automatically).
- An MRP run (batch job) transfers the requirement from US21 to FR11 plants. The system updates the Purchase Sch. Agreement between the US21 and FR11 plants automatically.
- Based on MRP, the manufacturing process at FR11 plants (1001) is finished and stock is placed into finished storage at the MX warehouse in FR11 plant SLOC 1000 / WH 100 Storage Type MX, Storage Bin MX (to keep MX31 relevant stock).
- Process the outbound delivery from FR11 (1001 Plant) to US21 (2001) plant
- Goods receipt and invoice receipt
- Process the outbound delivery from US21 to MX31 plant
- Goods receipt and invoice receipt at US21 Plant
- Process the outbound delivery process from US21 to MX31 plant
Transfer Stock Between FR11 Plant and US21 Plant
To complete the outbound delivery processing from FR11 (1001 plant) to US21 (2001) plant, you need to create a purchase order. To complete this step execute transaction code VL10F. This action opens the screen in Figure 12.
Create a purchase order schedule
Input the delivery date criteria and click the execute icon in Figure 12 to display the results in Figure 13. Figure 13 displays the list of materials that are due to be shipped to the customer per the entered delivery dates criteria in Figure 12.
The list of materials due to be shipped (purchase)
Select the relevant material to be shipped and manually create the delivery document. The pick list for delivery is printed with system-proposed HUs as per standard FIFO strategy. To confirm the picking HUs, execute transaction code VL06O. This action opens the screen in Figure 14.
Click the For Confirmation button
Click the For Confirmation button to open the screen in Figure 15.
Confirm the delivery
In Figure 15, click the forklift icon or press the F7 key for confirming the HUs.
After you click the forklift icon, a pop-up screen appears for picking confirmation (Figure 16). In the Adopt Pick Quantity field, enter the quantity of materials to be shipped and then click the enter icon (the green checkmark).
The delivery confirmation screen (confirm picking)
After you enter the confirmation parameters in Figure 16, the selected delivery is confirmed (Figure 17). (Note that the values in the C and W columns are changed from the previous values of B to C as shown in Figure 17.)
The delivery confirmation screen
The inter-company billing document is then posted via the batch job. The document flow at this point is shown in Figure 18.
To complete the goods receipt process at the US21 plant manually, execute transaction code VL32N. Enter the inbound delivery number and click the Post Goods Receipt button (Figure 19).
Enter the inbound delivery number
Transfer Stock Between the US21 Plant and the MX31 Plant
The outbound delivery process from the US21 plant to the MX31 plant is done using standard SAP system transactions. To create a purchase order for delivery, execute transaction code VL10F. Enter the delivery creation date in Figure 20 and click the execute icon.
Create a purchase order schedule
After you click the execute icon, the screen in Figure 21 opens.
The list of activities due for shipping
The pick list printing with system-proposed HUs as per FIFO strategy is automatic. To complete the picking confirmation and PGI process (in a single step), execute transaction code Vl06O. This action displays the screen in Figure 22 in which you click the For Confirmation button.
Click the For Confirmation button
In Figure 23, click the forklift icon (Confirm in Background) for confirming the HUs.
Deliveries for confirmation
Manually enter the quantity of material to be delivered and click the enter icon as shown in Figure 24.
Enter the quantity of material to be delivered
After you click the enter icon in Figure 24, the selected delivery is confirmed (Figure 25). (Note that in the C and W columns, the values are changed from the previous values of B to C.)
The delivery confirmation screen
To post the inter-co billing document immediately, execute transaction code VF01.
The goods receipt process at MX31 plant is done using standard SAP system transactions. To complete this step, execute transaction code VL32N. This action opens the screen in Figure 26. Enter the inbound delivery number and click the Post Goods Receipt button.
Enter the inbound delivery number
The customer delivery process from MX31 plant to the customer is performed per the customer’s delivery schedule.
To create a delivery, execute transaction code VL10E. This action displays the screen in Figure 27. Input the delivery date criteria and click the execute icon in Figure 27.
Input delivery date criteria
The next screen lists the sales shipping due items as shown in Figure 28.
Activities due for shipping (sales)
Manually create the delivery from the selected shipping due items shown in Figure 28. To create a transfer order, execute transaction code LT03. This action opens the screen in Figure 29. Enter data in the Warehouse Number, Plant, and Delivery fields. After entering the values, press the Enter key and click the save icon (not shown) to confirm the transfer order.
Create a transfer order for delivery document
The next step is to confirm the transfer order items for a storage unit. To complete this step, execute transaction code LT13. This action opens the screen in Figure 30. Picking HUs are confirmed using a scanner.
Confirm transfer order items
To create a shipment document, execute transaction code VT01N. Enter the SCAC (standard carrier alpha code), shipping type, and Trailer ID. Click the Planning and Shipmt completion buttons and then click the save icon (not shown) to complete the shipment document as shown in Figure 31.
Create a shipment document
The customer billing document is created using an automatic batch job.
To automate the PGR for US21 and MX31 plants, execute transaction code MM03. This action opens the material master data screen in Figure 32. Select the Warehouse Mgmt 1 tab. In this tab the Special movement check box has to be left blank to automate the PGR for US21 and MX31 plants.
Leave the Special movement check box blank
The material listed for MX31 customer shipment needs to be extended (i.e., applied) to a different storage location (3000) than for FR11(1000) and US21(1000).
In the customer master data, the maquiladora intercompany customer’s master data address needs a unique transportation zone specific to the maquiladora. To complete this step, execute transaction code XD03 to open the screen shown in Figure 33. Enter a value in the Transportation zone field and press Enter.
Enter a transportation zone value
A new Z* transportation zone needs to be created for FR, MX, and US countries to assign this to maquiladora inter-company plant customers. This step is required to determine a specific route that is not relevant for transportation. (In general, a transportation document is not required in all maquiladora inter-company stock transfers.)
To set up the purchase scheduling agreement, follow IMG menu path Materials Management > Purchasing > Scheduling Agreement > Define Document Types. In the screen in Figure 34, select the Document types folder. For my example, create the new document type ZLU. Enter data in the fields shown in the highlighted row in Figure 34. Press the Enter key to save your data.
Create a new ZLU document type
For the US maquiladora process, a purchase scheduling agreement (PSA) needs to be set up with supplying plant FR11 and material line items with receiving plant US21.
For the MX maquiladora process, a PSA needs to be set up with FR11 and US21, but another PSA also needs to be set up with supplying plant US21 and material line items with receiving plant MX31.
Electronic Data Interchange (EDI) Partner Profiles
For all maquiladora-relevant plant customers, EDI partner profiles need to be maintained. Execute transaction code WE20 for plants 1001, 2001, and 3001.
For a standard SAP SPED batch job, a variant needs to be created for plants 1001, 2001, and 3001. For a standard SAP billing batch job, a variant needs to be created to process the intercompany billing for plants FR11, US 21, and MX31.
To set up your warehouse follow these steps:
- Plant 1001 should have the MX31-relevant Storage Type MQX and open Storage Bin MQX under SLOC 1000
- Plant 2001 should have the MX31-relevant Storage Type MQX and open Storage Bin MQX under SLOC 4000
- Plant 3001 should have the Storage Type MQX and open Storage Bin MQX under SLOC 1000
The above Storage Type MQX and Storage Bin MQX combination is required to mirror the same warehouse structure logically among three maquiladora plant matrices (FR, US, and MX).
To configure a storage strategy, follow IMG menu path Logistics Execution > Warehouse Management > Strategies > Activate Storage Type Search.
Challenges Faced in Implementing the Maquiladora Process Using Standard SAP Functionality
Depending on the nature of the business, organizations face many challenges when implementing the maquiladora process. Here are the some of the challenges that organizations typically face:
- Material movements within the company before reaching the final customer: The big challenge is to keep the system in sync with the MRP demand and the stock movements within different plants in a company. The standard SAP system way of integrating the customer demand to be customized according to the way the customer sends the demand. Doing this streamlines the demand flow for MRP and gives the correct requirements for production scheduling.
- End-user training: Because users have to manually perform more transactions in the system for a maquiladora, the training for end users is always challenging. The sequence of transactions and processes involved needs to be thoroughly researched with the business.
- Inventory mismatch: The inventory mismatch during the maquiladora rollout is one of the toughest challenges. Because in a maquiladora, a number of transactions are used for movement of material from one plant to another, matching the inventory across plants is a challenge. The best practice to overcome this is to do the cycle count two times a month during the initial one-month period also known as the hyper-care period of the rollout. After hyper care, it should be done once a month.
- High Cost of Goods Issue (COGI): A dedicated COGI resource should be deployed during the initial rollout. The dedicated COGI resources should be given training sessions on COGIs. Backflush transactions involving mass movement of materials from the production floor to warehouse should be avoided to reduce COGI values. The mass backflush is more prone to human errors and hence affects COGI.
Suggested Improvements in Maquiladora Process Implementation
I explained how to leverage the standard SAP processes and configuration to map the maquiladora implementation. Depending on the business scenario, the standard SAP functionality can be adopted for the maquiladora process. Doing this reduces the errors in SAP system processes as standard functionality has been used. The only drawback of this process is the number of transactions the end users have to perform to ship the materials to customers. Part of the maquiladora process can be customized by automating the material transfer process between plants before shipping to the customer. The transfer of materials from FR to US to MX can be automated so that the system auto-creates the documents until the customer delivery. The only thing the end user needs to do is to complete the shipment to the customer rather than worrying about moving the parts from one plant to another.