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Managing Warehouse Inventory

AYHAN AKKAYA - SAP Consultant

Oct 1, 2004 12:00 PM

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Operations are rarely neatly defined, and other factors such as regulatory requirements will affect your choice of inventory management systems. The following are four steps you should take to establish practical criteria for making decisions and preparing to optimize your investments:

  1. Define your business and operational processes

    Even though this step is perhaps the most important, it's often neglected or given short shrift. Start by determining your most critical business needs as they relate to the supply chain. Create and evaluate process flow charts, focusing on receiving, inventory, picking, and shipping, since these activities have the greatest potential for significant cost savings and productivity benefits. Within these categories, pay particular attention to areas you want to target for improvement, such as inventory accuracy, order fulfillment, productivity, or cost efficiency. Look at the key process improvement opportunities, score their level of complexity, and map them against the functionality offered by both the SAP inventory management and warehouse management modules.

  2. Identify opportunities to optimize processes

    Once you understand your needs and your environment, drill down into the process standards that will define success. Ask yourself basic questions such as: What is causing the most pain in the facility or supply chain? What are my baseline requirements? What is the volume of activity? What are my costs for material handling? Labor? Space utilization? Look at your inventory accuracy numbers over a period of time, perhaps the last month, the last quarter, or even the last year. Evaluate your picking path and whether it's up to the task of efficiently meeting your demand.

  3. Evaluate your resources and training needs

    The resource and training commitment for IM will not be as extensive, because this solution will have fewer transactions to document. Most WM implementations will require a full-time, dedicated WM resource, who preferably could also serve as your IM resource. The amount of WM training will vary, based largely on the degree of functionality deployed in your WMS solution. Keep in mind that even when you select a WM solution, you still need to plan for a certain level of inventory management training.

  4. Consider current and future RFID requirements

    No analysis would be complete without a careful examination of your supply chain's current and future needs for radio frequency identification. As part of this review, consider comparing the execution time of your current receipt process to one conducted using automatic data collection powered by RFID functionality. For example, a manual operation processing 1,000 pallets daily might take five minutes to process each pallet received, or 5,000 minutes per day. Studies show that radio frequency can cut that time to three minutes per pallet, saving 2,000 minutes per day.

SAP MODULES COMPARED

Although SAP IM is a powerfully effective solution, it's not always the best choice. For some companies, especially those with complex, high-volume distribution networks, an SAP WM system may indeed be the preferred option.

SAP IM provides macro-level control of inventory; SAP WM provides micro-level control of the processes involved in moving these materials down to the individual items in a bin. As a general rule, IM works best in small facilities with low levels of inventory, simple material handling processes, and low-volume activity. SAP WM is intended for larger, faster, more complex, high-volume operations with widespread automation and critical traceability and/or visibility needs.

The key issue, then, is not whether SAP IM is better than SAP WM or vice versa, but which is the right tool for the job. SAP IM offers the benefit of seamless integration with other SAP modules. SAP WM was initially released with R2 as an extension of IM, and integration between the two occurs automatically in real time. But whereas IM is the entry point of inventory into a storage facility and creates records of the movement, SAP WM takes it a step further, with internal transfers to specific bin locations.

WM also goes deeper into the supply chain to enable granular traceability and control. Moreover, it can synchronize the system with the actual material flow. It offers functionality for managing multiple processes, assigning inbound orders to outbound deliveries, and allocating storage bins.

SAP WM functionality supports the most complex operations with cross-docking, batch picking, and interleaving. Warehouse management integrates with all the other key SAP R3 modules, such as inventory management, sales and distribution, remote data processing, quality management, and production supply.

The two programs differ in their level of detail, tracking of physical movement, and picking controls. Broadly speaking, SAP IM provides broad control of inventory based on information at various stages in the movement of materials. SAP WM provides control of the processes involved in moving these materials within a warehousing and storage facility, as well as a real-time view of inventory based on its actual physical movement. SAP IM is about “the big picture”of inventory and sequential moments in time; SAP WM is about the details and “flow.”

OTHER WM OPTIONS

Companies also can scale their WM solutions by using modified programs such as lean warehouse management or decentralized warehouse management. Lean warehouse management requires less configuration than full warehouse management, yet still reduces the number of steps in the process by enabling warehouse personnel to use transfer orders as pick lists. Lean warehouse management, however, does not provide inventory management functionality beyond the storage location level, and it lacks other optimization opportunities such as additional strategies and options for picking, packing, and bin-level accuracy.

Decentralized warehouse management refers to the use of SAP as a stand-alone WMS system, with SAP (or another ERP system) as the separate core system. The two systems communicate by using BAPIs for transactions or IDOCs for master data. Goods movements are done through delivery notes from the core system to the stand-alone WMS.

A notable benefit of this solution is that down time on the host system will not affect the WM, since these are separate systems. (Conversely, since the host system is not 24/7, it may not always be accurate when used for validation purposes, resulting in IDOC or BAPI errors that require human intervention.) Decentralized WM allows you to leverage new SAP R3 releases, even if the core system is on an older release. In addition, you can add warehouses without affecting the core system or communicate with multiple core ERP systems. A potential drawback of decentralized warehouse management is the need to modify IDOCs (because they do not offer all the available field options that are part of a GUI transaction).

Cheat Sheet

Here's a handy list of guidelines to take along if you have to make a quick choice between an IM module and a WMS:

  • Know your operating environment, from your industry's driving forces down to granular activities in your warehouses.
  • Let your business processes and needs — not what's available in the marketplace — determine your choice.
  • Determine performance targets, with quantitative measurements in key areas such as picking productivity, inventory accuracy, labor costs, space utilization, and customer returns.
  • Consider scalable RFID solutions to improve accuracy and real-time inventory control or to comply with EPC standards.
  • Explore modified WM solutions such as lean warehouse management and decentralized warehouse management.
  • Identify and evaluate opportunities for optimizing output (for example, the research firm ERP Consultant Inc. estimates that a WMS can improve picking productivity by 16%-25% and reduce material handling labor expenses by 10%-25%).
    — AA
  

Click to enlarge

Figure-1:Process overview

Basic Forms of Process Mapping

There are two basic ways to map processes for goods receipts and goods issues in Logistics Execution: You can either create a delivery or place an Inventory Management posting (usually with reference to a preceding document) at the beginning of the process. Figure-1 juxtaposes the document flow and the technical posting procedure for both methods.

If you work with deliveries, Warehouse Management activities (creating and confirming a transfer order) are completed before posting in Inventory Management. The goods receipt / goods issue posting always relates to the delivery.

Note: The transfer order is the document used to execute all material movements in the warehouse.

However, the Inventory Management posting can also occur at the beginning of the process. The goods receipt / goods issue posting then generates a transfer requirement, which forms the basis for Warehouse Management activities in terms of planning and posting. A putaway or picking activity with a transfer order completes the process.

Note: The depiction of the processes in figure 1 reflects the structure of the application menu.

In many cases, the reason for the putaway or stock removal already determines how the process is mapped. For goods receipts from production, for example, the standard system only offers a goods receipt posting for the work order with subsequent putaway. For sales order processing, on the other hand, the stock removal is usually based on the goods issue.

 

Warehouse Management in Logistics Execution

As of SAP R/3 4.5, Warehouse Management is part of Logistics Execution. This component groups all of the main subfunctions of Logistics Execution that were assigned to Sales and Distribution (SD) and Materials Management (MM), up to and including SAP R/3 4.0. Warehouse Management allows you to map all of the processes in Logistics Execution. Whether sales orders have to be fulfilled or production supplied with components, whether goods delivered from a vendor or finished products from in-house production have to be put away, Warehouse Management provides the necessary tools.

 

Basic Functions of Warehouse Management

Warehouse Management in SAP R/3 contains the following five basic functions:

  • Inventory Management exact to storage bin level
  • Mapping and control of all goods movement
  • Monitoring of the processing of these goods movement
  • Connection to mobile data entry as part of the integrated radio frequency solution
  • Connection to specialist external systems using an interface

While Inventory Management, as part of Materials Management, can only provide information on the total quantity of material in stock, Warehouse Management enables a precise specification of the exact location of a particular quantity of material and informs you whether this quantity is currently in a storage bin or on the move.

These movements of storage bin stocks are generally triggered by goods receipts and goods issues, or stock transfers. Warehouse Management in SAP R/3 uses a special document, the transfer order to map and control warehouse movements. When you create a transfer order, the system checks all of the relevant settings at master data and Customizing level and uses this data to determine suitable storage bins to put away or pick stock. You can, however, specify bins and bin stock manually.

Even with a completely configured system configuration, there can be errors from time to time, or someone might forget to process open documents, so Warehouse Management is equipped with monitoring instruments.

Note: The instrument that is most important for the day-to-day work is the warehouse activity monitor, which allows you to identify and correct errors in a timely fashion.

As of SAP R/3 4.6b, a solution is available for direct connection of mobile data entry devices to Warehouse Management. This is based on radio frequency (RF) technology and is neutral in terms of hardware. The transactions in SAP R/3 for using RF solutions cover almost all inbound and outbound activities. Stocks can also be packed and loaded, and inventory counted.

Note: The RF solution for Warehouse Management in SAP R/3 is discussed more thoroughly in Mobile Data Entry section.

 

Interfaces to Other SAP R/3 Components

Warehouse Management in SAP R/3 can also exchange data with other application components via interfaces. There are connections to the following components:

  • Inventory Management (MM-IM)
  • Delivery Processing (LE-SHP)
  • Production Planning and control (PP,PP-PI)
  • Quality Management (QM)

Figure 2: Interfaces to other application components

The interface to Inventory Management is the most significant for using Warehouse Management in SAP R/3; Inventory Management posting either trigger Warehouse Management activities or mark their completion in goods receipts and goods issue processes. The connection to delivery processing within Logistics Execution plays a particularly significant role in sales order processing. Generally, goods are picked on the basis of outbound deliveries. If you want to provide a regular supply of components to production, you can use the interface to Production Control. Finally, if you use the Quality Management component, you can configure the interface to interface to Warehouse Management to control how goods are dealt with in the warehouse if they have to undergo a quality inspection.

By Ayhan Akkaya, SAP Consultant

Feb 15, 2005

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