Performing Physical Inventory

Objectives

After completing this lesson, you will be able to:

  • Perform Physical Inventory

Physical Inventory

This lesson covers the physical inventory process in a store. The process starts with creating a physical inventory document, then the stock is counted by the store associates. The store manager reviews the count results, and can trigger a re-count, for example when the count result and book quantity differ too much. The process ends with posting differences to update the book quantities and accounting.

A physical inventory involves measuring, counting, and weighing stock at a warehouse or store and entering the results in the system. Each retailer is required to enter their stocks at least once a year.

If the results are different from the book quantity, the physical inventory leads to a stock change in SAP Retail: the current book inventory is replaced with the counted stock. This process is documented by an article document and a corresponding update in Financial Accounting.

SAP supports various physical inventory procedures. Retailers normally use periodic physical inventory and continuous periodic physical inventory.

Physical inventory involves the following:

  • In periodic physical inventory, all stocks are counted on a specific key date. Each article must be counted.

  • Continuous periodic physical inventory is performed for parts of the stock across a fiscal year. In this case, the retailer must ensure that each article is counted at least once.

The physical inventory is carried out on the basis of stock management units. A stock management unit is article stock that can not be broken down any further and that has its own book balance. This is usually the base unit of measure of an article.

A stock management unit is uniquely defined by the following information:

  • Article

  • Site

  • Stock type

  • Special stock (for example, sales order stock)

Each stock management unit for an article is counted separately and the inventory differences are posted for each stock management unit. This means, for example, for an article in a storage location for a site, you have to include the unrestricted stock, the stock in quality inspection, and the blocked stock separately.

Different physical inventory documents are created for special stock such as consignment stock at customer, external consignment stock from vendors, or returnable transport packaging.

In general, the physical inventory process is split into three phases:

  1. Create physical inventory documents
  2. Enter count
  3. Post inventory difference

In the first phase, you create the physical inventory documents. SAP Retail provides you with several methods for mass creation of physical inventory documents. After selecting the stocks to be counted and creating the physical inventory documents, the documents are printed, or loaded to a hand-held/mobile data capture (MDC) device, or processed online using a SAP Fiori app, to begin the stock count.

In the second phase, you enter / load the count results into the system, and the system then calculates the inventory differences. The Enter Inventory Count app can be used for entering count data in stores and DCs. If any of the results look dubious, you can initiate a recount of the stock management units in question. In this case, more physical inventory documents can be generated. The relevant app is Request Physical Inventory Recount.

In the third phase, you post the inventory differences that were found. This updates the quantity- and value-based stock, and the stock accounts/material ledger in Financial Accounting.

The process could also slightly differ for store physical inventory: The store associates can count the stock and upload the data to SAP Retail using an IDoc. When the data is processed, the physical inventory document is created and the count is entered at the same time.

A number of evaluation programs are available to support physical inventory planning.

An inventory document contains the following data:

  • The site and storage location in which the inventory is going to be counted

  • The time at which the count is going to take place (planned count date)

  • Which articles are to be counted

  • Which stock types are to be counted

  • The count status of the item

  • The status of the inventory document

Inventory documents are created for each site and storage location. You can also define the storage bin (for warehouse stock) or the merchandise category as additional grouping criteria. When you create a physical inventory document, you can also enter a physical inventory number in the document header. (This number should not be confused with the number of the physical inventory document.) You can enter any number you wish. For example, this can be the number of the count group, the processor, the department, or the month and year of the physical inventory.

When entering the count results, the system determines the current book balance. The book balance is compared with the count quantity entered - the result of which is the difference quantity. If goods movements are posted in between the physical stock count and entry of the physical inventory count, incorrect physical inventory differences may result. To prevent this error, you can block all goods movements for a stock management unit for the physical inventory. If you set the Posting Block indicator in the header of the physical inventory document, the system blocks all the stock management units for that physical inventory document. The indicator can be set either when the document is created, or later - for example, just before the count starts.

If it is not possible to block a goods movement for organizational reasons, you can fix or freeze the book balance in the physical inventory document at the point of counting. To do this, you select the Freeze Book Inventory indicator in the physical inventory document. This prevents goods movements from changing the book inventory relevant for the physical inventory.

Make sure the book inventory is correct and up to date. The book inventory is changed permanently by goods movements (for example - sales, goods receipts, scrap postings). You can freeze the book inventory when creating a physical inventory document, or before the count starts; this means good movements posted at a later point in time no longer change the book inventory for the article in the physical inventory document. If you do not select this indicator, the book inventory changes with each posting until the count data is entered in the system. If you select the "Posting Block" indicator, no further goods movement postings are possible, which means the book balance can not change.

When counting, you must ensure that no goods movements take place, and that you only enter stock that has already been booked into store stock. In cases where goods are received physically but this fact has not yet been recorded in the system (no goods receipt posted yet), it must be ensured that the goods are not taken into account in the physical inventory.

This function can be used to carry out a physical inventory during store opening hours.

In this example, the POS sales data from the store is transferred to SAP Retail at night. SAP Retail then updates the stocks, in our case this leads to a current stock of 8 EA for a specific product. The next day, 5 EA of this product are sold at the POS. Then, when physical inventory is performed for this product, the count result is 3 EA. The physical inventory document is transferred to the central system, and contains the original frozen book quantity of 8 EA, and the count result of 3 EA.

The POS upload in the night then contains the 5 EA sold during the day, before the count was performed. A report then calculates the new book inventory, taking account of the sales data from the POS, and replaces it in the physical inventory document. This corrects the previous book inventory of 8 EA by -5 EA to the new book quantity of 3 EA. The report for calculating the book inventory can be scheduled as a job.

So in this case, there are no physical inventory differences.

The physical inventory process can also be performed in a different way from that illustrated here - for example, the physical inventory documents can be created before the count data is uploaded to SAP Retail. The book inventory can be fixed when a physical inventory document is created; in this case, the system determines the book inventory immediately when creating the inventory document rather than waiting until the count results are entered, as described in this example. POS upload can take place several times a day instead of being run just once at night.

POS sales (and returns) that are transferred as per receipts using the POS Interface are taken into account when calculating the book inventory, but goods movements (such as goods receipts and transfer postings) are not taken into account.

Instead of loading the POS data (sales and returns) directly into the SAP Retail system, the data required for calculating the book inventory can also be read from SAP Customer Activity Repository's POS DTA. To do this, the non-aggregated data must first be loaded from the POS system into POS Inbound Processing Engine (PIPE), which generates aggregates and index tables on the basis of this data. These tables also contain an exact date and time for each individual POS transaction. This information is required for the accurate calculation of the book inventory within the store physical inventory. The SAP Retail system uses RFC to read the data required for the store physical inventory documents from these tables.

Distribution centers normally use a Warehouse Management (WM) system, which is also used to perform physical inventory.

Physical inventory at a warehouse relates to storage bins; this means physical inventory documents are created for each storage bin in the WM system. Articles are often placed at several storage bins at the same time, which means an article can be entered in several physical inventory documents in parallel.

The Warehouse Management system calculates the differences between target and actual stock for each storage bin, posts the differences to a special storage type for inventory differences, and corrects the actual stock at the storage bin after counting. This storage type does not represent a physical warehouse but simply contains the total of the differences for all storage bins for each article. The inventory differences must be transferred to Inventory Management for stock adjustment; this generates an inventory adjustment posting. This process is documented by an article document and a corresponding update in Financial Accounting. When the data has been transferred to Inventory Management, the stock difference at the special storage type is reset to 0.

There are various organizational options for performing physical inventory at your stores. The physical inventory can be planned by the head office for the stores. This often happens on a key date. The physical inventory documents are created at head office and sent to the stores (printed, or electronically). Counting takes place at the stores and the count data is returned to the head office. If the store uses a store retailing system, the physical inventory documents are transferred using the POS Interface to the non-SAP store retailing system using IDocs. The count data is then also uploaded to SAP Retail by means of IDocs, and the existing physical inventory document is updated in POS inbound processing. If the store uses SAP Fiori apps for store operations, the physical inventory documents are available immediately at the stores.

It is also possible for the physical inventory to be initiated by the stores themselves. Stores often carry out ad hoc counts, for example for a shelf, or for a merchandise category. In this case, the store schedules, organizes, and performs the physical inventory itself (in consultation with head office, if applicable).

  • If the store uses SAP Fiori applications for store operations, it can create the physical inventory documents itself, perform the count, and complete the physical inventory process by adjustment posting (posting differences).

  • If the store uses an external store retailing system, the physical inventory documents are not created until the count data is uploaded to SAP Retail by IDoc (without downloading the documents to the store retailing system beforehand).

There are several apps for the store physical inventory that support this process end-to-end. These apps, as shown in the previous figure, Physical Inventory in a Store using SAP Fiori Apps, would normally be assigned to different roles, that is, store associate and store manager, but they are combined here to show the complete physical inventory process:

  1. If the physical inventory process should be initiated by the store instead of the head office, the Create Physical Inventory Document app, which relates to the relevant standard transaction in SAP GUI (MI01), can be used to create the count documents.

  2. With the retail-specific store operations app Count Stock, you can perform a physical inventory count of all products in the store, or a cycle count of selected products. This app is usually assigned to the store associates.

  3. Through the manager version app Manage Stock Counting, the store manager reviews the counts submitted by store associates, requests recounts for questionable count results, then approves and submits final counts to the head office. With that, the physical inventory document status is updated to status counted. This is also a retail-specific store operations app.

  4. In addition, if it should be possible to post the physical inventory count results in the store — for example, by the store manager — the standard Post Physical Inventory Differences app can be used.

The retail-specific store operations app Count Stock Ad hoc - TODAY is specifically available for store employees to spontaneously perform a physical inventory count of one or more items, as store associates have to keep a track of the stock count for the products as needed for each storage location available in the store. With that, the app helps to ensure that inventory numbers are correct, which for example also adds to the accuracy of the store replenishment process.

The app also supports barcode scanning, and to count and track products with multiple placements. Also, the count data can be entered using different units of measure of a product.

When you submit a stock count, the system creates a physical inventory document which stores your count data. The Post Physical Inventory Differences app can then be used to correct the stock quantities (post differences).

The retail-specific store operations app Adjust Mass Stock - TODAY completes the range of apps relating to inventory updates. You can use this app to record stock adjustments for various reasons (business transactions), such as goods withdrawal for consumption or production, product shrinkage/spoilage, free-of-charge deliveries from a vendor, unplanned goods receipts, and so on. An unplanned goods receipt for example occurs if quantities of a product are delivered to a store without corresponding purchase order. This may happen if goods are unloaded which were destined for another store, but should still be accepted because a new delivery to the other store could be made within a day. The Receive Products app would only be used for store goods receipts against a reference document, such as a purchase order, or delivery.

To control the business transaction, a corresponding movement type is assigned. For each movement type, one or more reasons can be maintained for an even more detailed documentation of the stock adjustment. The business transaction description, and movement type reasons are available in the app to select the right reason for the adjustment. If the Add Claim option is active (by default), you can also maintain a service provider and choose a cost center for each stock adjustment item. This app is RFID-enabled.

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