SAP SD and TM - Considerations and Arguments for Good Business Practice for Inco Terms treatment

The question of Good Business Practice (not Best Practice) for Split SD and TM Billing Documents by INCO Terms. 

Incoterms and Their Impact:

• Incoterms specify the business agreement between the buyer and the seller at which the responsibility for goods, risks, and costs transfer from the seller to the buyer.
• They agreed Incoterms influence the way goods are transported and handled, but don't dictate how a company's internal systems should process orders for deliveries.
• Incoterms are part of the contract of sale, and they don't cover all aspects of a sale especially in international trade scenarios. 

Split criteria for "SD Outbound Deliveries" based on Incoterms:

• No, there isn't a Standardized split criteria for SAP Outbound Deliveries based solely on Incoterms. 
• While Incoterms define the responsibility for costs and risks associated with international trade, they don't dictate how a company should manage internal processes like delivery splits. 
• Delivery splits, in systems like SAP, are determined by various factors including 
• Shipping Conditions
• Plant
• Shipping Point
• Other internal parameters.

Split criteria for "SD Billing Documents" with reference to SD Sales Order and/or Outbound Deliveries based on Incoterms:

• From the Accounting perspective, it is generally a Best Practice to split Outbound Delivery to SD Billing by Incoterms, as different Incoterms can result in different cost responsibilities between the buyer and the seller. This ensures accurate billing based on the agreed terms of sale and avoids potential disputes or misunderstanding. 
• AND in my opinion, the same principles applied when creating Billing document for the Freight Orders. 
• Considerations: 
• Incoterms Define Responsibility: Incoterms (International Commercial Terms) are standardized trade terms that define the obligations, risks, and costs associated with the delivery of goods between a buyer and a seller.
• Varied Cost Structures: Different Incoterms assign different responsibilities for costs like transportation, insurance, and customs clearance. For example, in some Incoterms, the seller is responsible for costs up to the point of delivery, while in others, the buyer takes on the costs.
• Accurate Billing: Splitting outbound delivery to billing by Incoterms ensures that the invoice accurately reflects the agreed-upon cost allocation. This helps avoid situations where one party is overcharged or undercharged for costs that should have been borne by the other.
• Clear Transaction: By aligning the billing with the Incoterms, you create a clear record of which costs are included in the price and which are separate, improving transparency and reducing the potential for disputes.

Split criteria for "TM Freight Units" based on Incoterms:

• While not explicitly a Best Practice in the strictest sense, splitting freight units by Incoterms can be a valuable strategy for better clarity and management of international trade shipments. It helps to clearly define responsibilities and risks, potentially streamlining logistics and reducing disputes. 
• Hence, to split/combine outbound deliveries items with different Inco Terms into Freight Units each having the same Inco Terms can be a Good Business Practice for clarity especially when managing international trade shipments.
• However, the specific benefits and drawbacks depend on the context, including the specific Incoterms used and the complexity of the shipment.
• Benefits of splitting by Incoterms:
• Clearer responsibility: Incoterms outline who is responsible for different aspects of the shipment (e.g., arranging transport, paying for insurance, handling customs clearance). Splitting freight units based on these responsibilities can make it easier to track and manage those responsibilities.
• Improved risk management: By understanding when and where the risk of loss or damage transfers from the seller to the buyer (as defined by the Incoterm), you can better allocate insurance coverage and manage potential claims.
• Easier cost tracking: Incoterms specify who is responsible for different costs (e.g., freight, insurance, customs duties). Splitting freight units can help in accurately tracking and allocating these costs.
• Streamlined logistics: By clearly defining responsibilities, you can streamline the logistics process and reduce the potential for delays or misunderstandings.
• Reduced disputes: When responsibilities and risks are clearly defined, there is less chance for disputes about who is responsible for what, or who should pay for what.
• Potential drawbacks:
• Increased complexity: Splitting freight units by Incoterm can add a layer of complexity to the overall shipment management process.
• Administrative overhead: More freight units generally require more administrative effort to create, track, and manage.
• May not always be necessary: If the shipment is simple and the Incoterm is well understood by all parties, splitting by Incoterm might not be necessary.
• Potential for misunderstandings: If the Incoterms are not clearly defined or understood, splitting freight units based on them can actually increase the risk of misunderstandings and disputes.
• When it's a good idea:
• Complex shipments: For shipments involving multiple modes of transport, multiple parties, or complex customs procedures, splitting by Incoterm can be beneficial.
• When there are potential risks: If there is a higher risk of damage or loss, or if the Incoterms involve more complex risk transfer points, splitting by Incoterm can help clarify responsibilities.
• When there are multiple parties involved: If the shipment involves multiple buyers, sellers, or other parties, splitting by Incoterm can help clarify their individual responsibilities.  
• In summary:
• Splitting freight units by Incoterms can be a valuable strategy for international trade, but it's not a one-size-fits-all solution. It's important to consider the specific circumstances of the shipment, the complexity of the Incoterms used, and the capabilities of all parties involved. By carefully considering these factors, you can determine if splitting by Incoterm will be a beneficial approach for your specific situation.
• Based on the above arguments; although not mandatory, but as with regards to process harmonization of business process in Freight Units creations for a variety of Outbound Deliveries scenarios; in my opinion is a "Good Business Practice" and "Good System Practice" to Split/Combine Freight Units by Inco Terms. 
• With Freight Units Split/Combine by Inc Terms then there is also a ONE-to-ONE relationship when Charges are Calculated an Billing Document is created to the Customer.
• The same Considerations argued for "Best Practice to split Outbound Delivery to SD Billing by Incoterms" can therefore be applied to why Freight Units "should" also be split by Incoterms.