Physical Inventory

Physical Inventory Process

This process captures different ways of carrying out physical inventory count in a plant / storage
location. Depending upon the number of materials and company’s inventory norms, a physical
inventory procedure is adopted. Following two procedures are more commonly used in industry:

 Cycle Counting
 Periodic Inventory (usually Annual Inventory count)

In Annual physical inventory, all materials are counted once in a year on a pre-determined date.
On this date, all materials are blocked for any inventory movement till the physical inventory
count is complete. This is more common for Plant / Storage locations which do not hold too
much inventory. For warehouses with a lot of inventory, this method tends to become impractical
to implement.

In cycle counting, all materials need not be treated the same way. It allows fast moving materials
to be counted more frequently than slow moving materials or high value items to be counted
more frequently than low value items. A cycle counting indicator is set in material master which
determines for a given plant, how frequently the material has to be counted, as in, once a year,
twice a year, thrice a year and so on.

SAP process flow:

1. MI01 – Create Phsical inventory document : Initial screen
2. MI22 – Display Physical Inventory Documents for material
3. MI21 – Print physical inventory document
4. MI04 – Enter inventory count: Initial screen
5. MI20 – List of Inventory Differences
6. MI11 – Enter recount: Initial screen
7. MI22 – Display Physical Inventory Documents for material
8. MI21 – Print physical inventory document
9. MI04 – Enter inventory count: Initial screen
10. MI20 – List of Inventory Differences
11. MI07 – Post inv. Differences: Initial screen

While creating physical inventory document in Step 1, material can also be blocked for posting.
Otherwise transaction MI32 can be used after Step 1 to block the materials.

Steps 6 to 10 above are optional. If re-count is required then only these steps need to be carried
out. Step 11 creates a material document, which leads to updating of SAP book inventory. In
other words Step 11 leads to write-on or write-off of inventory based on physical inventory
count.

SAP also provides T Codes to automate the process carried out in Step 1. By these transactions
Physical Inventory Documents can be created in background in batch processing mode. MI31
enables creation of Physical inventory documents in bulk based on selection parameters for
Periodic Inventory Count. Similarly MICN enables bulk creation of physical inventory
documents for Cycle Counting.

There is an alternate ways of processing inventory count, where inventory data can be entered
without reference to any physical inventory document, as mentioned below:

 MI09 – Enter count w/o reference to document: Initial screen

 MI20 – List of Inventory Differences
 MI07 – Post inv. Differences: Initial screen

Master Data Setting – Cycle Counting

 In Material Master Plant data / stor. 1 view maintain the “CC phys. inv. Indicator”.
 MIBC – “ABC Analysis for Cycle Counting (Phys. Inv.) can be used to assign materials
to different cycle counting categories viz. A, B, C and D. This transaction analyses the
materials based on the configuration of category A, B, C and D and proposes / assigns a
corresponding cycle counting indicator.
 If “CC fixed” indicator is checked in Material Master Plant data / stor. 1 view, “CC phys.
inv. Indicator” cannot be changed by running MIBC.

Master Data Setting – Periodic Inventory

 In Material Master Plant data / stor. 1 view, “CC phys. inv. Indicator” should be blank.

The above two processes can also be used to count physical inventory of special stocks such as
Consignment Material as well as different stock types like Quality Inspection Stock and Blocked
stock.

To count physical inventory for say consignment material, maintain “K” in special stock field in
the physical inventory document. To include different stock types like Quality Inspection Stock
and Blocked stock in physical inventory process, you need to enter a new line for the same
material in physical inventory document for each stock type.