Inventory Management in SAP MM

1. Give an overview of Inventory management in SAP system?

Inventory management in the SAP system helps record and track stocks of materials. It also involves the planning and documentation of all goods movements..

2. What tasks are covered under Inventory Management?

Inventory management is an important part of materials management (MM). Optimal inventory management not only ensures an uninterrupted supply of the material at the required time, but also prevents wasting items. MM covers the following tasks:

Material stock management

Planning, entry, and documentation of goods transfers from and to the inventory Physical stocking of items

3. What is Physical Inventory?

Physical inventory is a process in which all the transactions related to the movement of goods are stopped and the company physically counts inventory. It is required in financial accounting rules or for placing an accurate value on the inventory for tax purposes.

4. What are the initial configuration steps for physical inventory?

The steps for purchase acquisition are as follows:

Defining the default values for the physical inventory document Reporting batch inputs

Recording tolerances for physical inventory differences

Inventory sampling as well as configuration of cycle counting

5. What is the difference between managing stock by quantity and managing stock by value?

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Transactions that make changes in the stock result in stock updates that are recorded in real time. At any point in time one can view the stock overview, which represents the current situation at that time. That is the essence of stock management by quantity, and can applied to the following stock types:

o Located in the warehouse o Ordered but not yet received

o Located in the warehouse and reserved for a particular purpose o Reserved for quality inspection

The managing stock by value option reviews the stock materials qualitatively rather than quantitatively. The valuatioNof stock is done either at the plant level or at the location level. Updates that can be done when managing stock by value are as follows:

o The quantity and value for the goods movement o The accounts that are assigned for cost accounting

o The G/L accounts for financial accounts, with automatic assignment of accounts

The valuation area is the organizational level at which the stock value is maintained. It can be either at plant level or storage level.

6. What are the special stocks in SAP?

Special stocks are defined as stocks that must be managed separately by a company. They can be either company owned or external stocks. They can be categorized as follows:

Consignment Subcontracting

Stock transfer using stock transport order Third-party processing

Returnable transport packaging Pipeline handling

Sales-order stock

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7. With which modules in SAP is the inventory management integrated?

Inventory management is an important part of the SAP MM module. The business activities of an organization revolve around the inventory of materials, which serves as the input for the manufacturing process or the inventory of prepared goods for delivery or sale. The material is purchased from the appropriate vendors on the basis of requests from the materials requirement planning (MRP) module. The delivered items are recorded as the goods receipt in inventory management. The materials are then stored, either for delivery to the customer or for manufacturing processes. Inventory management is integrated with other modules, such as financial accounting (FI), sales and distribution (SD), production planning (PP), project system (PS), and quality management (QM).

8. How is the inventory management integrated with MM?

Inventory management is directly linked with the MM module because any movement of goods to and from inventory happens under the MM module. MRP, purchasing, and invoice verification are some of the MM components that are also linked with inventory

management. After material is ordered it is posted as a goods receipt with reference to the purchase order. The actual data of the quantities are checked in the vendor's invoice.

9. What are the initial configuration steps for inventory management?

The steps for inventory management are as follows:

Defining plant parameters

Defining system message attributes Defining number assignment

Defining goods issue, transfer posting, screen layout Maintaining copy rules for reference documents Setting up dynamic availability checks

Confirming the negative items

10. What is Goods movement? What type of documents is created after goods movement?

Goods movement refers to the movement of stock. This movement of stock could be either inbound from the vendor, outbound to a customer, between different plants, or even

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between different stocks within a plant. After goods movement, the SAP system creates two types of documents: material documents and accounting documents.

11. What are the goods movements that take place in MM?

The goods movements can be defined as the physical or logical movements of materials that lead to a change in stock levels or results in material consumption. The goods movements are part of the MM policy. The goods movements in SAP are as follows:

o Goods receipt— Represents the physical movement of goods or materials into the company.

It increases the stock quantity. The goods receipt can be of the following types:

Goods receipt with reference to a purchase order Goods receipt with reference to a Production order Goods receipt without reference

o Goods issue— Represents the physical movement of goods or material ouTof the company. It reduces the stock quantity. The goods issue can be of the following types:

Goods consumption in the company Goods delivery to customers

o Stock transfer— Represents the movement of materials from one location to another location. The locations can be either within the same plant or different plants.

o Transfer posting— Represents the stock transfer that can either be physical or logical. In logical stock transfers, goods are transferred only in records, while the actual stock transfer does noToccur. Some examples of physical stock transfer are:

Stock transfer between two storage locations in a plant Stock transfer between two plants

Transfer of materials to customer consignment stock

Some examples of logical stock transfer are:

o Release of materials from stock in quality inspection

o Transfer of materials from vendor consignment stock to own stock o Batch splitting

o Transfer posting material-to-material

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12. What is Goods Receipt & Goods Issue?

Goods receipt is the process that enables the receipt of material from a vendor or from the in-house production process. There are other types of goods receipts in SAP that include initial stock creation. The goods receipt process also increases stock due to one of the following processes:

o Receipt of production order o Receipt of purchase order o Initial inventory entry o Others

Goods issue is a process in which the stock in the warehouse is reduced due to any of the following reasons:

o Shipment to a customer

o Stock withdrawal for a production order o Return of materials

o Material required for sampling o Scrapping of materials

13. Why is goods receipt important to a company?

Goods receipt indicates a receipt or inward movement of stock of materials or goods.

When an external vendor provides stock to the company, the goods receipt is generated as a purchase order, and when the material is produced in-house, the goods receipt is

generated as a production order. A goods receipt is important to a company because using a goods receipt moves material into stock, updates the stock levels, and thereby indirectly enables the production process.

14. How is a goods receipt performed?

The steps to perform a goods receipt are as follows:

o Enter the header data.

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o Select the movement type and the purchase order number.

The document is posted in the database.

15. How do you post the goods if the PO number is not known?

If the purchase order number is not known, you must enter search criteria for the purchase order in the initial screen. As a result, the list of purchase orders is displayed.

The desired purchase order items can then be copied.

16. How is the vendor returned processed without a purchase order reference?

You first need to observe the Return column and then select Item Detail > MIGO_GR >

Goods Receipt for Purchase Order. If the intention is to deduct the stock, then movement type 161 is used; otherwise, 162 is used to undo the changes. Lastly, you must ensure that the document is a return purchase order. The document is then saved.

Alternatively, you can use the M21N transaction code for this purpose.

17. What happens when a goods receipt is posted?

While posting a goods receipt, the following events occur:

The material document is created.

The accounting document is created.

Three printed versions of goods receipt notes are modified.

The stock level changes.

18. What is the result of goods movement?

The following events are initiated when goods movements take place:

First, a materials document is generated, which is proof of the goods movements.

Accounting documents are generated if the movement of goods requires a change in the financial accounts.

The stocks of the materials quantities are updated.

The stock values in the material master are updated.

Financial and material documents are updated.

How to use Negative Stocks and its purpose

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Please advise me, how to use negative stocks. Mainly for what purpose this concept is used.

What settings are required to do for mainaining negative stock.

Negative stocks can be utilized for a number of different business scenarios, for instance:

1. If a material shipment is going to a customer, but the production has not yet confirmed (and there is not enough stock on hand to satisfy the requirement), instead of getting the

"deficit of stock..." message when doing the issue for the delivery, the system will allow you to issue the material, and your inventory will show a negative quantity until the production confirmation is

performed.

2. I had a client who used this functionality to track component usage for their subcontractors. They would confirm production for an entire month for the FERT materials produced by the subcontractor. Starting the month with zero stock for all components, then at the end of the month the value of the component stock (disregarding the negative sign) would be deducted from the amount they owed for the services

performed. In this agreement, the components were "sold" to the subcontractor but no invoicing ever took place for the components. Just a word of caution ...negative

stocks/values for materials can raise many questions for accounting purposes at the end of fiscal periods.

There have been several reasons for using the negative stock functionality subject to the specific business requirements of your industry. For us, we have decided to use this negative stock feature due to the following reasons:

1) Sales of finished products to customers. We are cement producer and in an effort to avoid any delay in selling our products to our customers, we determined to allow negative stock posting since it is of our cement industry that cement after being packed will be delivered directly to our customers ie. no temporary storage is required.

2) The alignment of inventory/stock movement with production process where due to some reason, the reception of raw materials and/or consumables was not maintained on time resulting in interruption of process order confirmation.

Can someone tell me what is the effect of negative stocks in material valuation, ie.

moving average?

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As you know negative stock will have negative value, which will have direct impact to

financials. Say you have a material of Qty 10 Each, total worth $ 10.00 in stock and since you enabled negative stock in system ( valuation area level and plant- storage location level ) if you try to issue stock of say 20 Eaches, system will show stock of negative 10 and value $-10.00.

After that if you try to do goods receipt of say 20 eaches, of total value 20.00 material will have original status as you started. But if the value is different say 25.00, then moving average will be arrived from $15.

Why my stock is having negative stock value. The stock qty is 0. When I want to do GR, the system issue and error message saying my stock is negative. How can I do bypass it.

My assumption was that you are using MAP (Moving Average Price) Price Control for your material and that there was a price difference between IR value and GR value where IR value < PO value. In this case, the price difference will be credited to your stock and since the price difference value is in excess of your current stock value, this negative value took place.

What is Stochastic Block?

Stochastic Block

You can block invoices at random to check them again. If the stochastic block is active and you post an invoice that is not subject to any other blocking reason, it can be randomly selected for blocking.

A stochastic block is not set at item level, but for the whole invoice. If a stochastic block is set when you post the invoice, the system automatically sets an R in the field Payment block in the document header data; there is no blocking indicator in the individual items.

In Customizing for Invoice Verification, you can define:

==If stochastic blocking is active==

The degree of probability of a block. You set a threshold value and a percentage for this.

- If the value of the invoice is larger than or the same as the threshold value, the degree of probability that the invoice will be blocked is that of the percentage.

- If the value of the invoice is smaller than the threshold value, the degree of probability that the invoice will be blocked is calculated proportionally to the percentage.

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If, for example, the threshold value is $100 and the percentage 50%, every invoice over

$100 would have a 50% chance of being blocked; an invoice for $500 would have a 25%

change of being blocked. If you want the degree of probability to be the same for all invoices, you set the threshold value to zero.

If you enter a threshold value of zero and a percentage of 99.9%, all invoices would then be blocked.

GR/IR Clearance Account in SAP system

GI/IR clearing account is value based or quantity based?

Please find details for the GR/IR Clearance account in SAP system:

GR/IR Clearing Account Maintenance

Quantity differences between goods receipt and invoice receipt for a purchase order result in a balance on the GR/IR clearing account.

- If the quantity invoiced is larger than the quantity received, the system then expects further goods receipts for this purchase order to clear the balance.

- If the quantity received is larger than the quantity invoiced, the system then expects further invoices for this purchase order to clear the balance.

You can also clear differences for delivery costs. If no more goods or invoices are to be received, you must clear the balance manually. This can be done in different ways:

- You can return the extra goods to the vendor.

- You can cancel the invoice and post a corrected invoice or a credit memo for the surplus posted quantity.

- You can clear the GR/IR clearing account manually.

Maintaining the GR/IR Clearing Account

The GR/IR clearing account is usually cleared at the end of a period or fiscal year for that order items that no further goods receipts or invoices are expected for.

1. Choose Logistics -> Materials Management -> Logistics Invoice Verification -> GR/IR Account Maintenance -> Maintain GR/IR Clearing Account.

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The GR/IR Account Maintenance screen appears.

2. Enter data as required on this screen in the Document header data frame.

3. In the Selection frame, you choose various selection criteria for the transactions for which you want to post the differences are available for the following selection fields. You maintain them in the user master.

4. Choose the processing type:

- Automatic clearance

- The Automatic clearance function is intended for processing in the background.

Choose Program -> Execute in background.

- Prepare list - Choose Execute.

- The selection screen appears.

5. On the selection screen, the individual purchase order items that have quantity

variances and match your selection are now listed. Select the order items that you want to clear.

6. Clear the GR/IR clearing account for the selected purchase orders by choosing List ->

Post clearing.

Account Maintenance Document

Document that displays the quantities of the debit or credit of a material in GR/IR clearing account maintenance.

If you clear quantity differences between the goods receipt and invoice receipt for a purchase order using account maintenance, the system produces an account maintenance document.

You can branch from the account maintenance document to the following accounting documents, assuming that they exist:

- Accounting document - Profit center document - Special ledger document

- Material ledger document Standard vs Moving Average Price

Generally all raw materials (ROH), spare parts (ERSA), traded goods (HAWA) etc. are assigned as moving average price (MAP) because of the accounting practice of accurately

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valuating the inventory of such materials. These materials are subject to the purchase price fluctuations on a regular basis.

Company generally use moving average on purchased materials with small cost fluctuations.

It is most appropriate when the item is easily obtainable. The impact on margins are minimized which reduces the need for variance analysis. Furthermore, the administrative effort is low as there are no cost estimates to maintain. The cost reflects variances, which are closer to actual costs.

The semi-finished goods (HALB) and finished products (FERT) are valuated with standard price because of the product costing angle. If these were to be MAP controlled, then finished/semi-finished product valuation would fluctuate due to data entry errors during backflushing of material and labour, production inefficiencies (higher cost) or efficiencies (lower cost). This is not a standard accounting and costing practice.

Refer to OSS note 81682 - Pr.Contr.V for semi-finished and finished products.

SAP recommends that standard price to be used for FERT and HALB. If actual price is required for valuation, make used of the functions of material ledger where a periodic actual price is created which is more realistic.

e.g. how SAP calcualte the moving average price Goods Receipt for Purchase Order

Balance on hand quantity + Goods Receipts quantity Balance on hand value + Goods Receipts value

New Moving Average Price = Total Value / Total Quantity Invoice Receipt for Purchase Order

Invoice price more than Purchase Order price

 additional value add to Balance on hand value then divided by Balance on hand quantity

Invoice price less than Purchase Order price

 difference is deducted from the Balance on hand value (up to 0). The rest of the amount will becomes price variance. This will result in Balance on hand value is zero while there are Balance on hand quantity. If the Balance on hand value is enough to deduct, then the remaining value will be divided by Balance on hand quantity.

When your Goods Issue price is constantly greater than your Goods Receipt price, it will result into zero value moving average price.

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185961 - Moving Average Price Calculation.

88320 - Strong variances when creating moving average price.

Never allow negative stocks for materials carried at the moving average.

Never allow negative stocks for materials carried at the moving average.

In document SAP MM (Page 179-191)