Inventory and Warehouse Management Processes
Order ID:89JHGSJE83839 Style:APA/MLA/Harvard/Chicago Pages:5-10 Instructions:
Inventory and Warehouse Management Processes
222 CHAPTER 7 Inventory and Warehouse Management Processes
Headquartered in Grand Rapids, Michigan, Steelcase is the leading global workplace furniture manufac- turer 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 indepen- dent and company-owned dealers to market, deliver, and install many types of offi ce 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, fi n- ished goods. Steelcase orders raw materials through the procurement process, which are delivered directly to the manufacturing plants. The production process con- sumes the raw materials at the manufacturing plant, after which it ships the fi nished goods to the RDCs. The RDCs manage the logistics activities of the fulfi llment 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 effi ciently execute the fulfi llment process by balanc- ing the inbound fl ow 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 effi cient fl ow 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 fi nished goods. The warehouses at the manufac- turing plants store raw materials from the procurement process until these goods are consumed in the produc- tion process. They also store fi nished goods from the production process until they are consumed by the ful- fi llment process. In the best case scenario, raw materi- als are stored at the manufacturing plant only for a few hours before they are used in production, and fi nished 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 fi lled. They then pick, pack, and ship the fi nished goods to the customer.
Each Steelcase RDC receives daily shipment fore- cast reports from the manufacturing plants. The RDCs use these reports to plan space for shipments and to manage the logistics activities of the fulfi llment pro- cess. Customer orders are typically fi lled 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 cus- tomer shipments per day, with many more inbound deliveries from the manufacturing plants arriving simultaneously. This constant fl ow of inbound and out- bound 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 com- plex ballet with the IWM capabilities of SAP ERP.
Source: Steelcase, Inc. Materials Planning Group
Business Processes in Practice 7.1: Inventory and Warehouse Management at Steelcase, Inc.
In this chapter we will review and elaborate on the IM-related goods movements introduced in previous chapters. We will then discuss the orga- nizational data, master data, and processes associated with WM processes in the context of the procurement, fulfi llment, 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 creat- ing storage bins automatically.
INVENTORY MANAGEMENT Figure 7-1 illustrates the four goods movements involved in inventory man- agement. We have already discussed goods receipt (indicated with a “1” in the
CH007.indd 222CH007.indd 222 31/01/11 6:41 AM31/01/11 6:41 AM
Inventory Management 223
fi gure) in the context of the procurement and production processes. Similarly, we discussed goods issue (“2” in the fi gure) in the context of the fulfi llment 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 specifi c 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 asso- ciated with plants, which in turn are associated with company codes. Further, because inventory management is concerned with material movements, the material master—and, more specifi cally, 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
CH007.indd 223CH007.indd 223 31/01/11 6:41 AM31/01/11 6:41 AM
224 CHAPTER 7 Inventory and Warehouse Management Processes
company receives fi nished goods into inventory from the shop fl oor. Both of these movements result in the creation of material and fi nancial 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 inven- tory 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 fi rst 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 ref- erence 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 inven- tory. In the fulfi llment process, a goods issue indicates a shipment of fi nished goods or trading goods to a customer against a sales order. In the produc- tion process, a goods issue refl ects the issuing of raw materials or semifi nished goods to a production order. These materials are then used in the production process to create fi nished 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 produc- tion order. Some common cases in which such a goods movement occurs are issuing materials to scrap, sampling, and using the materials for internal con- sumption. 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 ren- ders 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 inspec- tion, 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.”
CH007.indd 224CH007.indd 224 31/01/11 6:41 AM31/01/11 6:41 AM
Inventory Management 225
A transfer posting is used in several other situations that do not necessar- ily 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 mate- rial. This process is common in industries such as pharmaceuticals and chemi- cals 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 occassionally 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 fi nancial position. There is no impact on the ven- dor’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 pro- duction 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 fi nancial impact—GBI now owes the vendor for the quantity of materials used—which is recorded in the general ledger using an appropri- ate movement type. (You might want to review our discussion of the invoice verifi cation 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 fi gure illustrates a stock transfer between two plants (A and B). Although not indicated in the fi gure, 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 fi gure illustrates a transfer between two storage locations in the same plant.
Regardless of the organizational levels involved, three options are avail- able 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.
CH007.indd 225CH007.indd 225 31/01/11 6:41 AM31/01/11 6:41 AM
226 CHAPTER 7 Inventory and Warehouse Management Processes
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 accom- plished 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 signifi cant time lag between issue and receipt.
By contrast, in a two-step procedure the two tasks are completed in separate steps. The fi rst step (issue) occurs when the materials are removed from storage. At this time the quantity of inventory is reduced at the supply- ing location and simultaneously increased by the same amount at the destina- tion 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 sta- tus). 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. Signifi cantly, 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 specifi c 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 mate- rial 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
Figure 7-2: One-step and two-step procedures
CH007.indd 226CH007.indd 226 31/01/11 6:41 AM31/01/11 6:41 AM
Inventory Management 227
documents are created, one at the time of issue and one at the time of receipt. The material document created during the fi rst 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 fi nancial accounting impact (and, therefore, FI doc- uments 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 move- ment from this location to the permanent location is accomplished via a stock transfer. Another possible scenario is when all materials received from a ven- dor must be inspected for quality before being placed in their permanent loca- tions. These materials are initially placed in the location where the inspection is performed. Like the staging area just discussed, this inspection area is des- ignated 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 specifi c 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 fi rst 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 observa- tion 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 val- ued 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 fi nancial accounting impact, and an FI document is created.
CH007.indd 227CH007.indd 227 31/01/11 6:41 AM31/01/11 6:41 AM
228 CHAPTER 7 Inventory and Warehouse Management Processes
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 inven- tory is reduced in the issuing plant (Plant A in the fi gure) 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 fi rst step (issue) and then changed into unrestricted use when the materials are actually received.
Plant-to-plant transfers, like storage location-to-storage location trans- fers, 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.
Figure 7-3: Stock transfer within a plant
CH007.indd 228CH007.indd 228 31/01/11 6:41 AM31/01/11 6:41 AM
Inventory Management 229
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 com- pany 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.
Figure 7-4: Plant-to-plant transfer
CH007.indd 229CH007.indd 229 31/01/11 6:41 AM31/01/11 6:41 AM
230 CHAPTER 7 Inventory and Warehouse Management Processes
When moving materials from one plant to another requires any of these capabilities, the company utilizes a process in which one plant essentially “pur- chases” 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 pur- chase 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, fulfi llment, and inventory management—depending on the specifi c scenario. In this section we discuss the following three scenarios: STO without delivery, STO with delivery, and STO with delivery and billing.
Inventory and Warehouse Management Processes
RUBRIC
Excellent Quality
95-100%
Introduction 45-41 points
The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.
Literature Support
91-84 points
The background and significance of the problem and a clear statement of the research purpose is provided. The search history is mentioned.
Methodology
58-53 points
Content is well-organized with headings for each slide and bulleted lists to group related material as needed. Use of font, color, graphics, effects, etc. to enhance readability and presentation content is excellent. Length requirements of 10 slides/pages or less is met.
Average Score
50-85%
40-38 points
More depth/detail for the background and significance is needed, or the research detail is not clear. No search history information is provided.
83-76 points
Review of relevant theoretical literature is evident, but there is little integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are included. Summary of information presented is included. Conclusion may not contain a biblical integration.
52-49 points
Content is somewhat organized, but no structure is apparent. The use of font, color, graphics, effects, etc. is occasionally detracting to the presentation content. Length requirements may not be met.
Poor Quality
0-45%
37-1 points
The background and/or significance are missing. No search history information is provided.
75-1 points
Review of relevant theoretical literature is evident, but there is no integration of studies into concepts related to problem. Review is partially focused and organized. Supporting and opposing research are not included in the summary of information presented. Conclusion does not contain a biblical integration.
48-1 points
There is no clear or logical organizational structure. No logical sequence is apparent. The use of font, color, graphics, effects etc. is often detracting to the presentation content. Length requirements may not be met
You Can Also Place the Order at www.collegepaper.us/orders/ordernow or www.crucialessay.com/orders/ordernow