Inventories are the most significant part of production. If a business has no inventories, there is nothing to profit from, produce, or market. The amount of inventories proximate to the total assets differs with the core of the business nature. So, without appropriate management, profitability, productivity, and sustainability will make organizations and companies suffer a lot. It brings the need for inventory management.
SAP or System Applications and Product caters to a marketing tool that helps financial planning, risk management, and inventory management. SAP Inventory Management is a vast topic. From this article, you will get to know the definition and several concepts for SAP Inventory Management.
What is SAP Inventory Management?
SAP Inventory Management is complete wireless inventory management that helps manages inventory flow for maximum organizational productivity. The term practice brings the following processes to the SAP Inventory Management strategy:
- Monitoring data: It helps to acquire knowledge of the inventory classes and their changes as time goes on.
- Analyzing data: The strategy helps to develop action items based on the inventory data.
- Managing action items: It involves specifying the action items for the team.
SAP Inventory Management renders the tools to improve and handle inventory statuses and productively fill customer orders. It also helps track the action of materials using mobile devices having the scanning functionality.
If the mobile application has access to the SAP Enterprise Asset Management (EAM) solution, it will empower us to provide our warehouse management staff and mechanics to perform stockroom operations in an automatic and seamless mode.
The ease of operation assures that we keep our valuable parts and spares under proper management and efficiency and are ready to respond.
What is Goods Movement?
Goods movement is an essential characteristic of port planning and functions. The transportation method helps move freight from its production source to consumption points. In more simple words, in SAP, goods movement means placing or shifting goods or materials from one place to another.
Structure of the Goods Movement:
In the Warehouse Management system (WMS), a goods receipt is the inbound movement of goods or products into the warehouse physically. A goods receipt improves the growth of inventory in warehouse stock.
In the Warehouse Management system (WMS), a goods issue is the outbound movement of goods or products into the warehouse physically. A goods issue can cause a reduction in warehouse inventory.
A stock transfer is the deduction of goods from one warehouse spot and its transfer to another warehouse spot. Stock transfers can transpire either within the same factory or between two factories.
A transfer posting is a well-known term for stock transfers and changes in a stock category or stock class of goods. It is extrinsic whether or not the posting occurs in concurrence with the physical movement of inventories.
What is Physical Inventory?
Physical inventory is a method of defining whether the quantities of the inventories are exact or if there are discrepancies in the product's quantity. Generally, after the physical inventory process gets completed, we should check the system and the physical stock statuses that must be the same.
We can carry out the Physical inventory for the following types of stock:
- Unrestricted stocks in the warehouse
- Blocked stock
- Quality inspection stock
- Stock type 1 covers both the restricted and unrestricted use stock if batch status management is active.
What is inventory, and why do companies need it?
Inventory is an essential business module. Companies take inventory to know how much they have on hand at a particular moment. In SAP, Inventory is a business asset.
It has significance in business management. Most importantly, its most significant value is that we can sell it to earn money. It also has importance because we can use it as collateral to acquire a business loan to buy more inventories or pay our bills.
The price of selling our inventory, called the cost of goods sold, is essential for our business. It includes the buying cost of the goods and raw materials. It also includes costs of storing (warehousing) goods, shipping products to consumers, managing a storage warehouse or facility, and hiring individuals to work in the warehouse.
Flow of Materials of Inventories in SAP:
We can group the inventory types into four classifications based on the flow of materials across the supply chain are as follows:
- Raw Materials
- Finished Goods
- Maintenance, Repair, and Operation (MRO) Goods
- Work in Progress (WIP)
Types of Inventory:
Following are the types of inventories in SAP:
- Safety Stock and Anticipation Stock
- Cycle Stock
- Pipeline Stock
- Merchandizing Stock
- Prebuild Stock
A company depends on inventory management to estimate balance accounts and current assets and provide financial information. Also, it is essential to maintain the right stock in a warehouse to bear a sudden rise in the market. A good grip over the goods helps us offer more appropriate customer service.
Some reasons why companies maintain raw material inventory are as follows:
- To take benefit of Quantity Discounts and Price Increases
- Companies need to hold High demand and Long Lead Goods need in inventory
- Inventory Management caters to Seasonal Demand and Cyclical
- To Meet variation in Production Demand
- Reduce Transit Cost and Transit Times
Role and Importance of Inventory Management in SAP
The role of Inventory Management is as follows:
- It helps to focus on managing and streamlining product storage and fulfillment
- It serves as a tool in the management of material stocks on the quantity and value basis
- It helps in planning, access, and documentation of all Goods Movements
- It helps promote customer satisfaction by uniting stock investments with service goals throughout the supply chain.
The importance of Inventory Management is as follows:
- Gain Supply Chain Insights: Leverage the more in-depth understanding of operational data to decrease inventory levels and increase working capital.
- Cloud-based Benefits: Inventory Management uses a cloud-based deployment method to update and backup documents and conduct necessary operations in offline mode.
- Improve Customer Satisfaction: It provides a way to track and organize goods to help consumer access real-time information on their packages.
- Cut Costs: Improved inventory management and goods planning cut back on costs and control the stock out situations.
What are the advantages (pros) and disadvantage (cons) of using an Inventory Management System?
Following are the advantages of using the Inventory Management System:
- Eliminates wastages in the use of material
- It decreases the chances of loss from forgery and theft.
- It helps maintain perpetual inventory and other documents to facilitate the preparation of precise goods reports management.
- To facilitate the capital tied up in inventories.
- It diminishes the cost of storage.
Following are the disadvantages of using the Inventory Management System:
- Expensive for Small Businesses
- Complex to Learn
- Risk of System Crashes
- Malicious Hacks
- Reduced Physical Audits
What is MRO Inventory in SAP?
MRO is short for Maintenance, Repair, and Operations. Companies or organizations commonly use this for defining materials used in a manufacturing or process plant. Some examples of MRO items can be spare parts, such as valves, bearings, or v-belts. We can consider all of these as MRO materials or Indirect Materials.
Maintenance, Repair, and Operations can be either an internal operation or a service. We can manage the MRO for our equipment. Or we can also render it as a service to our customers.
We hope this article has catered to an crisp idea about SAP Inventory Management and its advantages and practices. Companies take the help of this SAP tool to boost their business growth. It helps them cater to their customers with products to reach the maximum profit and manage inventories.