SAP Inventory Management – Everything you must know (2024)

Introduction

The business process that involves tracking of materials be it raw items or finished goods is termed Inventory management. It involves multiple stages such as ordering, storage, and utilization.

In FMCG or manufacturing industry, Inventory management is the focus as it directly affects profitability and in return defines the sustainability factor. However, working in silos is not appreciated, and leveraging the integration feature of SAP Products, this Inventory Management business process hits the enterprise’s Financial statements.

Inventory and Stocks are two different terms because stocks are only FG or Finished Goods. On the other hand, inventory has all types of goods such as raw materials, work-in-progress or finished goods. A stock is an inventory but vice versa is not true.

For global businesses, Supply Chain Management (SCM) is quite complex in design, and maintaining the equilibrium in the Supply graph is a tedious task.

Benefits

Some important benefits you must know when you have top-notch Inventory Management for your business:

• On-time delivery
• Quality Management
• Inventory Control analysis
• Accurate reporting

Inventory Terms

Now, we will understand some terminologies when dealing with SAP Inventory Management.

1. GR(Goods Receipt): Inbound Inventory >> Credit the stock in the warehouse
2. GI(Goods Issue): Outbound Inventory >> Debit the stock in the warehouse
3. Material Movement Type: Transaction dealing in Inventory Management
4. Reservation: Inventory Planning Purposes where reservation of quantities before they are posted
5. Demand Planning: Component of SAP APO (Advanced Planner and Optimizer) that defines the requirements planning for business

SAP APO: https://blogs.sap.com/2015/09/27/sap-apo-general-overview/

Inventory for Business

• Just In Time (JIT) – A systematic approach in manufacturing firms to reduce the response/delivery time from supplier to customer.

• 3 ways to account for inventory: LIFO, FIFO, Weighted average

• Economic Order Quantity (EOQ) – Ideal optimal order quantity needed to minimize costs involved in the below 3 factors of inventory.
  • To Order Inventory (Demand)
  • To Receive Inventory (Supply)
  • To Hold Inventory (Hold)

Techniques for Inventory Control

Inventory Control comes into the picture to avoid two scenarios: Over Stocks or Stock Out. So, let me discuss some vital inventory control techniques. A popular inventory control technique is ABC analysis. VED(Vital, Essential, and Desirable) Analysis, FSN, and HML (High, Medium, and Low) Analysis are also ways to control inventory based on costs and demand.

ABC or Pareto Analysis – Classify the items or materials based on Stock Value and Stock Quantity.

FSN – Segregates the items on the consumption rate or frequency of usage.

1. 1. F: Fast Moving
   2. S: Slow Moving
   3. N: Non-Moving

Slow moving and obsolete inventory (SLOB)

Demand lags Supply in the S&D curve over some time. The obsolete items or SKUs (stock keeping units) have done no sales and so are blocked investments. Inventory Controllers’ target would be to minimize the SLOB quantities.

SAP BW Reporting Inventory scenarios

In the case of Inventory modeling scenarios, non-cumulative key figures are used. Non-cumulative key figures are:

• according to a particular period values are calculated
• inflow the value is incremented and decremented in the outflow

Settings you make in Info objects for Inventory scenarios:

Info Object Settings for Inventory Scenarios

2 ways to define non-cumulative key figures:

ADSOs in inventory management:

• Datamart DSO >> Cube-like where all characteristics are keys

• Standard DSO >> It is two-dimensional modeling with overwriting features for inventory

Tables generated when Inventory is enabled in ADSO:

• BIC/AXXXX4 – Validity Table >> Table intervals for non-cumulative values
• BIC/AXXXX5 – Reference Point Table >> Reference Points for non-cumulative KFs

SAP Inventory Management T-codes:

• MIGO – Goods Movement
• MB5B – Stocks for Posting Date
• MB51 – Material Document List and Associated Material Movement

A single source of truth will always be SAP transaction code MB5B as you would get a detail-level understanding of the stock.

SAP Inventory Management ECC Tables:

• MKPF –Header: Material Document
• MSEG –Document Segment: Material
• MARA –General Material Data
• MARD –Storage Location Data for Material
• MBEW –Material Valuation

Final Verdict:

This blog gives you an end to end inventory implementation ideas and covers reporting SAP BW special cases to tackle inventory. This piece of writing is intended to make readers understand certain SAP Inventory Management terminologies and get familiar with the fundamentals.