CIS Paper

In Chapter 1 we introduced inventory and warehouse management (IWM) processes, which are concerned with the storage and movement of materials within an organization. We indicated that IWM is closely related to the procurement, fulfillment, and production processes. Then, in Chapter 4 we introduced the underlying activity in inventory management (IM), namely, goods movement. Specifically, we introduced the four goods movements—goods receipt, goods issue, stock transfer, and transfer posting—as well as specific movement types. In our discussion of material movement in the preceding chapters, we focused on the simpler processes associated with IM. In addition, we explained that warehouse management (WM) involves processes that enable companies to manage materials more effectively using sophisticated techniques. Business Processes in Practice 7.1 illustrates how a large global enterprise, Steelcase, Inc., uses inventory and warehouse management to efficiently move materials across various facilities.

Business Processes in Practice 7.1: Inventory and Warehouse Management at Steelcase, Inc.

Headquartered in Grand Rapids, Michigan, Steelcase is the leading global workplace furniture manufacturer with approximately 11,000 employees and a total revenue of approximately $2.3 billion in FY 2010. The company relies on a network of more than 650 independent and company-owned dealers to market, deliver, and install many types of office furniture products (e.g., desks, chairs, and cabinets) for its customers. Steelcase has manufacturing operations dispersed throughout North America, Europe, and Asia. In North America, Steelcase has ten manufacturing plants and six regional distribution centers (RDCs). Each plant has a small warehouse to store raw materials and, temporarily, finished goods. Steelcase orders raw materials through the procurement process, which are delivered directly to the manufacturing plants. The production process consumes the raw materials at the manufacturing plant, after which it ships the finished goods to the RDCs. The RDCs manage the logistics activities of the fulfillment process, including planning shipments, allocating and routing trucks, and consolidating, preparing, and loading shipments. The key goal of inventory and warehouse management at Steelcase is to optimize warehouse space and efficiently execute the fulfillment process by balancing the inbound flow of goods to its manufacturing plants with the outbound delivery of customer shipments from the RDCs. Steelcase uses the IWM capabilities of SAP ERP extensively to monitor, assess, and manage the efficient flow of goods in and out of their warehouses.

The warehouses at the manufacturing plants and at the RDCs utilize two different IWM processes to address the distinctive storing needs of raw materials versus finished goods. The warehouses at the manufacturing plants store raw materials from the procurement process until these goods are consumed in the production process. They also store finished goods from the production process until they are consumed by the fulfillment process. In the best case scenario, raw materials are stored at the manufacturing plant only for a few hours before they are used in production, and finished goods are stored only for a few hours before they are shipped to the RDCs. The RDCs receive materials from many manufacturing facilities and store those goods until a customer order has been filled. They then pick, pack, and ship the finished goods to the customer.

Each Steelcase RDC receives daily shipment forecast reports from the manufacturing plants. The RDCs use these reports to plan space for shipments and to manage the logistics activities of the fulfillment process. Customer orders are typically filled from multiple factories, a process that requires consolidating multiple inbound deliveries into a single outbound delivery. A large RDC can process more than 100 outbound customer shipments per day, with many more inbound deliveries from the manufacturing plants arriving simultaneously. This constant flow of inbound and outbound deliveries and material movements generates a very complex routing of trucks, pallet loaders, forklifts, and packing materials that are constantly moving in and around the warehouse. Steelcase orchestrates this complex ballet with the IWM capabilities of SAP ERP.

Source: Steelcase, Inc. Materials Planning Group

In this chapter we will review and elaborate on the IM-related goods movements introduced in previous chapters. We will then discuss the organizational data, master data, and processes associated with WM processes in the context of the procurement, fulfillment, and production processes. In these discussions we will also highlight the linkages between IM and WM. We will conclude with a discussion of reporting options. Immediately following the end-of-chapter material is Appendix 7A , which discusses procedures for creating storage bins automatically.

INVENTORY MANAGEMENT

Figure 7-1 illustrates the four goods movements involved in inventory management. We have already discussed goods receipt (indicated with a “1” in the figure) in the context of the procurement and production processes. Similarly, we discussed goods issue (“2” in the figure) in the context of the fulfillment and production processes. We also addressed stock transfers (“3”) and transfer postings (“4”) in prior chapters. In this section, we will review and extend the discussions of these goods movements. Recall that companies perform goods movements using specific movement types that determine what information is needed to execute the movements and which general ledger accounts will be affected by the movements.

Figure 7-1: Goods movements

The key organizational level associated with inventory management is the storage location. We initially discussed storage locations in Chapter 4 , in the context of the procurement process. Recall that storage locations are associated with plants, which in turn are associated with company codes. Further, because inventory management is concerned with material movements, the material master—and, more specifically, the plant/data storage view of the material master—is the most relevant master data in IM. We also discussed the plant/data storage view of the material master in Chapter 4 .

GOODS RECEIPT

A goods receipt is a movement of materials into inventory; it therefore results in an increase in inventory. Recall from Chapter 4 that a goods receipt occurs during the procurement process when a business receives raw materials and trading goods into inventory from a vendor. In addition, as we discussed in Chapter 6 , a goods receipt takes place in the production process when a company receives finished goods into inventory from the shop floor. Both of these movements result in the creation of material and financial accounting documents. Also, in both processes, when materials are received into inventory, they are placed in an appropriate storage location with an appropriate status, such as unrestricted use or in quality inspection.

The procurement and production chapters focused on a goods receipt that is generated against a purchase order and a production order, respectively. It is not uncommon, however, to record a goods receipt without reference to an order. Two scenarios in which this occurs are (1) the initial receipt of inventory and (2) an unplanned receipt from vendors or an unplanned return from customers. The initial receipt of inventory involves a movement type that an organization uses when an SAP ERP system is first installed. This movement increases the quantity of materials in inventory and results in appropriate postings to the general ledger accounts. Unplanned receipts occur when a reference document, such as a purchase order or a production order, does not exist. For example, a vendor may deliver materials free of charge (perhaps as samples), or a customer may return materials without prior arrangements. In these cases, the company uses a goods receipt, along with an appropriate movement type, to receive these materials into inventory.

GOODS ISSUE

In contrast to a goods receipt, a goods issue results in a decrease in inventory. In the fulfillment process, a goods issue indicates a shipment of finished goods or trading goods to a customer against a sales order. In the production process, a goods issue reflects the issuing of raw materials or semifinished goods to a production order. These materials are then used in the production process to create finished goods. Finally, a goods issue results in the creation of appropriate material, FI, and CO documents.

As in the case of a goods receipt, a goods issue can be unplanned. That is, a goods issue can occur without reference to a sales order or a production order. Some common cases in which such a goods movement occurs are issuing materials to scrap, sampling, and using the materials for internal consumption. When materials are no longer usable due to age or obsolescence, they are discarded or scrapped. Sampling involves testing the quality of the materials. If the testing is destructive—that is, the testing procedure renders the materials unusable—or if the materials are expensive, then, rather than examine all of the materials, the company tests only a small sample. Finally, materials may be withdrawn for internal consumption, for example, for research and development. In all these cases, an appropriate movement type is required.

TRANSFER POSTINGS

Businesses use transfer postings to change the status or type of materials in stock. Recall from Chapter 4 that there are four common stock statuses that determine the usability of materials—unrestricted use, in quality inspection, blocked, and in transit. Recall further that a transfer posting need not include a physical movement of materials. Figure 7-1 provides three examples of transfer postings, indicated by the number “4.”

A transfer posting is used in several other situations that do not necessarily involve a physical movement of materials. Here we consider two scenarios: material-to-material posting and consignment-to-warehouse stock posting. A material-to-material posting is used to change the material number of a material. This process is common in industries such as pharmaceuticals and chemicals where the characteristics of a material change over time. For example, one of the steps in the process of brewing beer is to boil and cool grains and water. This material, called wort, is combined with yeast and placed into a fermentation vessel. Once the wort is fermented, it becomes beer. Thus one material (wort) changes over time into another (beer). In addition, a company occasionally will change a material number for a material. In both cases, the company uses a transfer posting to change the material number from the old number to a new number, using an appropriate movement type.

The second scenario in which a transfer posting is not accompanied by a physical movement of materials involves vendor-owned inventory—that is, materials that are stored in the customer’s facilities although the vendor retains ownership. This arrangement is common for large companies such as Walmart. Let’s use GBI to illustrate this process. Consider a scenario in which GBI has an agreement with one of its vendors to provide GBI with raw materials on a consignment basis. In this case, when the goods receipt is posted, the quantity of materials in inventory is increased, and the status of the materials is set to consignment stock. However, GBI does not owe any money to the vendor, and the materials are not valued in GBI’s balance sheet. Thus, the goods receipt does not affect GBI’s financial position. There is no impact on the vendor’s account, the accounts receivable reconciliation account, or the inventory account. At a later point in time, when GBI uses the raw materials in the production process, it will change the status of the materials from consignment to warehouse stock (either unrestricted use or in quality inspection). At this point there is a financial impact—GBI now owes the vendor for the quantity of materials used—which is recorded in the general ledger using an appropriate movement type. (You might want to review our discussion of the invoice verification step of the procurement process in Chapter 4 .)

STOCK TRANSFERS

Whereas a transfer posting need not involve an actual movement of materials, a stock transfer is used to physically move materials within the enterprise from one organizational level or location (e.g., a storage location in a plant) to another. A stock transfer can involve movements under three scenarios: (1) between storage locations within one plant, (2) between plants in one company code, and (3) between plants in different company codes. Figure 7-1 provides two examples. The arrow marked “3” in the middle of the figure illustrates a stock transfer between two plants (A and B). Although not indicated in the figure, the plants may be in the same company code or in different company codes. The arrow marked “3” near the bottom right part of the figure illustrates a transfer between two storage locations in the same plant.

Regardless of the organizational levels involved, three options are available for moving materials: using a one-step procedure, a two-step procedure, and a stock transport order. We discuss stock transport orders at the end of this section. The one-step and two-step procedures are illustrated in Figure 7-2 .

Figure 7-2: One-step and two-step procedures

Material movements consist of two tasks: issue and receipt. Issue refers to removing the materials from storage at the supplying or sending location, and receipt involves placing them into storage at the receiving or destination location. In the one-step procedure, as the name implies, both tasks are accomplished in a single step. Consequently, a decrease in quantity at the supplying location and an increase at the receiving location are recorded simultaneously. This strategy is appropriate when the two locations are physically close to each other and there is no significant time lag between issue and receipt.

By contrast, in a two-step procedure the two tasks are completed in separate steps. The first step (issue) occurs when the materials are removed from storage. At this time the quantity of inventory is reduced at the supplying location and simultaneously increased by the same amount at the destination location. However, because the materials do not arrive immediately at the destination location, they are placed in the in-transit stock status at this location. Later, when they are physically received at the destination location, a second step (receipt) changes their status from in transit to unrestricted use (or another status). Companies utilize the two-step movement when there is a time lag between the two steps, for example, when the locations are geographically separated by distance. The in-transit status alerts the destination location that materials are due to be received. Another situation in which the two-step movement is used is when the same person does not have authorization to make changes at both locations. Significantly, although stock transfers and transfer postings are conceptually different, they are both accomplished via a transfer posting in SAP ERP. The distinction is in the specific movement type that is used.

As in any goods movement, a material document is created during both the one-step and two-step procedures. In the one-step procedure, one material document is created. This document contains two line items for each material moved, one for the issue at the supplying location and one for the receipt at the receiving location. During the two-step procedure, two material documents are created, one at the time of issue and one at the time of receipt. The material document created during the first step includes two line items for each material moved, one for the issue and one for receipt into in-transit status. The material document created at the time of the second step has only one line item for each material moved because the movement (from in transit to unrestricted use) occurs only at the receiving location.

Whether there is a financial accounting impact (and, therefore, FI documents are created) depends on the organizational levels involved in the movement. Three combinations of organization levels are possible: storage location-to-storage location, plant-to-plant, and company code-to-company code. We discuss these next.

Storage Location-to-Storage Location Transfer

A stock transfer between two storage locations within the same plant is referred to as a storage location-to-storage location transfer. There are several reasons for moving materials within the same plant. In some cases, materials received from a vendor or from production are initially stored in a temporary staging area and then moved to a more permanent location at a later date. The staging area is designated as a storage location, so the movement from this location to the permanent location is accomplished via a stock transfer. Another possible scenario is when all materials received from a vendor must be inspected for quality before being placed in their permanent locations. These materials are initially placed in the location where the inspection is performed. Like the staging area just discussed, this inspection area is designated as a storage location. When the inspection is completed, the company uses a stock transfer to move the materials to the more permanent location.

A transfer within a plant can be accomplished via a one-step or a two-step procedure, as illustrated in Figure 7-3 . The numbers on the arrows indicate specific movement types. Note that in the one-step procedure, the materials can be in any stock status in the supplying location and can be moved into any stock status in the receiving location. In contrast, a two-step procedure is possible only when the materials are in unrestricted use at the supplying location. Moreover, the materials can be received only into unrestricted use. Finally, as explained earlier, when the first step (issue) is posted, the quantity in unrestricted use in the supplying location is reduced, and a corresponding increase is noted in the receiving location. However, the stock at the receiving location has a status of in transit. When the materials are physically received, their status is changed to unrestricted use.

Because materials are typically valued at the plant level rather than the storage location level, a transfer between storage locations in the same plant does not affect valuation. Therefore, no FI document is created. This observation is true when all quantities of the same materials are valued in the same way. In some cases, however, different quantities of the same material are valued differently. For example, materials purchased from different vendors are valued differently, and materials produced in house are valued differently than those purchased externally. When materials are valued differently, through a practice known as split valuation, the company maintains different material accounts for each valuation type. If the material being moved is split-valued and the valuation type changes as a result of the transfer, then the transfer has a financial accounting impact, and an FI document is created.

Plant-to-Plant Transfer

A movement of materials between two plants within the same company code is called a plant-to-plant transfer. As diagrammed in Figure 7-4 , plant-to-plant transfers can be carried out as either one-step or two-step procedures. Typically, only materials in the unrestricted use status can be moved between plants. In both the one-step and two-step procedures, the quantity of materials in inventory is reduced in the issuing plant (Plant A in the figure) and increased at the receiving plant (Plant B). The difference is in the stock status at the receiving plant. In the one-step procedure the materials are placed in unrestricted use at the receiving plant. In contrast, in a two-step procedure, the materials are placed in the stock in-transit status at the receiving location after the first step (issue) and then changed into unrestricted use when the materials are actually received.

Plant-to-plant transfers, like storage location-to-storage location transfers, result in the creation of material documents. In the one-step procedure, one material document is created with two line items for each material moved. In the two-step procedure, two material documents are created, one at the time of issue and one at the time of receipt. The material document created at the time of receipt has only one line item.

Because materials are valued at the plant level, a plant-to-plant transfer represents a change in the value of the materials. Consequently, there is an FI impact. One FI document is created in both one-step and two-step movements. In the two-step method, the FI document is created at the time of issue, when the accounting impact occurs. Therefore, no FI document is created at the time of receipt. Further, the material is valued at the valuation price of the supplying plant.

Demo 7.1: Plant-to-plant stock transfer (1 step)

Company-Code-to-Company-Code Transfer

A movement of materials between two plants in different company codes is called a company code-to-company code transfer. This type of transfer can be accomplished via both the one-step and two-step procedures. In both cases the movements are very similar to plant-to-plant transfers. The obvious difference is that, in this scenario, the two plants are located in different company codes. Consequently, two FI documents are created, one for each company code. One line item is for the material account, and the other (offsetting) line item is for a clearing account created to accommodate such a transfer.

STOCK TRANSPORT ORDERS

The plant-to-plant movements discussed above are simple, straightforward ways of moving materials. However, they have limitations. Among their major limitations are the following:

· • They cannot take into account the cost of transporting materials between plants.

· • They cannot track the progress of the transfer.

· • Valuation can only be based on the book value of the materials at the sending plant and not a negotiated value or price between plants.

When moving materials from one plant to another requires any of these capabilities, the company utilizes a process in which one plant essentially “purchases” the materials and another plant “sells” them. This process involves the use of a stock transport order (STO). An STO is very similar to a purchase order in the purchasing process, except that it is used for plant-to-plant movements. An STO can involve steps from three previously discussed processes—procurement, fulfillment, and inventory management—depending on the specific scenario. In this section we discuss the following three scenarios: STO without delivery, STO with delivery, and STO with delivery and billing.

Figure 7-5: Stock transport order without delivery

Stock Transport Orders without Delivery

This scenario involves steps from purchasing and inventory management, as illustrated in Figure 7-5 . The receiving plant creates a stock transport order, either directly or with reference to other documents such as a purchase requisition. At the supplying plant, a goods issue is posted against the STO. At this point the quantity in unrestricted use is reduced at the sending plant, and stock in transit is increased at the receiving plant. A material document with two line items is created to record this movement. When the materials arrive at the receiving plant, a goods receipt is recorded, just as in the procurement process. Recall that in the procurement process the goods receipt was recorded against a purchase order. In this case, the STO is used instead of a purchase order. At this time, the quantity in transit is moved to unrestricted use at the receiving plant, and a corresponding material document with one line item is created. The FI impact (and therefore material valuation) occurs at the time of the goods issue using the valuation price of the supplying plant. As in the case of stock transfers, one FI document is created if the two plants are in the same company code, and two FI documents are created if the plants are in different company codes. The general ledger accounts affected are the material accounts and a clearing account. Note that the procedure described above is a two-step procedure. In fact, only a two-step procedure is possible for STO without delivery.

Demo 7.2: Stock transport order without delivery

Stock Transport Orders with Delivery

Figure 7-6: Stock transport order with delivery

In the previous scenario, the only shipping-related task that is included is the goods issue. Recall from Chapter 5 that the shipping step can include additional tasks, such as creating a delivery document, picking, and packing. When a company uses the stock transport with delivery scenario, the sending plant will first create a delivery document prior to goods issue. Recall that in the fulfillment process, this document is used to pick, pack, and ship the materials to the customer. Thus, when a business uses an STO with delivery, it treats the order like a sales order with the receiving plant taking on the role of a customer, and the sending plant acting as a vendor. After the delivery document is created, the rest of the shipping tasks (pick, pack) are completed, and a goods issue is posted. These steps are illustrated in Figure 7-6 . An STO with delivery can utilize both the one-step and two-step procedures for the goods movement. When the company uses a two-step movement, the material movement and financial impact are identical to those associated with an STO without delivery. When it uses a one step movement, only one material document is created, and the materials are placed in unrestricted use at the receiving plant.

Stock Transport Orders with Delivery and Billing

Figure 7-7: Stock transport order with delivery and billing

The third scenario involving STO includes both the delivery document (shipping step) and the billing step from the fulfillment process at the sending plant. In addition, it includes the invoice verification step from the procurement process (see Chapter 4 ) at the receiving plant. This scenario is most appropriate for inter-company transfers. Figure 7-7 illustrates this scenario with a two-step procedure, although a one-step procedure could also be used. A stock transport order is created at the receiving plant in response to a need to acquire materials. In contrast to the previous two scenarios, a purchase price is included in the STO based on pricing conditions and info records, as we discussed in the Chapter 4 . In response, the supplying plant then creates a delivery document authorizing the shipment. As in the fulfillment process, when the goods issue is posted, the quantity designated as unrestricted use is reduced at the supplying plant. In addition, material accounts are credited by the value of the shipment, and the cost of goods sold account is debited. Corresponding material and FI documents are created. However, the materials shipped technically do not belong to the receiving plant in the other company code. Therefore, the value of inventory is unchanged at the receiving plant. The materials are classified as “in-transit CC,” which is different from the “in-transit” category previously discussed. Materials in the in-transit category are included in valuation, whereas those in the in-transit CC category are not.

When the company receives the materials at the receiving plant, it records a goods receipt against the STO. As in the procurement process, the quantity held in unrestricted use increases, material accounts are debited by the value of the materials received, and the GR/IR account is credited. Corresponding material and FI documents are created. Note that, in contrast to the other two scenarios involving STOs, the valuation in this scenario is based on the purchase price in the STO. The supplying plant then creates an invoice based on this price, which is the selling price from the perspective of the fulfillment process. Thus, the valuation of materials does not reflect the valuation price of the delivery plant. Rather, it is based on an agreed-upon transfer price between the companies within an enterprise. When the billing document is created, the system updates the appropriate revenue and receivables accounts in the sending plant’s general ledger.

The receiving plant then verifies the invoice, as in the procurement process. The system updates appropriate accounts payable and GR/IR accounts in the receiving plant’s general ledger. Corresponding FI documents are created as well. In contrast to the purchasing process, the receiving plant does not make any explicit payments to the supplying plant. Rather, when the invoice verification step is completed, it makes payment via a transfer of funds between appropriate accounts in the two company codes. At this time, the accounts receivable account and accounts payable account are also updated. As usual, corresponding FI documents are created.

Using an STO to move materials between plants, as compared to using stock transfers, has numerous advantages.

· • When an STO is created, the company can carry out an availability check to assess material availability in the supplying plant.

· • Delivery costs and the selected carrier can be added to the STO.

· • Quantities in the STO and planned deliveries and receipts can be included in material planning in both plants.

· • Purchase requisitions can be converted to STOs rather than POs.

· • The history of the various tasks associated with the STO can be monitored via the purchase order history section of the STO.

· • Goods can be received into different stock statuses, such as in quality inspection and blocked stock.

· • Goods received can be posted to consumption rather than material accounts. (Refer to the discussion of stock versus consumable materials in Chapter 4 .)

To review, inventory management is concerned with managing and moving materials between storage locations within a plant or between two plants. The plants can belong to the same company code or to different company codes. Several options for moving materials are available depending on the type of movement. However, in all the options we have considered, the movement is at the storage location level. Recall that storage locations are places where materials are kept until they are needed. Storage locations can be very large spaces, such as a room in a plant or even a specific area in a large room. It is important to note that although IM keeps track of the quantity of materials in a storage location, it cannot determine their exact location. For example, GBI’s Dallas plant has a storage location for raw materials (RM00), where it stores numerous materials such as tires, tubes, frames, and wheels until it needs them for production. Although IM can track the quantities of these materials in the storage location, it cannot determine exactly where each of these materials is stored. Thus, when production needs the raw materials, the plant employee must manually locate them.

In earlier chapters we alluded to a more granular management of materials using warehouse management processes. We also referred to links between previously discussed processes—procurement, fulfillment, and production—and warehouse management. We now shift our focus to a detailed examination of warehouse management. We begin with organizational data relevant to warehouse management followed by master data and process steps.

ORGANIZATIONAL DATA IN WAREHOUSE MANAGEMENT

The key organizational data in warehouse management is the warehouse. A warehouse is associated with one or more combinations of plant and storage location. For example, in Figure 7-8 the warehouse (100) is associated with three storage locations (FG00, TG00, and MI00) in the San Diego plant (SD00). The association between storage locations and a warehouse provides the linkage between IM processes and WM processes. When linking warehouses to storage locations, the following rules apply.

Figure 7-8: Organizational data in warehouse management

· • A warehouse must be linked to at least one storage location.

· • A warehouse can be linked to storage locations across multiple plants.

· • A storage location can be linked to only one warehouse.

· • Not all storage locations must be linked to a warehouse.

GBI has enabled warehouse management only in the San Diego plant, and all three storage locations in that plant are assigned to warehouse number 100. If GBI wished to enable WM in other plants, then the storage locations in the other plants could also be assigned to the same warehouse number. Alternatively, GBI could create additional warehouses for other storage locations. Although all three storage locations in the San Diego plant are assigned to warehouse number 100, GBI could choose to assign the finished goods and trading goods storage locations, but not the miscellaneous storage location, to the warehouse. This setup would be appropriate if the miscellaneous storage location were a small area that did not contain many materials.

A warehouse is divided into smaller areas, in a hierarchical manner, as depicted in Figure 7-9 . More specifically, a warehouse is comprised of storage types, which are further divided into storage sections. In turn, storage sections contain storage bins where the materials are ultimately stored. Note that storage bins are actually master data. We introduce them in this section, however, to clarify the relationships among the various elements in a warehouse. Finally, storage types are sometimes divided into picking areas rather than storage sections. We examine all of these concepts in the following sections.

Figure 7-9: Structure of a warehouse

STORAGE TYPE

A warehouse must include at least one storage type. A storage type is a division of a warehouse based on the characteristics of the space, materials, or activity. For example, the space in the warehouse can be divided into storage types based on how the materials are stored. In such cases the storage types could include shelf storage, pallet storage, and rack storage. Some materials may need to be handled carefully (e.g., hazardous material) or to be kept in environmentally controlled areas (e.g., specified temperature). In these scenarios the storage types would reflect these specifications. Thus, storage types could be designated as hazardous storage and cold storage. In Figure 7-9 there is one area for shelf storage and one for pallet storage.

Recall that the assignment of storage locations to a warehouse links IM activities to WM activities. To illustrate this point, consider a simple procurement scenario in which a company receives a shipment from a vendor. When materials are managed only at the storage location level, the company uses a goods receipt to record the receipt of the materials, which are then placed in the specified storage location. When WM is enabled, however, additional steps must be completed. We will discuss these steps later in the chapter. For now, the key point is that until these WM steps are completed, the materials are placed in specially designated storage types that serve as interim storage areas in the warehouse (e.g., a receiving area). Interim storage areas are also utilized in the fulfillment process when the materials are to be shipped from a warehouse managed storage location. These areas represent the physical links between IM and WM. Figure 7-9 includes one storage type for shipping and one for receiving.

STORAGE SECTION

Storage types can be further divided into storage sections, which group bins with similar characteristics. Examples of storage sections are fast-moving, slow-moving, heavy, light, large, and small. An organization may have some materials that are shipped out very soon after they are received in the warehouse. These materials are designated as fast-moving materials, and, logically, they should be placed close to the receiving and shipping areas. In contrast, slow-moving materials, which remain in the warehouse for long periods before being shipped out, should be stored further away. In Figure 7-9 , the pallet area is divided into slow-moving and fast-moving storage sections.

Storage sections can also be based on the material’s weight or size. For instance, in a shelf area, heavy and bulky materials are placed in lower shelves, and lighter and smaller materials are stored in higher shelves. Thus, a shelf storage area can be divided into heavy and light storage sections, as depicted in Figure 7-9 . The receiving and shipping storage areas have one storage section each, the total section. Each storage type must include at least one storage section.

Finally, Figure 7-9 shows three storage bins within the light storage section. Storage bins are areas in which the materials are actually stored. We discuss storage bins in the section on master data.

PICKING AREA

Storage areas can be divided into picking areas rather than storage sections. A storage section is a division of a storage area based on storing or putting away materials. In contrast, a picking area is a division of a storage area based on removing or picking materials. A picking area groups storage bins based on similar picking strategies. For example, picking areas can be assigned to specific employees who are responsible for picking from the specified bins. As another example, a delivery to a customer can be allocated to multiple picking areas to facilitate parallel picking. This arrangement makes the picking step more efficient, and it enables the company to deliver the materials to the customer more quickly.

Figure 7-10 displays the layout of GBI’s San Diego distribution center, and Figure 7-11 displays its structure. GBI has two storage types—shelf storage (001) and pallet storage (002)—and two interim storage types—receiving (003) and shipping (004). Note that whereas Figure 7-9 displays multiple storage sections for the shelf and pallet storage areas, GBI has elected to not divide the storage types in the San Diego warehouse into multiple sections. Rather, each storage type has one storage section—the total section, as illustrated in Figure 7-11 . Going further, GBI does not have picking areas defined in its warehouse. Finally, both the shelf storage and pallet storage have multiple bins. Note that interim storage types do not require bins to be created in advance.

Business Processes in Practice 7.2 describes the structure of a warehouse at Steelcase.

Business Processes in Practice 7.2: Warehouse Organization at Steelcase, Inc.

In its massive manufacturing plants, Steelcase might have to store and maintain inventory for more than 30,000 unique raw materials for production. These materials are classified into multiple storage types, such as plastic, rolled steel, wood, and fabric. Because each of these materials has unique characteristics, each one requires different types of storage. For example, plastic parts are typically very small and can be stored in large bins in bulk quantity on a rack ( Figure 7-12 ). A single Steelcase warehouse can have up to 15,000 storage bins for small raw materials. Rolls of fabric require a different type of space for storage ( Figure 7-13 ). However, the rolled steel, which is formed into cubicle walls or file cabinets, is delivered in massive rolls that weigh several tons each. These materials are bulky and heavy and require special equipment to store and move around the plant, so they require unique storage and handling space on the warehouse floor ( Figure 7-14 ). In addition, raw materials must be stored in two types of storage locations—standard storage, which is located in the warehouse, and line storage, which is located directly next to the manufacturing line for easy access. Typically, Steelcase prefers to have at least a 24-hour supply of raw materials located next to the production line to ensure a constant flow of materials and to avoid any disruptions to the manufacturing process.

MASTER DATA IN WAREHOUSE MANAGEMENT

The key master data in warehouse management are material master and storage bins. We examine these data types in this section.

MATERIAL MASTER

We have previously discussed the material master in the context of several other processes. In these discussions we have explored several views, including basic, purchasing, and sales. If a company stores a material in a storage location that is associated with a warehouse, then it must include additional data in the master record for that material. These data are included in the warehouse management view of the material.

Recall that master data are typically defined for specific organizational levels. The organizational levels relevant to the warehouse management view of master data are warehouse, plant, and storage type. A warehouse is required; that is, materials must be defined for each warehouse. However, plant and storage type are optional and are included only when the warehouse data for the material are different in different plants or storage types. Three types of data are relevant to the warehouse management view:

· • Basic data

· • Data used in defining stock placement and removal strategies

· • Data regarding the storage bins where the materials will be stored

Basic data are relevant to all processes, as we discussed in Chapter 2 . Some of these data, however, are redefined for WM. An example is the warehouse management unit of measure, which can be different from the base unit of measure discussed in Chapter 2 . For example, a material can have a base unit of measure in single units (e.g., one helmet) but be managed in larger quantities (e.g., box of dozen helmets) in the warehouse. Data related to placement and removal strategies indicate priorities and sequences in which the storage types, storage sections, and picking areas are to be searched. Bin-related data indicate which bins are to be used to store materials as well as the minimum and maximum quantities allowed in the bins.

Demo 7.4: Review WM view of material master

STORAGE BINS

Storage bins are the smallest unit of space in a warehouse. They are the areas where materials are physically stored. Storage bins can vary in size from small containers (for nuts and bolts) to large areas for bulky materials (pallets of soft drink cases). They can be containers on shelves or designated spaces on a warehouse floor where pallets of materials are stored. Storage bins have unique addresses that identify their location in a warehouse. These addresses are frequently based on a coordinate system. In a shelf storage environment, for example, a bin address can include a row (or an aisle) number, a stack number, and a shelf number. Consider a library that has rows of shelves that hold books, as illustrated in Figure 7-15 . The figure displays two rows, each of which has three stacks. In turn, each stack has six shelves. Each unique shelf, such as Row 1, Stack 1, Shelf 3, is a bin. If further granularity is needed, then each shelf can be further divided into smaller areas. Figure 7-16 depicts storage bins at the warehouse at a Steelcase manufacturing plant.

A bin can be used to store different materials. To distinguish between quantities of different materials, the materials with the same characteristics are grouped into quants. A quant is a specific quantity of materials that have similar characteristics and are stored in a single bin. For example, if road helmets and t-shirts are stored in one bin, each material will be identified by a different quant. Figure 7-18 illustrates the use of quants. In the top left quadrant there is one quant of material A. Two materials—A and B—are stored in the bin in the top right quadrant. Each material is identified by a separate quant. Quants are also used when the same material with different characteristics is stored in one bin. In the pharmaceuticals industry, for example, drugs are produced in batches, and each batch has both a specific expiration date and a unique batch number. When different batches of the same material are stored in the same bin, each batch is identified by a different quant. This arrangement is illustrated in the bottom left quadrant of the figure. Finally, the bottom right displays an example in which some quantities of the material are of the stock type unrestricted use and other quantities are designated as in quality inspection. The quantity of each type of material is associated with a different quant.

Figure 7-17: Quants in a storage bin

Quants are created as needed by the ERP system when materials are moved into bins. After a quant has been created, the quantity of materials can be increased or decreased only by a goods movement. Moreover, when the quantity is reduced to zero, the system automatically deletes the quant. Because quants are generated as needed, they are categorized as transaction data. We discuss them here, however, to emphasize the relationship between quants and storage bins.

PROCESSES IN WAREHOUSE MANAGEMENT

Figure 7-18 illustrates steps in the warehouse management process. Typically, the WM process is associated with a goods movement in another process, such as procurement, fulfillment, production, and inventory management. Recall from our discussion earlier in this chapter that a goods movement is an IM activity. When a goods movement involves a storage location that is warehouse managed, however, additional steps are required to transfer the materials into (putaway) or out of (pick) storage bins in the warehouse. In most cases, an IM goods movement automatically generates a transfer requirement. Transfer requirements are used to plan the movement of materials in and out of a warehouse. The actual execution of the movement is accomplished via a transfer order. After a transfer order is created, the materials are physically moved between interim storage areas and the storage bins, to complete putaway or picking activities. At that point the transfer order is confirmed.

Figure 7-18: Warehouse management process

In this section we will consider the steps in the WM process. We will first discuss these steps in general terms. We will then delve into the details of these steps as they relate to the procurement, fulfillment, production, and inventory management processes. We will assume that all the storage locations involved in our discussion are warehouse managed.

PLAN WAREHOUSE MOVEMENT

A transfer requirement (TR) is a document that companies use to plan the movement of materials into and out of bins in a warehouse. In most cases the trigger is either an activity in inventory management or a need to transfer materials within a warehouse. The ERP system automatically creates a transfer requirement when an IM activity involving a warehouse-managed storage location occurs. The transfer requirement communicates data from the IM processes to the WM processes. Figure 7-19 illustrates the elements of the plan warehouse movement step.

Figure 7-19: Elements of the plan warehouse movement step

Data

Figure 7-20 highlights the data included in a transfer requirement. Master data include data about the materials and bins involved in the movement. Organizational data include the client, company code, plant, storage location, and warehouse number. Transaction data include the materials to be moved, quantity, date, transfer type (putaway, pick, or transfer), and the source of the requirement. The source is included when the requirement was not created manually and is typically a result of specific activity in IM such as a goods receipt.

Figure 7-20: Data in a transfer requirement

Tasks

The only task involved in this step is to create the transfer requirement. Although the ERP system is generally configured to create a transfer requirement automatically as a result of activity in IM, the requirement can also be manually created. In the case of a transfer posting, a posting change notice (explained below) is created instead of a transfer requirement. Posting change notices can be created either manually or automatically by the ERP system as a result of a transfer posting in IM.

Recall from previous chapters that IM activities occur in procurement, fulfillment, production, and inventory management processes. In procurement, when a goods receipt against a purchase order is created, a transfer requirement is automatically generated as well. Two steps in the production process can potentially generate a transfer requirement. First, when a production order is released, a transfer requirement for the materials needed for production is created. Then, when the materials have been produced and received into inventory, the receipt of finished goods (or semifinished goods) against the production order triggers a transfer requirement. In inventory management, the stock transfer process uses a transfer requirement. Planning a warehouse movement in fulfillment is a little different than in other processes. Recall that a delivery document is created in the shipping step of the fulfillment process to facilitate picking of materials. The delivery document serves as a transfer requirement and is used to plan the warehouse movement.

In the case of a transfer posting, however, the system creates a posting change notice rather than a transfer requirement. A posting change notice is a request to change the status of the material, for example, from in quality inspection to unrestricted use. Finally, a transfer requirement can be created manually to facilitate an internal movement of materials from one bin to another within the warehouse. Thus, the source of the requirement for warehouse movement is typically a material document or a production order, as illustrated in Figure 7-21 .

Outcomes

The outcome of this step is either a transfer requirement or a posting change request. Note that there is no financial accounting impact. In IM the FI impact occurs when a goods movement takes place. At that time, IM inventory is increased or decreased and the FI impact is recorded, as we discussed in the chapters on procurement, fulfillment, and production.

EXECUTE WAREHOUSE MOVEMENT

Figure 7-22 diagrams the elements of the execute warehouse movement step. Common warehouse movements include picking, putting away, and posting changes. The document that is used to execute these movements is the transfer order (TO). The creation of a TO is generally triggered either by a transfer requirement or by a posting change notice. However, TOs can also be created directly from delivery and material documents generated by other processes. Finally, they can be created manually to facilitate internal warehouse transfers.

Figure 7-22: Elements of the execute warehouse movement step

Figure 7-23: Data in a transfer order

Data

Figure 7-23 presents the data involved in a transfer order. The master data and organizational data are the same as those contained in a transfer requirement. If a reference document, such as a transfer requirement, is used, then data from this document are copied into the transfer order. The data in a transfer order include the material number, quantity, data, and transfer type. In addition, identifying the source and destination bins is necessary to execute a WM transfer. The source and destination bins are often proposed automatically by the ERP system. However, they can also be provided by the individual who is executing the transfer.

A transfer order consists of a header and one or more line items, as illustrated in Figure 7-24 . The header includes data that are applicable to all line items. Examples are the transfer order (TO) number, reference document number, dates, and warehouse movement type. Line item data include material number; source storage type, bin, and quant; destination storage type, bin, and quant; target quantities; and actual quantities moved. Note that a particular material can have more than one line item if the material has to be moved from multiple source bins or to multiple destination bins. This scenario can occur in the case of picking when there is insufficient quantity in one source bin and in the case of putaway when the destination bin is not large enough to hold all of the materials moved.

Tasks

The key task in the execute warehouse management step is the creation of a transfer order, with or without a reference document, as illustrated in Figure 7-25 . Transfer orders can be created either manually or by the ERP system. When they are created manually, the user selects the appropriate reference document or documents, verifies the data in these documents, and then creates the orders. When a reference document is not used, the user must provide all of the data that would have been contained in the reference document. The ERP system can create the TOs automatically, but only when a reference document exists. The system also can be configured to automatically create transfer orders from reference documents that meet certain criteria (e.g., transfer date). Finally, the system can be programmed to directly create transfer orders as soon as a material document or an outbound delivery for shipment to a customer is created.

Outcomes

The obvious outcome of this step is a transfer order. When the TO is created, the reference document used to generate it is updated to indicate that this step has been completed. In addition, the storage bin data for the source and destination bins are updated to note planned movements (an example of this is provided in the section on reporting later in this chapter). As in the case of a transfer requirement, creating a TO has no FI impact. The transfer order essentially is a transaction document that authorizes warehouse employees to physically move the materials from the source storage bin(s) to the destination storage bin(s) indicated in the document.

CONFIRM WAREHOUSE MOVEMENT

Generating a transfer order allows the warehouse employees to physically move the materials from the source bins to the destination bins. After the employees have completed this movement, they retrieve the transfer order and confirm the movement. The elements of the confirm WM movement step are presented in Figure 7-26 .

Figure 7-26: Elements of the confirm warehouse movement step

Data

Confirming the warehouse movement involves the same transfer order created in the previous step. Consequently, this step utilizes the same data concerning the materials being moved and the bins.

Tasks

Confirming the movement involves updating the transfer order to indicate that the movement was completed. The quantities moved from and to various bins are entered into the transfer order, and the order is saved. If all of the materials have been moved, then the step is complete.

Outcomes

When a confirmation of warehouse movement is recorded, the ERP system automatically updates the associated reference documents such as the delivery document, transfer requirement, and posting change notice to reflect the fact that the transfer of materials has been completed.

In this section we explained the warehouse management process in general terms. In the following sections we examine WM as it relates specifically to procurement, fulfillment, production, and stock transfers. We also review the financial and material impact of the various steps. We begin with procurement.

WAREHOUSE MANAGEMENT IN PROCUREMENT

To illustrate the warehouse management steps as they relate to procurement, we will use the following scenario. GBI wishes to increase the inventory of t-shirts in its San Diego plant. To accomplish this task, it has sent a purchase order for 1,000 t-shirts to its vendor, Spy Gear. Recall that we used a similar scenario in Chapter 4 . In this scenario, however, the materials are to be delivered to the San Diego plant, which is warehouse managed, rather than the Miami plant, which is not. We will assume that GBI has 500 t-shirts in stock. Figure 7-27 illustrates the inventory impact of the steps in the procurement process. It indicates that GBI has 500 t-shirts in storage location inventory and in the warehouse prior to the start of the process (column 2).

Figure 7-27: Inventory impact—procurement

	Prior to process execution	Plan warehouse movement - record GR - create TR	Execute warehouse movement - create TO	Confirm warehouse movement - confirm TO
Storage location	500	1500	1500	1500
Interim storage area	0	1000	1000	0
Warehouse bins	500	500	500	1500

Plan Warehouse Movement

Figure 7-28 diagrams the steps in the procurement process. The figure includes both IM activities and WM activities. The bottom part of the figure illustrates the physical movement. Recall from Chapter 4 that the procurement process involves a goods receipt from a vendor and that the materials are placed into a specific storage location. In our example, when GBI receives the 1,000 t-shirts from Spy Gear, the warehouse personnel place them in the interim receiving storage area and record a goods receipt into the trading goods storage location the ERP system. (You might want to refer back to the San Diego plant layout illustrated in Figure 7-10 and the discussion on storage types regarding the use of storage type 003, receiving, as the interim storage area for goods received.) The interim storage area is the physical link between the procurement and warehouse management processes. When the goods receipt is recorded, financial accounting and material documents are created, as explained in Chapter 4 . In addition, the system automatically generates a transfer requirement because the trading goods storage location is warehouse managed. The transfer requirement is created by an IM activity and serves as the information link between the procurement process and the warehouse management process.

A review of inventory at this point in the process (column 3 in Figure 7-27 ) will show that there are 1,500 t-shirts in the trading goods storage location—the initial 500 plus the 1,000 received from Spy Gear. Warehouse (bin) inventory is unchanged because the shirts have not yet been moved into the warehouse. Instead, inventory in the interim (receiving) storage area increases by the 1,000 t-shirts received.

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 specific 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.

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.

Confirm 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 confirm 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 storage 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 process (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 financial 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 fulfillment we will employ a different GBI scenario. Rocky Mountain Bikes (RMB), a GBI customer, has sent a purchase order for 50 bikes, which GBI will ship from the San Diego plant. Recall that we used a similar example in Chapter 5 . The significant 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 fulfillment process is executed. We depict this scenario in Figure 7-29 . Column 2 in the figure indicates the inventory status prior to process execution.

Figure 7-29: Inventory impact—fulfillment

	Prior to process execution	Plan warehouse movement - Create delivery	Execute warehouse movement - create TO	Confirm warehouse movement - confirm TO	At goods issue
Storage location	500	500	500	500	450
Interim storage area	0	0	0	50	0
Warehouse bins	500	500	500	450	450

Plan Warehouse Movement

Figure 7-30 illustrates the steps in the fulfillment 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 procurement process (IM) and the WM process, in fulfillment the delivery document serves this role. In our scenario, GBI first 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).

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 warehouse. Significantly, 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)

Confirm Warehouse Movement

After the TO is created, warehouse employees pick the bikes from the proposed 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 fulfillment 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 confirmed 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 document 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 fulfillment 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 inventory 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 inventory 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 procurement, the total warehouse inventory (bins plus interim storage area) is always equal to the storage location inventory.

Demo 7.7: Fulfillment 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 semifinished goods are issued to the production order) and a goods receipt (when finished 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 confirmed. The accompanying goods issue has all the financial 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 confirmed, the finished 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 confirmed. Meanwhile, the 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 initiated by stock transfers and transfer postings. We addressed these topics earlier in this chapter in the context of inventory management. Figure 7-32 illustrates five scenarios under which stock transfers involving warehouse movements can occur. The first four scenarios involve movement between two storage locations. 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 generated by the ERP system. The fifth 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.

The first 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 transfer 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.

The third and fourth scenarios involve a stock transfer between two warehouse-managed storage locations. Specifically, 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 fifth 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 generated 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 first 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 first four scenarios may result in a financial impact. If so, appropriate FI documents are created. In the last scenario, there is typically no financial 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 first 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

As the figure indicates, the order in which IM and WM activities are completed can vary from one scenario to another. Consider, for example, the scenarios 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 floor. 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 confirmed. 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

	Prior to process execution	IM activity (goods issue)	WM activity (confirm TO)
Storage location	100	75	75
Interim storage area	0	–25	0
Warehouse bins	100	100	75

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 finished goods from the production process are moved directly to bins in a warehouse. It is common in the case of repetitive manufacturing, where finished 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 confirmed. Goods issues are then periodically posted in IM to reflect 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 confirmed, 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 warehouse 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 location and interim storage areas, leaving a total of zero in the interim storage area.

Figure 7-35: Inventory impact when WM precedes IM

	Prior to process execution	WM activity (confirm TO)	IM activity (GR)
Storage location	100	100	125
Interim storage area	0	–25	0
Warehouse bins	100	125	125

Business Processes in Practice 7.3: The Virtual Truck Concept

Some of the office furniture products that Steelcase produces are too large to fit on racks or shelves and aren’t appropriate for pallet storage. To accommodate 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 confirms goods receipt automatically and then informs the workers which bin to store the goods in. When the bin (virtual truck) is filled 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 shipments per week in North America in this manner.

Source: Steelcase, Inc. Materials Planning Group

REPORTING

In this section we consider several examples of reports that contain information 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

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. Specifically, 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 putaway” 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 confirmed. 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 presented 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 materials 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.

CHAPTER SUMMARY

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, fulfillment, and production processes. Inventory management (IM) involves the movement of goods in and out of plants, and warehouse management (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 confirmed. 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 specific 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 finished goods are received from the shop floor 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 finished goods or trading goods to a customer against a sales order or an issue of raw materials or semifinished 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 transport 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. 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 storage that can be managed in WM. Each storage bin has a unique address which identifies it, typically based on a coordinate system.

Warehouse management is tightly integrated with the procurement, fulfillment, and production processes and can provide companies with a great deal of accuracy when managing large inventories of materials. There are multiple reporting options to view inventory status and activities across warehouses and plants from high-level activities to bin-level quantities.