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SAP IM vs.

WM: How to Choose, Use, and Optimize


Gavin Klaus Catalyst International, Inc.

What Well Cover


> Understanding the difference between WM and IM > Choosing between WM and IM > Optimizing and overcoming limitations with IM and WM

Inventory Management (IM)


> Key features/strengths
Inventory management by quantity
Visibility of on-hand quantity by storage location Management of special stocks

Entry and documentation of all material movements


Real-time updates of inventory Documentation of all receipts, issues and transfers

Physical inventory
Carry out physical inventory at the material level Perform inventory adjustments

R/3 Inventory Management (IM) (cont.)


> Key features/strengths (cont.):
Inventory management by value
Postings update account assignments for cost accounting Updates G/L account for financial accounting

Key integration points


Integrates directly with MRP, purchasing and invoice verification Provides information for MRP, updates PO; used to check conformity during invoice verification

Real-time updates
When transactions are entered, the results the stock updates real time to reflect actual changes

Organizational Structure at the IM Level


SAP Organizational Structure

Client Company Company Company Plant

SLoc

SLoc

SLoc

Challenges with Inventory Management


> Lack of detailed visibility to material flow
e.g. When the delivery pick list is generated, the deliverys actual pick quantity is updated prior to actual picking Requires manual updates when quantities differ

> Inability to assign incoming materials to outbound demand to avoid multiple material handling
continued...

Challenges with Inventory Management (cont.)


> Immediate update of inventory receipts and issues
System inventory and status NOT representative of the physical process

> Limited visibility to locations of materials


Only possible to assign a single fixed bin location per storage location Bin location is text only; no strategies are available

Solution: R/3 Warehouse Management


> Initially released with R/2 as an Extension of IM
IM-WM integration is real-time and automatic

> Enables granular traceability and control


Ability to synchronize the system and material flow Simple-to-complex placement and removal strategies Assignment of inbound orders to outbound deliveries Allocation of storage bins

> Processing of all stock movements valid for WM


Receipts, issues, transfers Utilizes stock placement and removal strategies
e.g. Next empty bin, addition to stock, FIFO, LG/SM qtys.

Solution: R/3 Warehouse Management (cont.)


> Infancy to maturity
Functionality considerably expanded with 4.6x and higher
Two-step picking, two-step confirmation, managing multiple storage locations with a single warehouse

Extension set 2.0 for Enterprise to include Cross Docking, Yard Management, Value Added Services

WM Picks Up Where IM Leaves Off


Company Plant 1 Stor. Location 1 Warehouse1 Stor. Type 1 Bin 1 Stor. Type 2 Bin 2 Stor. Type 3 Stor. Location 2 Warehouse 2 Stor. Type 1 Plant 2 Location 1

IM Level WM Level

Quant Quant Quant Quant

Typical assignment is one storage location to one warehouse It is possible to have multiple storage locations managed by a single warehouse

Key WM Features
> Management of materials
Provides bin-level tracking Inventory management functions Various placement and removal strategies

> Value-added services


e.g. Special handling requirements (labeling, packaging)

> Powerful picking control


Two-step picking, wave picking FIFO, LIFO, large/small quantity picking strategies

Key WM Features (cont.)


> Warehouse activity monitors
WAM, RF Monitor, outbound delivery monitor, wave picking monitor, TRM Monitor, Yard Management Cockpit, CrossDocking Monitor

> Cross-docking
Management of inbound and outbound movements Appointment scheduling, check in and check out, assignment of dock doors, loading/unloading activities

> Yard Management

> Task Resource Management


Enhances WM by breaking work down into distinct task

WM Integration With Other Key R/3 Modules (cont.)


Fully Integrated with the other SAP Applications Features: Flexible Warehouse Structures Goods Movements Control Inventory

Source: SAP WM [LO530]

WM Integration With Other Key R/3 Modules (cont.)


> IM-WM
Processing of all material movements Automated communication with configurable processing

> SD-WM
Two-step picking with SD-WM integration Wave picking opportunities Processing individual deliveries

> PP-WM
Production support with PP-WM integration Supplying materials to the shop floor Internal and external automated replenishment options

WM Integration With Other Key R/3 Modules (cont.)


QM-WM
Handling of inventory samples Inspection lot is maintained with the material data

Hand-held terminals-WM
Processing of transfer requirements Processing of transfer orders Bin and material inquiries

Benefits of WM
> Benefits
Better control of inventory
More accurate inventory Able to maintain lower inventory levels

Better control of information


Visibility to picking and put away status

Reduced cycle time


Gartner: 16-25% Picking Productivity Improvement

Better manage work and workforce to gain efficiencies


Tools to balance and optimize resources

Increased picking / shipping accuracy


11-25% Reduction in Customer Returns

Benefits of WM (cont.)
> Measurable benefits
16-25% Picking Productivity Improvement 11-25% Reduction in Customer Returns 10-25% Savings in Material Handling Labor 10-40% Space Utilization Improvement 13-30% Reduction in Scrap 8-15% Reduction in Carrying Costs

Source: Gartner Report

What Well Cover


> Understanding the difference between WM and IM > Choosing between WM and IM > Optimizing and overcoming limitations with IM and WM

When Is Inventory Management the Answer?


> IM is great when...
Small facility Lower levels of inventory on hand Simplistic material handling processes Lower volume of activity Outsourced warehouse operations
Only need storage location or bucket of inventory visibility

Key Elements With IM


> Required data for IM
Plant, valuation and storage location data

> Relevant data for IM


Work scheduling, accounting, materials planning, purchasing, classification, storage and quality management

> IM menu
Goods movements Material documents Reservations Environment
Focused on reporting, lists and LIS

When is Warehouse Management the Answer?


> WM is great when
Larger facilities Large number of materials on hand Higher volume or flow through Traceability and visibility is critical
Track material flow, status, inventory levels

Complex processes
Automated systems, wide spread site

Key Elements With WM


> Extend material master
Warehouse management view No required data

> Define warehouse structure


Minimize the number of storage types
Define based on similar and different rules for storing materials
Mixed stock, Storage or Handling Unit Management

> Define the WM Processes


Automatic, semi-automatic and manual processing
Transfer order creation, confirmation, posting changes

Evaluating IM vs. WM
> 1 Define business processes > 2 Evaluate ROI of a WMS solution > 3 Consider RF functionality > 4 Training resources and schedule > 5 Focus on optimization opportunities

Step 1 - Define Business Processes


> Start with receiving, inventory and pick/ship first
Create and evaluate process flow charts Look at process improvement opportunities Score the level of complexity

> Target areas for improvement


Reduce travel time Inventory accuracy Reduce material handling

> Map improvements to IM and WM functionality

1 - Define Business Processes (cont.)


> The level of functionality that customers need in a WMS is completely dependent upon their environment. Customers have to define their needs before they can realistically look for a WMS.
Source: Integrated Solutions

Step 2 - Evaluate ROI of a WMS Solution


> Measure productivity and accuracy before and after the WMS installation > Review and analyze picking operations
Key area of improvement

> Review and analyze inventory accuracy


When supported with RF, accuracy can reach >98%

2 - Evaluate ROI of a WMS Solution (cont.)


> There is no right time for paying back a WMS, but typical paybacks are within six to 18 months, depending on the inefficiencies of the current operation and how much safety stock was needed to cover daily operations.
Source: Total Supply Chain

Step 3 - Consider RF Functionality


> RF supports improves warehouse bin accuracy
Bin accuracy >98% is possible

> Reduces order fill process cycle time > RF projects often have a 1 year or less payback period
Source: Intermec

Compare current receipt process to the time saved when the task is aided by automatic data collection (ADC)

3 - Consider RF Functionality: Example


> As-is
1,000 pallets at five minutes / pallet = 5,000 minutes

> With two minutes saved per pallet


2 minutes * 1,000 pallets = 2,000 minutes 2,000 / 480 minutes worked by each receiver per day = 4.16 receivers saved from the pallet receiving process

Step 4 - Training Resources and Schedule


> Resources to evaluate, guide and support a WM solution
A full-time, dedicated WM resource is critical This may or may not be the same IM resource

> Training schedule


A WM solution will require a certain level of IM training WM training will vary based on the degree of functionality

> Support resources


Consider a single resource for IM and WM if possible

5 - Optimization Opportunities
> Picking operations and inventory accuracy
What are your baseline requirements What is the volume of activity Evaluate picking paths and demand Look at your accuracy numbers over a period of time
Perhaps monthly, quarterly, annually

> Material handling labor costs > Space utilization improvements > Packing tasks
Can you benefit from packing while picking

What is the BEST Stock Management Solution?


> 1 - Inventory Management > 2 - Lean Warehouse Management > 3 - Full Warehouse Management > 4 - Decentralized Warehouse Management

Option #1 - Inventory Management


> Pros
Simplistic
Key receipt, issue or transfer in a single step transaction Immediate update of inventory

Requires less training commitment


Fewer transactions to document and present

Trace-ability of all material postings into SAP R/3


Date, user, material, quantity, storage location

Real-time update of accounting information

1 - Inventory Management (cont.)


> Cons
Does not handle complex warehouses operations well
Unable to monitor activities Lacks tools to manage resources and tasks Lacks functionality to optimize key processes (picking)

Inaccurate system inventory


Inventory updated before the physical movement Requires additional work if there are discrepancies

Limited trace-ability
Only visibility is when the system posting took place No visibility to the follow on physical activities

Option #2 - Lean Warehouse Management


> Use of very small portion of WM capabilities
You do not process goods receipts or issues as a subsequent process in WM, No storage bins are managed in the WM application

> Evolved from SD pick list > Put-away and pick from 1 or more fixed bins > Bin is hard assigned on material master > TOs are created for picks and put away, and pick list is created from TOs

2 - Lean Warehouse Management (cont.)


> Pros
Requires less configuration than full WM Reduced number of steps in the process
Use of transfer orders as pick lists Confirmation is not required

Additional processing options


Confirm put-away, picking, over-deliveries, shortages, batches Print transfer orders Integration to HR

Additional picking functionality


Wave picking is possible with Lean WM

2 - Lean Warehouse Management (cont.)


> Cons
Must have a fixed bin assigned for all materials
Random storage is not possible

Inventory is still under IM functionality only


Inventory options are at the storage location Stock differences can only be processed in MM-IM

Lacks additional optimization opportunities


Picking, packing, bin accuracy

No strategies are used


Lack of picking and put away strategies

Option #3 - Full Warehouse Management


> Pros
Optimization opportunities
Picking - Two step picking Packing - Pick and pack in a single step Cross-docking - Inbound, outbound, prod. materials

Monitoring and real time visibility to process status


Visual queues at the detailed steps Open tasks, completed tasks

Additional inventory methods (annual, zero stock) The module is FREE with the purchase of SAP

3 - Full Warehouse Management (cont.)


> Cons
Inventory counting interferes with operations without RF
Prior to 4.7 extension set 2.0

Initial overhead to set up depending on design


Master data
Capacity checking, control cycles

Configuration requirements
Designing the warehouse layout and set up

Potential for additional steps to support processing


Confirmations Clearing differences Processing posting changes

Option #4 - Decentralized Warehouse Management


> Use of SAP as a standalone WMS
With SAP or other ERP/host as the core system Core system and decentralized WM run on separate machines

> Communication is through BAPIs for transactions and IDOCs for master data > Goods movements done through delivery notes to the stand-alone SAP WM system

4 - Decentralized Warehouse Management (cont.)


> Pros
On a separate machine
Decreases criticality of down time 24x7 operation

Can leverage newer SAP R/3 releases


Even if core system is on an older release

Can add additional warehouses without impact to the core system Can communicate to multiple core ERP systems

4 - Decentralized Warehouse Management (cont.)


> Cons
Core system is not 24x7 operation
IDOC and/or BAPI errors

IDOC failures
Human intervention is required to work the error queue

IDOC overhead
IDOCs do not offer all of the available field options that a user may or may not use with the PC transaction Must modify the IDOC

SAPConsole has to be set up in the decentralized system and in the core system

Scaling the Solution


TRM

Decentralized WM
Transaction Volume

WM IM Only Lean WM

Operational Complexity

What Well Cover


> Understanding the difference between WM and IM > Choosing between WM and IM > Optimizing and overcoming limitations with IM and WM

Optimizing and Overcoming Limitations With IM and WM


> 1 - Physical Inventory tips > 2 - Enhance visibility of material flow and locations > 3 - Automate picking and put-away > 4 - Automatically replenish fixed bins > 5 - Consolidate your picking activities > 6 - Overcome bottlenecks with RF

1 - Physical Inventory Tips (IM)


> Only possible if the storage location data has been maintained
Solution: Activate automatic storage location for movement types that receive material into the plant
Avoids the need to create storage data manually

> For materials with multiple storage location reqmts.


Use the mass creation option for entering all valid storage locations at one time into a single entry screen
Transaction code = MMSC

2 - Enhance Visibility of Material Flow and Locations (IM)


> Use fixed bin assignment to gain additional visibility
Material master storage location view

> Two-step transfers vs. one-step movements


Storage location-to-storage location (movements 313, 315) Plant-to-plant (movements 303, 305, 351, 352)

> Outbound delivery monitor


Use to view outbound deliveries, shipments and loading activities

3 - Automate Picking and Put-away (WM)


> Define a picking strategy per storage type
A - Partial quantity management
If picking results in partial quantities, pick from here first to avoid breaking new pallets

M - Large/small quantities included


Use to facilitate larger quantity picks from bulk areas and smaller quantity picks from rack areas

P - Fixed bin from material master


For fast moving items, assign a dedication location toward the front of the warehouse Use replenishment to enough maintain stock for demand

3 - Automate Picking and Put-away (WM) (cont.)


> Define a put away strategy per storage type
AVOID manual put away practices C - Open storage
Use for large items that dont require a specific bin assignment

I - Addition to existing stock


Useful for consolidating receipts of the same material upon put-away
Caution: Since only one quant resides in a bin, all materials in the bin adopt the same receipt date (unless batch or storage unit managed)

3 - Automate Picking and Put-away (WM) (cont.)


> Define a picking strategy per storage type (cont.)
L - Next empty bin
Great fit for high rack storage; whereby a standard rack section can hold 2-3 units of storage Useful for storing pallets of material; one pallet per bin location

4 - Automatically Replenish Fwd. Picking Locations (WM)


> Batch program
A scheduled job to read fixed bin data and generate replenishment transfer orders 2 required programs
RLLNACH1 RLAUTA10

> Upon transfer order confirmation option


Creates an automatic replenishment TO when a pick confirmation drives the fixed bin location below the min. stock level

5 - Consolidate Your Picking Activities (WM)


> Two-step picking
Based on selection criteria, relevant deliveries are read and like material requests are collected This collection results in a single aggregated picking order and task for each like material (first step)
TO splitting can be leveraged to distribute large picks

The second step is the re-allocation procedure


This is the process of re-assigning the specific materials and quantities back to the original requirement

Reduces duplicate picking efforts Cuts order fulfillment cycles

6 - Overcoming WM Performance Bottlenecks with RF


> Potential bottlenecks and solutions
More detailed operations require more transactional steps
Leverage RF to reduce the data entry requirements Leverage RF to consolidate/combine transactions

Physical inventory blocking


Leverage RF to reduce the time a bin is blocked In R/3 Enterprise, inventory can be processed if an open transfer order exists

Pick and pack in a single step with RF


Incorporate RF to pick into a handling unit to avoid the need to perform packing as a separate task

Resources
> How to Select a WMS
By Christopher Trunk, TotalSupplyChain.com,

> Warehouse Management Systems, Defining Your Business Needs


by Doug Campbell, Integrated Solutions, January 2000

> Gartner Report TU-09-0762 > Supply Chain Forum White Paper
By John Hill, ESYNC, Logistics Execution System Perspective

7 Key Points to Take Home


> Evaluate your business processes to determine the BEST inventory management tool > Inventory management strengths focuses on managing stock at the quantity and value levels > Inventory management offers a single bin assignment per material per storage location; no strategies > Lean WM offers transfer order functionality to support receiving/put away and picking for deliveries

continued

7 Key Points to Take Home (cont.)


> Warehouse management offers additional areas of functionality not available with IM
Cross docking, Inventory methods and more!

> Decentralized WM offers functionality that will work with SAP and other ERP solutions > Implement RF to increase accuracy, speed, real time inventory and status updates with any solution

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