Physical inventory in SAP MM involves verifying the accuracy of inventory quantities by comparing the physical stock present with the data stored in the SAP system. The goal is to ensure that both the system and actual stock levels align after completing the physical inventory process.
For legal purposes, it is necessary to carry out the physical inventory process, which usually takes place annually in most cases.
To make the process easier, refer to the diagram below which outlines the typical steps involved in conducting a physical inventory. These steps are commonly followed regardless of whether you are using SAP ERP or not.
In addition to the legal requirements, it is highly beneficial to have accurate stock quantities in the system that align with the physical inventory. This allows management to obtain accurate information regarding the value of stock materials and ensures that sales availability (ATP) is correct. Furthermore, performing material requirements planning (MRP) using precise input parameters such as material stock quantities leads to more accurate results.
Having incorrect stock levels in the system can have significant consequences. It leads to management having an inaccurate understanding of the financial status of their inventory. This, in turn, affects various processes such as ATP (Available-to-Promise) where sales may not be able to sell items that physically exist but are not recorded in the system. Similarly, MRP (Material Requirements Planning) becomes unreliable as it relies on accurate stock levels for production and procurement calculations.
It is crucial for a company to have accurate and up-to-date stock levels in order to effectively carry out various operations. In the MM module, we will now explore the process of conducting physical inventory.
Contents
- 1 Physical Inventory Types in SAP MM
- 2 Physical Inventory Document Creation in SAP MM
- 3 Understanding the inventory management process in SAP MM
- 4 Counting Results Entry in SAP MM
- 5 Understanding the meaning of mi07 in SAP
- 6 Inventory Differences Posting in SAP MM
- 7 The 4 phases of inventory
- 8 Main steps for physical inventory count process in SAP
- 9 The purpose of MB51 in SAP
Physical Inventory Types in SAP MM
The SAP system offers various methods for conducting physical inventory processes.
– Regular stock check
– Ongoing stock monitoring
– Incremental counting of inventory
– Sampling method for inventory verification
Periodic inventory is commonly used by companies, typically conducted once a year as an annual physical inventory. This involves counting the material stock on hand, often done at the end of the year or after the season concludes in seasonal industries.
Continuous inventory involves counting all materials at various points throughout the year, without a specific designated day for counting. This means that different materials may be counted in different months or on separate dates. While this type of inventory is commonly used in warehouses focused on warehouse management, it can also be implemented in inventory management processes.
Cycle counting is a method of conducting regular physical inventory on specific materials at set intervals. It enables us to prioritize the frequency of counting based on factors such as material value and movement speed. For instance, high-value and fast-moving materials may be counted four times a year, while low-value and slow-moving ones may only require an annual count. To implement this approach, the appropriate indicator must be configured in the material master within the Plant/Storage Location 1 View field.
Inventory sampling in the physical inventory process involves counting only a selected number of materials on the balance sheet key date. If these materials show minimal differences, it can be assumed that other materials also have accurate stock levels. This method is not commonly used as it is an estimation, but there are situations where it may be applicable based on the material and warehouse structure.
In the upcoming section, we will delve into the frequently used method of conducting inventory known as the yearly stocktaking.
Physical Inventory Document Creation in SAP MM
You can utilize the following steps to generate and handle the physical inventory document.
1. Run the MI01 transaction.
3. Specify the Plant, Storage location, and Special stock indicator.
4. Decide whether to enable Posting Block (if there is a chance of someone making postings during physical inventory), Freeze book inventory (the current book balance will be recorded in the physical inventory document if selected), and count batches with deletion flag (self-explanatory). Press ENTER.
1. Input the relevant material number(s) that you wish to incorporate into the physical inventory document.
2. Preserve the transaction data by saving it.
You will receive notification about the recently generated physical inventory document number.
To modify the document, use the MI02 transaction. To verify if the counting has been completed, double click on the item. If you want to delete the document, you can mark it with a deletion indicator.
At the item level, it is evident that our material has not been included in the counting process yet.
At the header level, you have the option to modify the information that was initially entered when creating the physical inventory document.
Once you have completed the creation and modification of the physical inventory document, you can view it using the transaction code MI03.
Understanding the inventory management process in SAP MM
In order to clarify Material Requirements Planning (MRP) for inventory, the following steps need to be taken:
1. Provide clear explanations and understanding of MRP in relation to inventory management.
2. Enter goods receipts into the SAP system to ensure accurate tracking of incoming materials.
3. Update material master data in SAP regularly to maintain up-to-date information on inventory items.
5. Follow the physical inventory procedure in SAP, which involves physically counting all items in stock.
6. Reconcile any count differences found during the physical inventory process by investigating and resolving discrepancies.
7. Obtain approval for any identified count differences before making necessary adjustments.
Counting Results Entry in SAP MM
In the upcoming section, I will demonstrate the process of inputting the inventory count outcomes into the physical inventory record.
The physical inventory process in SAP MM is relatively simple, but it must be carried out with precision to avoid incorrect stock balances. It is crucial that both the counting and entering of results are done accurately to ensure reliable data.
- Execute the transaction code MI04.
- Enter physical document number and fiscal year.
- Enter the counting date if it differs from the one suggested.
- Enter the variance percentage. This means that if you had 100 pcs on stock before the physical inventory process, and you enter 107 pieces as a counting result, you will be informed with a warning message of the difference between the previous stock quantity and the counted quantity. Press ENTER.
1. Input the quantity of the material that has been counted.
2. Press the ENTER key to confirm and proceed.
You will be informed that there is a quantity difference of 20 pcs, if you haven’t made a mistake while entering the quantity, you can bypass the warning by pressing ENTER. If you made a mistake while entering the quantity, you can correct the entry (124 pcs in my case) and hit ENTER again.
If you get the warning message, and you think that there might be a mistake in the counting process, you can recount the item again and correct the results (check out MI05 transaction code, and MI11 if needed).
Once I have made the necessary adjustment to reflect 124 pieces, I will proceed to save the transaction details.
Understanding the meaning of mi07 in SAP
After the physical inventory has been counted and all the quantities have been recorded, we need to make sure that any differences in inventory are properly accounted for. This is done by posting these differences in SAP using a transaction code called mi07.
When we use transaction code mi07, there is a field where we need to enter the physical inventory document number that corresponds to the count we just completed. This document serves as a reference point for SAP to identify which specific physical inventory count we are referring to.
By entering this document number, SAP will be able to match it with the recorded quantities and compare them with what was actually counted during the physical inventory process. Any discrepancies between these numbers will then be considered as inventory differences.
To ensure accurate record-keeping and maintain an up-to-date view of our stock levels, it is crucial that these inventory differences are posted correctly in SAP using mi07 after each physical inventory count.
Inventory Differences Posting in SAP MM
Once you have potentially rechecked and inputted the quantity details for materials that posed issues, you can record the variances by utilizing the MI07 transaction in SAP MM.
1. Run the MI07 transaction in SAP.
2. Input the physical inventory and fiscal year details.
3. Specify the posting date, which determines when goods will be posted. Some companies use December 31st as the end of their fiscal year for annual physical inventory purposes.
4. You have the option to set a threshold value, indicating the maximum allowable difference in local currency. If you prefer not to set a limit, leave this field empty. However, it is important that materials have either standard or variable prices maintained for this feature to function properly.
5. Press ENTER to proceed with the process.
The completion of our posting can be observed through the generation of material document 4900547510.
1. The material document indicates that there are 4 pieces in stock.
2. The movement type 701 is utilized to record the receipt of goods resulting from a physical inventory discrepancy.
This implies that the inventory is increased by 4 units.
To find a list of standard movement types that are utilized for physical inventory in SAP MM, please refer to the table below.
701 is the code used for recording the receipt of unrestricted stock in SAP MM. On the other hand, 702 is used to record the issue of unrestricted stock. Similarly, 703 and 704 are codes for receiving and issuing quality inspection stock respectively. Lastly, 707 and 708 are codes used for receiving and issuing blocked stock in SAP MM.
The physical inventory process has been completed, and you can now proceed with your usual warehouse tasks.
The 4 phases of inventory
What are the 4 types of inventory? The four types of inventory are raw materials, work-in-progress (WIP), finished goods, and maintenance, repair, and overhaul (MRO) inventory.
In simple terms, inventory refers to the stock or supplies that a company holds for its operations. It is essential for businesses to manage their inventory effectively to ensure smooth production and meet customer demands. There are four main types of inventory:
1. Raw Materials: These are the basic materials used in manufacturing products. Examples include wood, metal, plastic, fabric, or any other material that goes into creating a product.
3. Finished Goods: These are fully completed products ready for sale or distribution to customers. They have undergone all necessary manufacturing processes and quality checks.
4. Maintenance Repair and Overhaul (MRO) Inventory: MRO refers to the supplies needed for maintaining equipment or machinery used in production processes. It includes spare parts, tools, lubricants, cleaning agents, etc., required for repairs and upkeep.
Main steps for physical inventory count process in SAP
To begin the physical inventory process in SAP MM, start by entering the count with reference. This can be done by accessing the initial screen on the system and inputting the number of the physical inventory document. Once this is completed, select “Goto Collective Processing” from the menu to proceed to the item screen of the physical inventory count.
On this item screen, you will have an opportunity to enter the counted quantity into its respective column. This allows for accurate tracking and recording of inventory levels during a physical stocktake. Ensure that all quantities are entered correctly before proceeding further.
The purpose of MB51 in SAP
When utilizing MB51 in SAP, users can easily retrieve essential details regarding material documents and current stock balances. This includes information such as the movement type of materials, quantities involved in each transaction, as well as relevant dates and times. By having access to this data through MB51, businesses can effectively manage their inventory by keeping track of incoming and outgoing goods accurately.
