Business Process Procedure

Inventory Counting

Inventory Management Module

Submitted by – Saravanan Selvaraj

Submitted on – 21/07/2006
 Business Process Procedure
Inventory Counting

About the Document

This document gives an overview of inventory counting and a script describes a typical inventory
counting process in an organization. Inventory counting is one of the important scenarios in physical
inventory. It will be useful for the consultants entering into Material management module and for the
end users to understand the steps in inventory counting.

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 Business Process Procedure
Inventory Counting

Contents

Inventory Counting............................................................................................................................... 4
Types of inventory count...................................................................................................................... 4
Process Flow....................................................................................................................................... 4
1. Generate Inventory Document.................................................................................................... 6
1.1 Create Inventory Document.................................................................................................... 6
1.2 Create Posting Block.............................................................................................................. 7
1.3 Print Inventory Document....................................................................................................... 8
2. Assigning Resources................................................................................................................... 9
3. Enter Count Results..................................................................................................................... 9
3.1 Counting the Stock................................................................................................................. 9
3.2 Enter the Inventory Counting.................................................................................................. 9
4. Analyze Inventory Results.......................................................................................................... 10
5. Inventory Recounting................................................................................................................. 11
5.1 Create Inventory Recount Document....................................................................................11
5.2 Print Inventory Document..................................................................................................... 12
5.3 Recounting the Stock............................................................................................................ 13
5.4 Enter the Inventory Recounting............................................................................................13
6. Validate Results and Clear Differences......................................................................................14

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 Business Process Procedure
Inventory Counting

Inventory Counting
Purpose

Inventory counting is necessary to ensure the physical stock in the storage location is consistent with
the book quantities (system). It is a procedure which occurs periodically, and is required at least
once a year, although in most cases, more frequently.

At high level, the activities involved in Inventory Counting are:

 Identifying a need for inventory count – this can be a planned exercise or an ad-hoc
exercise requested by the storage location supervisor or plant manager due to
known discrepancies or optimization.

 Assigning the resources – Once the effort required for counting is known, activities,
timings and resources are assigned.

 Counting – At the agreed time, inventory count is carried out. The count itself
includes creation of the necessary documents, the capture of results and the
reconciliation of differences and recounting if necessary.

Types of inventory count

There are different types of inventory count

 Annual Inventory – all materials are counted once in a year

 Continuous Inventory – A specific portion of the storage location (either by materials,

or selected criteria) is counted on continuous basis. Two other special cases of this
that may be used depending on site requirements are:
1. Continuous inventory during stock placement
2. Continuous inventory based on zero stock check

 Cycle Counting – A cycle count is usually taken on regular, defined basis, often
more frequently for high value or fast-moving items and less frequently for low-value
or slow-moving items. It can be used where accurate ABC classification of materials
is available.

Process Flow
The process flow consists of following steps:

 Generate Inventory Document

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 Business Process Procedure
Inventory Counting
 Assign Resources
 Enter Count Results
 Analyze Inventory Results
 Inventory Recounting
 Validate Results and Clear differences

Create Inventory Create Posting Print Inventory

Start Document (MI01) Block (MI02) Document (MI21)

Assign Resource for

Counting (manual)

Analyze Inventory Yes Enter Inventory

Differenc Count (MI04)
Results (MI20)
e

No

Stop No Differenc Yes

No Recou e
nt

Yes

Create Inventory
Print Inventory Enter Inventory
Recount Document
Document (MI21) Count (MI04)
(MI11)

Post Inventory
Difference (MI07)

Stop

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 Business Process Procedure
Inventory Counting

1. Generate Inventory Document

1.1 Create Inventory Document
Use
The purpose of this process is to ensure that there is a document, in the system and / or
physically for data capture and record keeping during the inventory counting process.
Using the method decided for the storage location (manual, annual or cycle count), the
inventory document is generated. A particular stock count resource can be assigned at the
point of generation.

Procedure

1. Access the transaction using:

Logistics  Materials Management  Physical Inventory 
Menu
Create
Physical inventory document creation
MI01 – Manual
MI31 – w/o special stock
Transaction code MIK1 – Vendor Consignment
MIE1 – Sales Order
MIW1 – Consignment at Customer
MIO1 – Material provision to vendor
2. On the Create Physical Inventory Document: Initial Screen, enter the following
data:
Field Name Description R./O./C User Action and Values Comment
Document date R Specify Default is
today’s date
Planned Count R Specify Default is
Date today’s date
Loc. of phys. inv.
R Search using
Plant Specify
input help
R Search using
Storage Location Specify
input help
O Enter the special stock, if
Special Stock inventory counting is being
done on special stock
Other information
Posting Block O Leave it blank
Freeze book O Leave it blank
inventory

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 Business Process Procedure
Inventory Counting

Field Name Description R./O./C User Action and Values Comment

Batches with O Leave it blank
deletion flag
3. Confirm your entries with Enter.
4. On the Create Physical Inventory Document :New Items, enter the following data:
Field Name Description R./O./C User Action and Values Comment
Material R Specify

Batch O Specify, if batch

management is active
Stock Type R 1 - warehouse

5. Save your data.

Result
Physical inventory document is created.

1.2 Create Posting Block

Use
This freezes the stock of the selected materials and prevents goods receipts or goods issues until
the inventory count has been completed. This can be done when generating the inventory document
or shortly before the execution.

Prerequisites
Physical inventory document has been created.

Procedure
1. Access the transaction using:
Logistics  Materials Management  Physical Inventory 
Menu
Change
Transaction code MI02

2. On the Change Physical Inventory Document: Initial Screen, enter the following
data:
Field Name Description R./O./C User Action and Values Comment
Phys. Inventory R Specify Search using

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 Business Process Procedure
Inventory Counting

Field Name Description R./O./C User Action and Values Comment

doc. input help
Fiscal Year O Specify
Choose Header detail

Posting Block R Select

3. Confirm your entries with Enter.

4. Save your data.

Result
The physical inventory document has been changed. In material master, you can see the posting
block indicator at the storage location view. Now you can not carry out a goods movement.

1.3 Print Inventory Document

Use
A physical document is printed to capture the results of the count.

Prerequisites
Physical inventory document should have created.

Procedure
1. Access the transaction using:
Menu Logistics  Materials Management  Physical Inventory 
Create
Transaction code MI21

2. On the Print Physical Inventory Document screen, enter the following

data:
Field Name Description R./O./C User Action and Comment
Values
Physical Inventory R Search using
Specify
Document No input help
3. Confirm your entries with ENTER.
4. Choose Execute

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 Business Process Procedure
Inventory Counting
5. In the Print dialog box, enter the following data:
Field Name Description R./O./C User Action and Comment
Values
R Specify the Printer Search using
Output device number assigned to input help
your work station
Print immediately O select

6. To print the document, choose Print.

7. Choose Print Preview. The layout of the report is displayed on the Print Preview for xxx Page
yyy of zzz screen.

2. Assigning Resources
Use
For assigning resources for inventory counting, it is important to ensure that clear segregation of
duties is maintained. Resources allocated to count the inventory are independent from resources
who verify the count results. Only the storage location personnel who have higher authority and is
accountable for loss of inventory is allowed to clear any inventory differences in the system. In most
cases, this is done manually.

Result
Resources are allocated for various activities.

3. Enter Count Results

3.1 Counting the Stock
The stock in the storage location is counted using manual count sheets and the totals entered on the
count sheet.

3.2 Enter the Inventory Counting

Use
The count results are entered in the system.

Procedure
1. Access the transaction using:
Menu Logistics  Materials Management  Physical Inventory 
Inventory Count  Create

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 Business Process Procedure
Inventory Counting

Transaction code MI04

2. On the Enter inventory count: Initial Screen, enter the following data:
Field name Description R/O/C User action and values Comment
Phys. R Specify Search from input help
Inventory doc.
Fiscal year O
Count Date R Specify Enter the date of
counting
3. Confirm your entries with ENTER
4. On the Enter Inventory Counting: Collect. Processing, enter the following data:

Field name Description R/O/C User action and values Comment

Quantity R Specify Enter the count
quantity
Unit of Entry O Enter the UOM Base UOM will be
defaulted
Zero Count O Check it, if the count is
zero

5. Confirm your entries with ENTER.

6. Save your data.

Result

Count entered for the physical inventory document.

4. Analyze Inventory Results

Use
This process considers the analysis of the count results to determine if a recount is required. A list of
differences resulting form the count results in comparison to the book value per inventory document
is used to facilitate the analysis.
Prerequisites

Physical inventory counting is completed and there is a difference between book quantity and
counted quantity.

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 Business Process Procedure
Inventory Counting
Procedure
1. Access the transaction using:
Logistics  Materials Management  Physical Inventory 
Menu
Difference  Difference List

Transaction code MI20

2. On the List of Inventory Differences screen, enter the following data:

Field name Description R./O./C User action and values Comment

Search using
Material R Specify
input help
Plant Your plant Search using
R Specify
input help
3. Confirm your entries with ENTER.
4. Choose Execute.
5. The system displays the physical inventory document. Analyze the document for the quantity
difference and amount difference. If the difference is within the acceptable level, post the
difference. Otherwise recount the stock.

Result
The differences are analyzed. Subsequently recounting or posting will be done based on the
analysis.

5. Inventory Recounting
During inventory counting process, there are circumstances where a recount will be necessary.
Recounts will be decided during analysis of the inventory results process and will usually be based
upon agreed tolerances for differences. There may also be the case where the information from the
count is unclear or contradictory. There are several techniques for inventory counting, during a
recount, the same technique will be used as for the original count.

5.1 Create Inventory Recount Document

Use
The purpose of this process is to ensure that there is a document, in the system and / or
physically for data capture and record keeping during the inventory recounting process.

Prerequisites
Physical inventory counting is completed and there is a difference between book quantity and
counted quantity. It has been decided to carry out the recount based on inventory analysis.

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 Business Process Procedure
Inventory Counting

Procedure

1. Access the transaction using:

Logistics  Materials Management  Physical Inventory 
Menu
Phys. Inventory Doc  Recount

Transaction code MI11

2. On the Enter recount: Initial Screen, enter the following data:

Field Name Description R./O./C User Action and Values Comment
Phys. Inventory R Specify Search using
doc. input help
Fiscal year O
Date
R Default is
Planned count date Specify
todays’s date
R Default is todays
Document Date Specify
date
Other information
Posting Block O Check
Freeze book O Leave it blank
inventory
3. Confirm your entries with Enter.
4. On the Enter recount: Selection list, select the item number.
5. Save your data.

Result
Physical inventory document is created.

5.2 Print Inventory Document

Use
A physical document is printed to capture the results of the recount. The format should be the same
as the initial count document with an indication that it is a recount for audit purposes.

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 Business Process Procedure
Inventory Counting

Prerequisites
Physical inventory document should have created.

Procedure
1. Access the transaction using:
Menu Logistics  Materials Management  Physical Inventory 
Create
Transaction code MI21

2. On the Print Physical Inventory Document screen, enter the following

data:
Field Name Description R./O./C User Action and Comment
Values
Physical Inventory R Search using
Specify
Document No input help
3. Confirm your entries with ENTER.
4. Choose Execute

5. In the Print dialog box, enter the following data:

Field Name Description R./O./C User Action and Comment
Values
R Specify the Printer Search using
Output device number assigned to input help
your work station
Print immediately O select

6. To print the document, choose Print.

7. Choose Print Preview. The layout of the report is displayed on the Print Preview for xxx Page
yyy of zzz screen.

5.3 Recounting the Stock

The stock in the storage location is recounted using manual count sheets and the totals entered on
the count sheet.

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 Business Process Procedure
Inventory Counting

5.4 Enter the Inventory Recounting

Use
The recount results are entered in the system.

Procedure
1. Access the transaction using:
Menu Logistics  Materials Management  Physical Inventory 
Inventory Count  Create
Transaction code MI04
2. On the Enter inventory count: Initial Screen, enter the following data:
Field name Description R/O/C User action and values Comment
Phys. R Specify Search from input help
Inventory doc.
Fiscal year O
Count Date R Specify Enter the date of
counting
3. Confirm your entries with ENTER
4. On the Enter Inventory Counting: Collect. Processing, enter the following data:

Field name Description R/O/C User action and values Comment

Quantity R Specify Enter the count
quantity
Unit of Entry O Enter the UOM Base UOM will be
defaulted
Zero Count O Check it, if the count is
zero

5. Confirm your entries with ENTER.

6. Save your data.

Result

Count entered for the physical inventory document.

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6. Validate Results and Clear Differences

Use
The process considers the validation of the count results, the inventory update and financial posting
of differences. Clearing the differences directly updates the stock picture in a positive or negative
way. The differences will be posted against a stock difference account.

Prerequisites
Physical inventory counting or recounting is completed and there is a difference between book
quantity and counted quantity. It has been decided to post the differences.

Procedure
1. Access the transaction using:
Menu Logistics  Materials Management  Physical Inventory 
Differences  Post
Transaction code MI07

2. On the Post inv. differences: Initial Screen, enter the following data:
Field Name Description R./O./C User Action and Values Comment
Phys. R Search from
inventory Specify input help
doc.
Fiscal Year O
Posting date R Specify
3. Confirm your entries with ENTER.
4. On the Post inv. differences: Selection screen, enter the following data:
Field Name Description R./O./C User Action and Values Comment
Select the
reason for
Reason R Specify
inventory
differences

5. Confirm your entries and Save .

Result
The differences in physical inventory document are posted with material document. This completes
the inventory counting process.

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