PHYSICAL INVENTORY PROCESS IN SAP

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Contents
Physical Inventory Process in SAP................................................................................................................3
Business Case:.............................................................................................................................................4
Cycle Counting Process in SAP.....................................................................................................................5
Customization setting for Cycle Count Process............................................................................................6
Master Data setup for Cycle Count Process.................................................................................................7
Exception Note 1:........................................................................................................................................7
Business Scenario 1.....................................................................................................................................8
SAP Transactional Steps and Customization for Business Scenario 1..........................................................9
Exception Note 2:......................................................................................................................................15
Business Scenario 2...................................................................................................................................19
SAP Transactional Steps and Customization for Business Scenario 2........................................................20
Exception Note 3:......................................................................................................................................27
Exception Note 4:......................................................................................................................................28
Exception Note 5:......................................................................................................................................30
Annual Physical Inventory Process for Handling units...............................................................................34
Business Scenario 3:..................................................................................................................................35
Exception Note 6:......................................................................................................................................35
SAP Transactional Steps and Customization for Business Scenario 3........................................................36
Exceptional Note: 7...................................................................................................................................45

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Physical Inventory Process in SAP

 In today’s world it is must practice for all the business lines to monitor the stock movement and
do the physical check to maintain the accurate stock values. This is important from audit
standpoint and further yearend balance sheet activities
 Every company must carry out a physical inventory of its warehouse stocks at least once per
fiscal year to balance its inventory.
 This best practice ensures in meeting the on demand customer commitments. Further most of
the business also uses handling unit concept provided by standard SAP

SAP has provided the various methods to execute the physical inventory processes at the
warehouse level using handling units such as
 Cycle Counting Process
 Annual Physical Inventory Process

We will take a look and understand the above two process, variations covered based on the type of
storage locations and exceptional cases in detailed under this document

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Business Case:

Client ABC Corporation has a wide setup of plant across the globe and is mainly into trading of consumer
goods to their end customers.

Client ABC Corp. has a plant setup wherein the finished goods are stored at storage location which is
HU-WM (Handling unit & Warehouse Managed), inventory managed and handling unit inventory
managed

The one of prime requirement is to ensure accurate inventory balance in terms of actual physical
inventory with the book inventory to ensure high customer efficiency by managing on time customer
commitments

The client has envisioned and implemented following physical inventory process at their central
Warehouse operations plant across the globe to ensure the objective of accurate inventory stocks and
customer commitments

 Cycle Counting Process at inventory managed storage location

 Cycle Counting Process at Warehouse Managed storage location
 Annual Physical Inventory Process at handling unit inventory managed storage location

Let’s take the close look at the cycle count process provided by SAP

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Cycle Counting Process in SAP
 Cycle counting is a method of physical inventory whereby material is counted at regular
intervals within a fiscal year. These intervals (or cycles) depend on the cycle counting indicator
set for each material.
 Cycle counting allows fast-moving items to be counted more frequently than slow -moving
items, for example, all materials to be included in the cycle counting inventory are classified.
This is done either manually, using a cycle counting indicator in the material master record
(storage data), or automatically, by means of an ABC analysis.
 The cycle counting indicator allows you to classify materials into individual cycle counting
categories (e.g.: A, B, C, D)
 In Customizing, you can then set different time intervals for inventory of different materials.
 This approach concentrates on items with the highest level of activity (A items) which only
represent 20 % of the entire item base but are the items where discrepancies are most likely to
occur.
 The new materials and the existing materials can be marked for cycle count process using
transaction MIBC
 The RMCBIN00 program allows you to carry out an ABC analysis to classify the materials
according to either consumption or requirements. The analysis can be set to consider either only
those materials with a cycle counting indicator, or all materials. The cycle counting indicator can
be automatically updated during the cycle counting analysis.

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Customization setting for Cycle Count Process
The cycle count indicators are defined at plant level under the following customization path

SPRO>>Materials Management>>Inventory Management and Physical Inventory>>Physical

Inventory>>Cycle Counting

The cycle count indicator A which defined with maximum number of count for physical inventory to be
carried out is assigned to fast moving items in material master data, whereas the cycle count indicator D
is assigned to slow moving items which are to least counted

We can define more such indicators based on business requirements and the accordingly intervals can
be set up in the SAP system.

 The numeric in the field no. of physical inv. Denotes the number of times the physical
inventory to be carried out for all such materials which are set up with indicator A
 The numeric in the field Interval denotes after how many workdays following the last
inventory count another physical inventory has to be carried out for a given material.
 The numeric in the field Float time denotes the number of workdays by which the
planned count date may vary from the current date.
 The numeric in the field percentage denotes the percentage allocation of the materials
to the individual cycle counting categories.

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Master Data setup for Cycle Count Process
-It is mandatory to setup the cycle count indicator for the relevant materials which are due for cycle
count so that the same are considered during creation of Physical inventory document.

For mass update of cycle count indicator assignment or changes or update, SAP has provided standard
transaction MIBC which can be used for the purpose.

The following scenarios are possible for cycle count process based on the business setup.

As we all know that physical inventory is always carried at storage location level.

Following types of storage location can exists in SAP based on client / business requirement

 Inventory Managed Storage Location

 Handling unit inventory Managed storage location
 Warehouse and handling unit managed storage location

Exception Note 1:
Please note that SAP has not provided any standard transaction for storage location which are handling
unit inventory managed, which is exception to this purpose

The reason behind the same is it is not possible to count the handling units which are in stock using cycle
count process

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Business Scenario 2
Cycle Count Process at Warehouse and Inventory Managed Storage Location

Pre-requisite
Customization setup for Enter re-count for PI Post Inventotry
cycle count indicators document if required Differences
(T-code : LI12N) (T-code : LI21)
(T-code : OMCO)

Pre-requisiste Material
Enter Count for PI Post Warehouse
Master setup for cycle
document Differences
count indicators
(T-code : LI11N) (T-code : LI20)
(T-code : MIBC /MM02)

Create Cycle Count PI Print Cycle Count PI

document document
(T-code : LI01N / LX26) (T-code : LI04)

Change Cycle Count PI Display Cycle Count PI

document document
(T-code : LI02N) (T-code : LI03N)

Note:

 PI : Physical Inventory

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SAP Transactional Steps and Customization for Business
Scenario 2
The plant 2219 has storage location: W279 which is handling unit + Warehouse inventory managed

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The material 200002662 in plant 2219 is setup with cycle count indicator A

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Step 1:

ABC Analysis transaction MIBC can be used to change the above cycle count indicator

With transaction MIBC the existing cycle count indicator can be changed / updated depending upon
business requirement

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Step 2:

Create PI document using transaction LI01N / LX26 (mass creation)

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Step 3: Activate PI document using transaction LI02N ( if created with LI01N)

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Step 4: Print PI document using transaction LI04

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Exception Note 3:
Cycle count calculation

The cycle count calculation is done with the below formula

Material due for counting = Last count date + interval (maintained in customization for cycle count
indicator)

 If the last count date is not available as the material is being counted for the first time the last
count date is taken as material creation date
For non-batch managed material it is taken from table MARD-ERSDA
For batch managed material it is taken from table MCHB-ERSDA

The date calculated from the above formula if it is in between date from and to date entered on
selection screen of transaction MICN the material becomes due for counting

Step 5: Enter the inventory count after physical count in SAP using transaction LI11N

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Exception Note 4:
Cycle Count Inventory Count at handling unit and warehouse managed storage location can only be
entered with differences ( if any ) if it is single level handling unit

For nested handling unit the differences cannot be entered using transaction LI11N

In our case the HU : 1000561087 is nested HU’s

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The nested handling unit has 6 EA quantity as per book inventory shown above

If we try to post the quantity difference it results in error ads shown below

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Exception Note 5:
Also if the material being counted is serialized material you cannot enter differences using transaction
LI11N.

The material: 200002662 is serialized material and if we try to post the differences it results in below
error

In all such exceptional cases the inventory adjustments needs to be done manually

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Now as we have understood the exception to Cycle count inventory count post we will go ahead and
post the same as no difference and need to process any inventory adjustments manually

Step 5: Enter the re-count for PI document using transaction LI12N (optional)

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Step 6: Post the Inventory Differences using transaction LI20 & LI21

LI20

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LI21

In our case as we have nested handling units and serialized handling unit so we have no inventory
differences as these are exceptional cases and needs to be handled separately.

Further warehouse movement types 711 and 712 would be posted in normal cases wherein we
encounter stock differences and have write up or write down inventory levels

Also inventory movement types 701 and 702 would be posted in normal cases wherein we encounter
stock differences and have write up or write down inventory levels

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