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IM And WM Steps in Procurement Discussion
Execute Warehouse Movement
When a warehouse employee is ready to putaway the materials from the interim storage area into warehouse bins, he or she creates a transfer order to facilitate this movement. In our example, the order authorizes the warehouse employees to transfer the 1,000 t-shirts from the interim receiving storage area to specifi c bins in the warehouse. The reference document for this order is the transfer requirement created at the time of goods receipt. When the order is generated, the ERP system proposes destination bin numbers into which the employees can place the t-shirts. Alternatively, the employees can specify the destination bins manually.
Figure 7-28: IM and WM steps in procurement
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250 CHAPTER 7 Inventory and Warehouse Management Processes
A review of inventory (see Figure 7-27, column 4) will not indicate any change in the number of t-shirts in the storage location, interim storage area, or warehouse bins. This is because the impact on storage location inventory occurs when the goods receipt is recorded in IM. In addition, at this point nothing has actually been moved from the interim bins to the warehouse bins. However, the transfer order will indicate the planned (target) quantities and bins.
Confi rm Warehouse Movement
Creating a transfer order authorizes GBI warehouse employees to physically move the materials from the interim receiving storage area into warehouse bins. After this step has been completed, the TO is updated to confi rm the quantity and locations (bins). In our example, the t-shirts are moved from the interim receiving storage area into the warehouse bins proposed by the ERP system in the TO. The employee then updates the TO to indicate that 1,000 t-shirts were moved.
A review of inventory (see Figure 7-27, column 5) will indicate that stor- age location inventory remains unchanged at 1,500. The quantity in the interim receiving storage area is reduced by the 1,000 t-shirts moved and is now zero. Finally, the warehouse bins now contain 1,500 t-shirts, the original 500 plus the 1,000 that were just moved.
As illustrated in Figure 7-28, the remaining steps in the procurement pro- cess (e.g., invoice receipt and payment) can continue while the WM process steps needed to putaway the materials into bins are completed. These steps can continue because they are based on the material and fi nancial accounting documents that were created at the time of the goods receipt, which is an IM activity and is not dependent on WM activities.
You may have noticed that inventory is tracked at both at the storage location level and the warehouse level. Warehouse inventory is the sum of the inventory in the interim storage areas and the warehouse bins. Note in Figure 7-27 that warehouse inventory is always equal to storage location inventory.
Demo 7.6: Procurement process with warehouse movements
WAREHOUSE MANAGEMENT IN FULFILLMENT
To illustrate warehouse management in fulfi llment we will employ a different GBI scenario. Rocky Mountain Bikes (RMB), a GBI customer, has sent a pur- chase order for 50 bikes, which GBI will ship from the San Diego plant. Recall that we used a similar example in Chapter 5. The signifi cant differences here are (1) GBI will deliver all of the bikes in one shipment and (2) the transaction will include WM steps that were omitted in Chapter 5 to keep the discussion simple. We will assume that GBI has 500 bikes in inventory before the fulfi ll- ment process is executed. We depict this scenario in Figure 7-29. Column 2 in the fi gure indicates the inventory status prior to process execution.
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Processes in Warehouse Management 251
Plan Warehouse Movement
Figure 7-30 illustrates the steps in the fulfi llment process, including both IM and WM activities. In this case, the creation of an outbound delivery for a sales order triggers the WM activities. Whereas in the case of procurement the transfer requirement served as the information link between the procure- ment process (IM) and the WM process, in fulfi llment the delivery document serves this role. In our scenario, GBI fi rst generates a sales order in response to RMB’s purchase order. The company then creates an outbound delivery, which triggers the need to move 50 bikes from storage bins to the interim (shipping) storage area, for shipment to RMB. A review of the storage location and the bin inventory will not indicate any change in the quantity of materials because no physical movement has occurred yet (see Figure 7-29, column 3).
Figure 7-29: Inventory impact—fulfi llment
Figure 7-30: IM and WM steps in fulfi llment
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252 CHAPTER 7 Inventory and Warehouse Management Processes
Execute Warehouse Movement
When a warehouse employee is ready to pick materials from the warehouse, he or she generates a transfer order based on the delivery document. At this time, the ERP system proposes bins from which to move the materials. In our example, the employee creates a TO to pick 50 bikes from the ware- house. Signifi cantly, no physical movement has yet taken place. Consequently, a review of the storage location and warehouse inventory will not show any change in quantities (see Figure 7-29, column 4).
Confi rm Warehouse Movement
After the TO is created, warehouse employees pick the bikes from the pro- posed storage bins and place them in the interim shipping storage area. They then update the TO to indicate the quantity picked and the bins from which they were taken. Again, refer to Figure 7-10 and the discussion of storage types for an explanation of the shipping area. In our example, the 50 bikes are picked from bins in the warehouse and placed in the interim shipping storage area. As in the case of procurement, the interim storage area is the physical link between the fulfi llment and WM processes.
At this point, a physical movement of materials has occurred. Consequently, a review of warehouse inventory will show a reduction of inventory in the warehouse bins and an increase in the bins in the interim storage area. In our example (see Figure 7-29, column 5), 450 bikes remain in the warehouse bins, and 50 bikes are available in the interim shipping storage area. No goods issue has occurred, so the quantity in storage location inventory is unchanged (500).
After the transfer order is updated, it is confi rmed and saved. At this point the reference document that triggered the warehouse movement is updated to indicate the quantity of materials moved. In our example, the delivery docu- ment is updated to indicate that 50 bikes have been picked. (This might be a good time to review Figure 5-34 and the accompanying discussion in Chapter 5 regarding the relationship between a delivery document and a transfer order.) At this point the materials can be shipped and a goods issue can be posted, which generates material, FI, and CO documents, as we discussed in Chapter 5. Note again that the FI impact and the recording of the material movement occur in IM, not WM. The fulfi llment process then continues through the invoice and payment steps.
A review of warehouse inventory after goods issue will show a reduction in the interim storage area of inventory. Further, the storage location inven- tory will now indicate a reduction in inventory, because a goods issue has been posted. In our example (see Figure 7-29, column 6) the storage location inven- tory is reduced by 50 to 450 bikes, and inventory in the interim storage area is reduced to zero. Note that, as explained in the discussion of WM in procure- ment, the total warehouse inventory (bins plus interim storage area) is always equal to the storage location inventory.
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Processes in Warehouse Management 253
Demo 7.7: Fulfi llment process with warehouse movements
WAREHOUSE MANAGEMENT IN PRODUCTION
The production process triggers the warehouse management process in two places, as indicated in Figure 7-31. Recall from Chapter 6 that production involves both a goods issue (when raw materials and semifi nished goods are issued to the production order) and a goods receipt (when fi nished goods are placed into storage). Figure 7-31 assumes that these materials are issued from and received into a warehouse-managed storage location. The production order generates a transfer requirement for the materials that are needed for production. In response, a TO is created, the materials are moved into an interim storage area, and the TO is confi rmed. The accompanying goods issue has all the fi nancial and material outcomes that we discussed in Chapter 6.
Figure 7-31: IM and WM steps in production
After the production process is completed and confi rmed, the fi nished goods are received into storage. At this point the WM process steps are similar to those that occur within the procurement process. A goods receipt is recorded, as explained in Chapter 6. However, the materials are physically placed in an interim storage area, and a transfer requirement is automatically created by the system. A transfer order is then created, the materials are moved from the interim storage area into bins, and the TO is confi rmed. Meanwhile, the
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254 CHAPTER 7 Inventory and Warehouse Management Processes
remaining steps in the production process, such as completion and variance calculation, can be executed.
WAREHOUSE MANAGEMENT IN STOCK TRANSFERS
In addition to the scenarios we have already discussed, WM activities are also ini- tiated by stock transfers and transfer postings. We addressed these topics earlier in this chapter in the context of inventory management. Figure 7-32 illustrates fi ve scenarios under which stock transfers involving warehouse movements can occur. The fi rst four scenarios involve movement between two storage loca- tions. Recall that IM processes are responsible for managing inventory at the storage location level. Consequently, these four scenarios will require a stock transfer that is initiated in IM. When these goods movements involve warehouse- managed storage locations, the transfer requirements are automatically gener- ated by the ERP system. The fi fth scenario involves movement between two bins in the same warehouse and thus does not involve any IM activity. In the following section we consider each of these scenarios in greater detail.
Figure 7-32: WM scenarios for stock transfers
The fi rst scenario involves a stock transfer from a plant where the storage location is warehouse managed (storage location B associated with warehouse 1) to a plant where it is not (storage location A). In this case, a goods issue at the sending plant triggers WM process steps, as explained earlier in the chapter. At the receiving plant, a simple goods receipt is recorded in IM.
The second scenario depicts the opposite movement; namely, a stock trans- fer from a plant where the storage location is not warehouse managed (storage location A) to a plant where it is (storage location B associated with warehouse 1). In this case, a goods issue (IM) records the shipment of materials at the sending location. At the receiving location, a goods receipt triggers WM process steps.
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Processes in Warehouse Management 255
The third and fourth scenarios involve a stock transfer between two warehouse-managed storage locations. Specifi cally, they involve a goods issue from and a goods receipt to warehouse-managed storage locations. Therefore, WM processes are triggered at both the goods issue (sending location) and the goods receipt (receiving location).
Finally, in the fi fth scenario materials are moved from one bin to another within the same warehouse. This is an internal transfer and thus does not involve IM. Consequently, a transfer requirement is not automatically gener- ated and therefore must be created manually. After it is created, the rest of the WM process steps are completed as in the other scenarios.
Note that in the fi rst four scenarios, material documents are created when IM activities (goods issue and goods receipt) are involved. In contrast, the last scenario does not involve any IM activities, so no material document is created. Also, the fi rst four scenarios may result in a fi nancial impact. If so, appropriate FI documents are created. In the last scenario, there is typically no fi nancial impact, so no FI documents are created.
Demo 7.8: Internal warehouse transfer
ORDER OF POSTINGS IN WM AND IM
The scenarios considered in the preceding section are summarized in the fi rst two rows of Figure 7-33. Goods receipt postings for purchase or production orders trigger putaway activity in WM. Delivery documents (for sales orders) and production orders trigger picking activity in WM, which are followed by goods issue postings.
Figure 7-33: Scenarios for WM and IM activities
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256 CHAPTER 7 Inventory and Warehouse Management Processes
As the fi gure indicates, the order in which IM and WM activities are com- pleted can vary from one scenario to another. Consider, for example, the sce- narios diagrammed in the bottom two rows of Figure 7-33. The third row is a case in which the goods issue (for a sales order or production order) is posted before WM activities are recorded in the ERP system. This scenario can occur when either a customer or the production process needs materials urgently and the materials are removed from storage and shipped out to the customer or the production fl oor. In such cases, the materials are withdrawn from the warehouse and a goods issue is posted, but the WM activities of picking the materials and placing them in the interim storage area have not been recorded. Rather, they are recorded later as time permits.
Let’s consider the impact of this type of movement on storage location and warehouse inventory. Figure 7-34 illustrates a scenario in which a company has 100 units in inventory prior to the process execution. It then ships 25 units to a customer. At the time of shipment, a goods issue is posted, and storage location inventory decreases by 25 units to 75. To keep storage location and warehouse inventory equal, the ERP system will post a negative quantity to the interim storage area (–25). As a result, warehouse inventory now becomes 75 (100 – 25). To reduce the warehouse bin inventory, a transfer order must be confi rmed. When this occurs, a decrease of 25 units is recorded for warehouse bins, and an increase of 25 units is recorded for the interim storage area. As a result, the interim storage area shows a quantity of zero and warehouse bins indicate a quantity of 75, which matches the storage location inventory.
Figure 7-34: Inventory impact when IM precedes WM
The last row in Figure 7-33 represents a case in which putaway in WM is completed before a goods receipt is recorded in IM. This situation can occur when fi nished goods from the production process are moved directly to bins in a warehouse. It is common in the case of repetitive manufacturing, where fi nished goods are continuously being produced (see Chapter 6 for an explanation). When the materials are brought to the warehouse for putaway, a transfer requirement or transfer order is created and confi rmed. Goods issues are then periodically posted in IM to refl ect the increase in inventory in the storage location.
Figure 7-35 illustrates the inventory impact of this scenario. It assumes that 100 bikes are in inventory initially and that 25 bikes are received into the warehouse. When the transfer order is confi rmed, there will be 125 bikes in the warehouse bins, but only 100 in storage location inventory, because the goods receipt has not been recorded. To ensure that storage location inventory and ware- house inventory are equal, a negative quantity is recorded in the interim storage area. When the goods issue is posted, 25 bikes are added to both the storage loca- tion and interim storage areas, leaving a total of zero in the interim storage area.
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Reporting 257
Figure 7-35: Inventory impact when WM precedes IM
Some of the offi ce furniture products that Steelcase produces are too large to fi t on racks or shelves and aren’t appropriate for pallet storage. To accom- modate these products, the warehouse operates on a “virtual truck” bin concept. Floor space in the warehouse is marked off into bins that represent the length and width of delivery trucks. As inbound goods are received, they are scanned with a bar code scanner that is connected to SAP ERP. In turn, the system confi rms goods receipt automatically and then informs the workers which bin to store the goods in. When the bin (virtual truck) is fi lled and all of the
goods for the outbound customer shipment are in place, the materials in the bin are “picked” and moved to a staging area near the truck dock. They are then “packed” for shipment and loaded onto the delivery truck. When a shipment is placed on the truck, a post goods issue is completed, which creates all of the paper shipping documents for the truck driver and triggers the printing of an invoice for the customer. Steelcase processes more than 1,000 outbound customer ship- ments per week in North America in this manner.
Source: Steelcase, Inc. Materials Planning Group
Business Processes in Practice 7.3: The Virtual Truck Concept
REPORTING In this section we consider several examples of reports that contain informa- tion relevant to inventory and warehouse management. As in the case of other processes, a variety of reporting options are available in warehouse management, including status reports, work lists, online lists, and reports using the information system. A list of documents, such as transfer requirements and transfer orders, can be generated in a manner similar to the lists explained in previous chapters. Figure 7-36 illustrates a list of transfer orders.
Figure 7-36: List of transfer orders. Copyright SAP AG 2011
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258 CHAPTER 7 Inventory and Warehouse Management Processes
Demo 7.9: List Report—list & transfer orders
Figure 7-37 is an example of an inventory status report. It displays inventory at the storage location level. Specifi cally, it indicates that there are 50 road helmets (RHMT1000) in the trading goods storage location (TG00) in the San Diego plant (SD00), in GBI’s U.S. company (US00). It does not show inventory at the bin level.
Figure 7-37: Storage location inventory report. Copyright SAP AG 2011
Figure 7-38 displays inventory at the San Diego warehouse. It indicates that there are 50 road helmets in the interim receiving storage area (GR Area External Receipts). This report was generated after a goods receipt against a purchase order was recorded, a process step that automatically generates a transfer requirement. Figure 7-39 is the same report after a transfer order has been created. Note that the 50 helmets in the interim receiving area now appear under the “Pick quantity” column, indicating that they need to be picked from the interim area. The 50 helmets also appear in the “Stock for put- away” column in the shelf storage area, where they are to be putaway. Finally, Figure 7-40 displays the same report after the transfer order has been con- fi rmed. The status of the helmets in the shelf storage area has been changed from “Stock for putaway” to “Available stock.”
Another useful report is the bin status report, an example of which is pre- sented in Figure 7-41. The report displays a list of bins that contain materials. It indicates that bin number STBN-1-000 contains road helmets and t-shirts. The system can generate similar reports to display all bins or bins that are empty. Double-clicking on a bin that contains materials produces a drilldown report that conveys details of the materials. Figure 7-42 represents a drilldown report for bin number STBN-1-000. It indicates that the bin contains two materials (road helmets and t-shirts) and two quants. Recall that a quant is a quantity of mate- rials with similar characteristics. In this example, there is one quant for each material. If necessary, the system can drill down further to display the details of each quant. An example of such a report is provided in Figure 7-43, which shows the quant for the road helmets in storage bin STBN-1-000.
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Reporting 259
Figure 7-38: Warehouse inventory report—after goods receipt and TR are created. Copyright SAP AG 2011
Figure 7-39: Warehouse stock—after TO is created. Copyright SAP AG 2011
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260 CHAPTER 7 Inventory and Warehouse Management Processes
Figure 7-40: Warehouse stock—after TO is confi rmed. Copyright SAP AG 2011
Figure 7-41: Bin status report. Copyright SAP AG 2011
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Reporting 261
Figure 7-42: Storage bin details. Copyright SAP AG 2011
Figure 7-43: Quants in a bin. Copyright SAP AG 2011
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262 CHAPTER 7 Inventory and Warehouse Management Processes
C H A P T E R S U M M A R Y
Inventory and warehouse management (IWM) processes are concerned with the storage and movement of materials in an organization. IWM is closely related to the procurement, fulfi llment, and production processes. Inventory management (IM) involves the movement of goods in and out of plants, and warehouse man- agement (WM) involves processes that permit sophisticated management of materials within and in-between plants. WM is typically used by organizations that have large quantities of expensive inventory that must be managed very closely.
The WM process is typically initiated by a transfer requirement, which is triggered by an activity in IM that creates a need to transfer goods. A transfer requirement is used to plan the movement, which is then executed by a transfer order. Once the transfer order is created, the materials are physically moved to and from the storage bins and then the transfer order is confi rmed. Transfer requirements and interim storage areas are the key links between IM and WM.
IM consists of four goods movements: goods receipt, goods issue, stock transfer, and transfer posting. Goods movements are accomplished using spe- cifi c movement types that determine the information needed to execute the movement and the general ledger accounts that are affected.
Goods receipt is a movement of materials into inventory; it therefore results in an increase in inventory. Typically raw materials and trading goods are received inventory from a vendor as part of the procurement process, and fi nished goods are received from the shop fl oor once the production process completes making them.
Goods issue is a movement of materials out of inventory; it therefore results in a decrease in inventory. Typically a goods issue is associated with a shipment of fi nished goods or trading goods to a customer against a sales order or an issue of raw materials or semifi nished goods against a production order.
Stock transfers are used to move materials within the enterprise from one organization level or location to another in a simple way. Materials can be moved between storage locations within one plant, between plants in one company code, or between plants in different company codes.
Transfer postings are a straightforward way to change the status or type of stock, such as unrestricted use, in quality inspection, blocked, or in transit. Transfer postings do not necessarily involve the physical movement of goods, but they result in a change to the status or type of goods.
In more complex situations, transfers are accomplished with stock trans- port orders (STOs), which simulate one plant “purchasing” materials from another plant that “sells” the materials. STOs can be done without delivery, with delivery and with delivery and billing, depending on the level of complexity needed and organization’s accounting policies. STOs offer many advantages over simple stock transfers or transfer postings, but also require more complex activities to complete.
Warehouse management (WM) operates on the concept of warehouses as logical units that manage and track the movement of goods in and out of storage locations. A warehouse must be associated with at least one storage location.
Demo 7.10: Bin status report
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Review Questions 263
It is divided into one or more storage types. A storage type is a division of a warehouse based on the characteristics of the space, materials, or activity needed, such as shelf storage, pallet storage, or hazardous storage. Storage types can be further divided into storage sections, which are logical groupings of materials based on similar characteristics, such as weight, size, or activity. Within each storage section, materials are grouped into storage bins, which is where the actual materials are stored and are the smallest logical unit of stor- age that can be managed in WM. Each storage bin has a unique address which identifi es it, typically based on a coordinate system.
Warehouse management is tightly integrated with the procurement, ful- fi llment, and production processes and can provide companies with a great deal of accuracy when managing large inventories of materials. There are multi- ple reporting options to view inventory status and activities across warehouses and plants from high-level activities to bin-level quantities.
K E Y T E R M S
Company code-to-company code transfer
End value
Inventory and warehouse management (IWM)
Inventory management (IM)
Increment
Interim storage areas
Picking area
Plant-to-plant transfer
Posting change notice
Quant
Stock transport order (STO)
Storage bins
Storage location-to-storage location transfer
Storage type
Transfer order (TO)
Transfer requirement (TR)
Warehouse
Warehouse management view
Warehouse management (WM)
R E V I E W Q U E S T I O N S
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264 CHAPTER 7 Inventory and Warehouse Management Processes
E X E R C I S E S
Exercises for this chapter are available on WileyPLUS.
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