Inventory and Warehouse Management Processes
Chapter 7 Overview
Introduction to Inventory and Warehouse Management (IWM)
Concerns the storage and movement of materials within an organization.
Closely related to procurement, fulfillment, and production processes.
Recap of Previous Chapters
Chapter 1: Introduced inventory and warehouse management processes.
Chapter 4: Introduced key activities in inventory management, specifically goods movement:
Goods Movements: Goods receipt, goods issue, stock transfer, transfer posting.
Discusses specific movement types.
Focused on simpler processes of inventory management.
Objectives of Current Chapter
Review and elaborate on IM-related goods movements from previous chapters.
Discuss organizational and master data associated with warehouse management processes.
Highlight linkages between inventory management and warehouse management.
Conclude with a discussion of reporting options.
Appendix 7A: Discusses procedures for automatically creating storage bins.
Case Study: Steelcase, Inc.
Company Profile
Headquartered in Grand Rapids, Michigan.
Leading global workplace furniture manufacturer.
Approximately 11,000 employees and total revenues of approx. $2.3 billion (FY 2010).
Operates through over 650 dealers for delivery and installation of office furniture.
Manufacturing and Distribution Operations
Manufacturing operations across North America, Europe, and Asia.
Specifics in North America:
10 manufacturing plants and 6 regional distribution centers (RDCs).
Each plant has a warehouse for raw materials and finished goods.
Procurement Process
Raw materials are ordered directly for manufacturing plants.
Production uses raw materials and ships finished products to RDCs.
Logistics Activities
RDCs manage fulfillment logistics, including shipment planning and loading.
Objective: Optimize warehouse space, balance inbound and outbound flows.
IWM Capabilities via SAP ERP
Extensive use of IWM capabilities to monitor and manage goods flow.
Different IWM processes for raw materials vs finished goods.
Goods Movements in Inventory Management
Goods Movement Types
Goods Receipt
Involves movement of materials into inventory; increases inventory.
Occurs during procurement (raw materials from vendors) and production (finished goods from shop floor).
Generates material and financial accounting documents.
Placement in storage location with status (unrestricted use, quality inspection).
Goods Issue
Results in a decrease in inventory; indicates shipment to customers against sales orders.
Can also involve issuing materials to production orders.
Generates necessary documentation (material, FI, CO documents).
Unplanned goods issues can occur without reference documents for events like scrap, sampling, or internal consumption.
Transfer Postings
Change the status or type of materials in stock without physical movement.
Four common statuses: unrestricted use, quality inspection, blocked, in transit.
Includes scenarios like material-to-material posting or changing vendor-owned inventory status.
Stock Transfers
Physically move materials between organizational levels.
Scenarios include moving between storage locations within one plant, plants in one company code, or different company codes.
Two procedures: one-step and two-step, eventual creation of material documents during movements.
Financial accounting impact depends on organizational levels.
Warehouse Management Processes
Organizational Data
Key unit: Warehouse, with specific links to storage locations across plants.
Rules for linking warehouses to storage locations include:
A warehouse must link to at least one storage location.
Each storage location can link to only one warehouse.
Warehouse Structure
Division into storage types, sections, and bins.
Storage Type: Division based on characteristics (e.g., rack storage, hazardous storage).
Storage Section: Group of similar characteristics (e.g., fast-moving, slow-moving materials).
Storage Bins: Final physical areas where materials are stored with unique addresses based on a coordinate system.
Warehouse Management Unit of Measure
Different from base unit (e.g., managing in boxes instead of individual units).
Warehouse Management Process Steps
Plan Warehouse Movement
Transfer Requirement (TR): Document created to plan movements, typically triggered by IM activities.
Includes details like materials involved, quantity, bins, and sources of requirement.
Execute Warehouse Movement
Transfer Order (TO): Document used for executing transfers. Triggered by a transfer requirement.
Data involved includes material numbers, quantities, and source/destination bins.
Confirm Warehouse Movement
After materials are moved, TO is updated with quantities and locations.
Associated reference documents are updated post-confirmation.
Integrating Warehouse Management in Various Processes
Procurement Process Example
Steps include creating an outbound delivery, generating transfer requirements, picking, and confirming warehouse movements. All steps generate financial and material documents.
Fulfillment Process Example
Involves generating a sales order, creating outbound delivery, and moving goods from warehouse to shipping area.
Tests the relationship between IM and WM processes effectively.
Production Process Example
Goods issues for materials and goods receipts for finished goods trigger WM steps.
Stock Transfer Example
Scenarios requiring stock transfers versus transfer postings delineate complexities.
Reporting in Inventory and Warehouse Management
Various reporting options available:
Status reports for inventory and transfer orders.
Detailed reports on bin statuses and quants in storage bins.
Enable tracks of movements and quantities efficiently.
Summary
Core Functions of IWM: Managing storage and movement of materials closely linked to procurement, fulfillment, and production.
IM Functions: Includes goods movements, financial impacts, and various procedural actions across organizational levels.
WM Concept: Involves warehouses managing material flows with stringent inventory tracking systems.
Comprehensive Reporting: Allows firms to manage inventories from high-level views down to specific bins and materials effectively.
Learning Outcome Questions
Question 1:
Goods Receipt
Involves movement of materials into inventory, increasing inventory levels.
Example: A manufacturer receives a shipment of raw materials from a supplier. Upon arrival, the materials are logged and placed in a designated storage location, classified as 'unrestricted use.'
Goods Issue
Results in a decrease in inventory, typically indicating shipment to customers or issuing materials to production orders.
Example: A bakery receives a sales order for a dozen cakes. The bakery retrieves the necessary ingredients from inventory, thus generating a goods issue documentation to reflect the deduction in available stocks.
Transfer Postings
Change the status or type of materials in stock without physical movement, affecting inventory records.
Example: An electronics company reclassifies some of its returned goods from 'quality inspection' to 'blocked' status, indicating they are not available for sale until further inspection. This is documented as a transfer posting without any actual movement of goods.
Stock Transfers
Physically move materials between organizational levels or locations, which can involve multiple storage locations.
Example: A car manufacturer transfers engines from the assembly plant's storage area to a distribution center located in another city. This stock transfer could involve either a one-step procedure (direct transfer) or a two-step procedure (documenting the offloading at the original location and then an inbound creation at the destination).
Question 2:
Storage Location-to-Storage Location Transfers
Involve the movement of materials between different storage locations within the same plant.
Example: A car manufacturer transfers engines from the assembly plant's storage area (e.g., Engine Bay A) to a different storage location (e.g., Engine Bay B) within the same facility to optimize space or inventory levels.
Plant-to-Plant Transfers
Physically move materials between different plants within the same company code.
Example: A beverage company with multiple manufacturing plants may transfer a specific flavor concentrate from its plant in Atlanta to another plant in Chicago to satisfy demand in that region.
Company-to-Company Transfers
Occur when materials are moved between plants that belong to different company codes.
Example: A multinational electronics company with subsidiaries may transfer components from its manufacturing plant in Mexico to its assembly facility in Canada for final product assembly.
These different types of transfers help organizations manage their inventory effectively, ensuring that materials are available where they are needed most while minimizing excess stock in any one location.
Question 3:
Stock transport orders (STOs) facilitate the physical movement of materials between different organizational units, such as plants or warehouses, while also documenting the transfer process. They serve as a critical link in the inventory and warehouse management (IWM) process by ensuring that materials are moved efficiently and tracked adequately.
With Delivery
Example: A beverage company operates multiple manufacturing plants. If a plant in Atlanta needs a specific flavor concentrate that is only available in a plant in Chicago, a stock transport order is created.
The STO includes:
The requested quantity of the flavor concentrate.
Source plant (Chicago) and destination plant (Atlanta).
A delivery document for transport.
Upon completion, the flavor concentrate is shipped to Atlanta, and the STO updates inventory records to reflect the transfer.
Without Delivery
Example: An electronics company plans to allocate some of its finished goods held in stock at its main distribution center to its secondary facility for future needs without immediate shipping.
A stock transport order is created to document the need for this allocation without involving actual delivery at this stage.
When inventory levels might be adjusted later, the internal records are updated accordingly without the physical movement of goods at that time.
Question 4:
The inventory and warehouse management process is crucial for organizations to ensure efficient handling of materials. Below is a summary of the stages of this process, illustrated through the example of a hypothetical furniture manufacturing company called "FurniCo."
Planning Warehouse Movement
Example: FurniCo monitors its stock levels and forecasts demand based on incoming orders. This leads to the creation of a Transfer Requirement (TR) document to plan the movement of finished goods from the production area to the shipping area.
Executing Warehouse Movement
Example: Once the TR is approved, a Transfer Order (TO) is generated. FurniCo now organizes the transfer of sofas from its production line to the designated storage bins in the shipping area. This includes specifying material numbers, quantities, and source/destination bins for the transfer.
Confirming Warehouse Movement
Example: After the transfer of the sofas is completed, the warehouse team updates the TO with the actual quantities moved and confirms the new storage locations. This confirmation triggers updates to associated reference documents and adjusts inventory records to reflect the changes accurately.
FurniCo's Example Walkthrough:
FurniCo plans to ship a bulk order of sofas to a chain of retail stores.
They assess their finished goods inventory and determine they need to move 200 sofas from the production line to the shipping area.
The planning stage involves creating a TR that specifies the number, type, and urgency of transfer required.
In executing the movement, the staff completes a TO for the transfer, ensuring to include accurate details about the specific models and quantities.
Upon physically moving the sofas, the warehouse staff confirms the movement in the system, ensuring that all counts and locations are accurately updated in the inventory, so FurniCo can manage their stock effectively as they fulfill the retail order.