What Is Physical Inventory In SAP MM? Process And Tutorial

Ngoc Lee

Main content

Understand The Physical Inventory In SAP MM

The process of determining whether or not inventory amounts are precise, or if there exist discrepancies between numbers indicated physically existing and those described in the SAP system, is known as physical inventory. Essentially, after physical inventory is completed, your system and inventory level are the same. It is mandated by law, and it is usually done once a year. You can see the below picture to see the physical inventory process. The following are the most typical procedures for performing a physical inventory.

Aside from the legal implications, having the right inventory amounts that match the actual inventory is highly beneficial. Management can obtain reliable data on the worth of stock items. ATP is proper for sales. MRP is carried out using the proper input variables (material stock quantities).

Classifying Physical Inventory In SAP MM

There are 4 physical inventory processes that we can use in the SAP system, including periodic inventory, continuous inventory, cycle counting, and inventory sampling.

Periodic Inventory

This type of inventory is commonly used by businesses. It shows that on the balance sheet significant date, all inventories of the firm are physically tallied in a periodic inventory. Most of the time, it is done yearly and is known as the yearly physical inventory. Therefore, material inventory is tallied just once per year. It usually happens after the season has ended or when the year ends. Remember that every item must be counted in this situation and during counting, all material movements must be prohibited throughout the facility.

Continuous Inventory

This indicates that all items are tallied continually throughout the fiscal year. It is critical to make sure that every substance is physically calculated at least once a year. Similar transactions can be used for “continuous inventory” as well as “periodic inventory”. The sole distinction is that a material is counted more than once every fiscal year. Besides, this inventory is mostly used in managing warehouses.

Cycle Counting

Cycle counting is a physical inventory procedure in which inventory is tallied at regular periods throughout the fiscal year. With this kind of physical inventory, we can specify a time for periodic periods for physical stock on the material level using this form of inventory. The materials’ cycle counting indication determines these intervals or cycles. Thus, a quick-moving, high-value substance can be tallied four times during the year, but a slow-moving, low-value substance can only be counted once annually.

Inventory Sampling

The final one indicates that on the financial statement significant date, just a few randomly selected items are tallied, and if these substances show tiny enough discrepancies, the remaining materials can likewise be regarded to have the right inventory level. It is rarely utilized because it is simply an approximation, although it can be employed in select circumstances if the materials and warehouse system needs it.

Stages Of The Process Of Physical Inventory In SAP MM

After learning about the definition of the physical inventory process in SAP MM, we will continue to go through its process which is divided into stages as below.

Establishing A Physical Inventory Record

There are two approaches to creating physical inventory records: creating single documents and creating sessions.

Creating single documents: In this situation, you indicate the materials to be enumerated specifically. This strategy is ideal if you simply need to inventory a few materials.
Organizing sessions: In this situation, you specify the criteria that should be used to identify which items should be stocked in which plants and storage sites. The system then generates a physical inventory record containing the materials that meet the requirements for each plant and storage site. This strategy is advised if you need to inventory a large number of materials.

Consulting the following steps to understand how to create and process a physical inventory document.

Step 1:

Complete the MI01 transaction.
For counting, include the document date as well as the predicted date.
Fill in the Plant/Storage location or Special inventory indication.
Select whether you need Posting Block in case there is a chance that someone may post while inventory is being performed, and activate the batches w. del. flag option. Hold boll inventory in case this option is set, the current physical inventory level will be stored in the physical inventory record, and tally batches using deletion signal. Then, press the Enter key.

Step 2:

Input the material numbers that will be appeared in this inventory record.
Save all the transaction information.
Then, the newly established physical stock record number will be sent to you.

Step 3, Step 4, and Step 5 are optional steps that you can do or not.

Step 3:

To make modifications to the document, run the MI02 transaction if it is needed.
If you wish to see whether the counting has been completed, double-click the object.
You will see the deletion indicator whenever you want to delete the record.

Step 4:

You then see the physical inventory status which is currently in the “not yet counted” status.

Step 5:

The numbers submitted during the physical stock record creation can be changed at the header level.

Changing Physical Inventory Document

A physical inventory record can be modified in the following ways:

In the document heading, it can change the anticipated count date, configure or deactivate the posting block, set the inventory balance in the book to zero, and generate or modify a physical stock number.
In an item that is still tallied, it can modify the inventory type, adjust the total unit of measure, adjust the deleting indication, input new items as assuming no count has occurred, and delete the record.

However, note that while deleting, if you enable the deleting indication for an item, it just stays in the document but will not be executed. This will free up the material. Second, if a document’s items have no stock discrepancy listings, it is physically erased. If a discrepancy has been recorded, the document serves as evidence.

As a result, it is merely marked for deleting. This indicates it can be seen but not be processed. When the following restructuring program is executed, the document is physically erased.

Physical Inventory Counting Record

We should be able to count now that we are certain of the ingredients used in the procedure. MI04 is the T-code used for counting. The initial display looks like this, we must input the inventory number and press enter.

When you proceed to the following screen, you will be able to input the amount for all the materials listed in the inventory document number, as seen below.

One thing to keep in mind is that we must check the zero count indication which is highlighted in green above if we do not have any quantities to input or the quantity is zero. We will receive confirmation for the count submitted at the bottom after saving.

The confirmation number for the count submitted

Adjust The Physical Inventory Record Number

This step entails going over your already tallied inventory document number again. The T-code is MI05, and after entering the data in the opening screen, you may immediately enter the inventory document number. You will be given the inventory document number’s data and the amount field will be editable, allowing us to put our new quantity here.

Inventory document number to put new quantity

Adjusting The Discrepancies And Updating The Inventory Record

The T-code MI07 is used to clean away the disparities between the quantity tallied and the quantity existing in the system. The first screen is shown the following.

When we proceed to the following screen, we will see the discrepancy between the counted quantity and the current quantity for every material. The sales value discrepancy will also be presented in the fields to the right, as illustrated below.

Displaying the quantity and sales value screen

This stage also allows us to see if there are any significant discrepancies or if there are any questionable materials that need to be reviewed again. So then, those materials may be rechecked. We may recheck the quantity manually. If the quantity has to be changed, we can use the T-code MI05 as previously described.

If everything checks out, we can upload the same quantity that was tallied. The tallied quantity will be posted in the back-end system at this phase. There is also a material document number associated with it.

Please keep in mind that MI07 only processes one inventory document at a time. If numerous inventory documents have to be uploaded, utilize MI37.

Input The Counting Outcomes

The method is rather simple, but it must be carried out precisely since errors in inputting the counts result in incorrect inventory balances afterward. As a result, accuracy in both the counting and entering processes is critical.

Step 1:

Run the MI04 transaction code.
Enter both the physical document number and the fiscal year.
Input your counting date whether it varies from the one indicated.
Input the percentage of variance. This implies that there are 100 pieces on hand before the physical stock process and submit 107 pieces as a counting outcome, you then receive a warning notice indicating the discrepancy between the earlier inventory amount and the tallied quantity.

Step 2:

Input the counted amount for this substance.

You will then be notified that there is a discrepancy in the quantity of 20 pieces. If you did not input the number incorrectly, there will be no warning when you hit the Enter key. If you input wrong the amount, you can adjust it and press Enter again. Besides, if you see the warning notice and suspect that there was an error in the process of counting, you can count the items again and fix the numbers.

Updating The Distinctions

Once you have correctly recounted and reentered the amount details for faulty supplies, use the transaction MI07 to submit the discrepancies.

Step 1:

Complete the MI07 transaction.
Input both your physical stock and the fiscal year.
Enter the date of publication. This date will be used for goods posting, some businesses use the last day of the year which is 31/12 for the yearly physical inventory.
You can input the maximum permitted disparities in national currency using the given threshold. Just leave this box blank if you do not want a limitation. To make this work, materials must keep their standard or unstable pricing.

Using the transaction MI01 to submit the changes screen

Step 2:

The difference in amount is visible. This indicates we discovered four items more than the system originally indicated.
The value is not displayed because our controlling or accounting department has not yet released the prices for this item. It must be completed in a production setting.

Step 3: You can consult this step since it is optional.

The material specification shows an amount of four pieces.
The movement type utilized for physical inventory discrepancy reporting is 701.

Conclusion

Without reliable inventory data in SAP, a company risks losing revenue because items appear as out-of-stock when buyers need them. Through this detailed guideline, we hope you can understand clearly the physical inventory in SAP MM also its process.

Ngoc LeeNgoc Lee is an Content Creator Manager at EFEX. She wields her long-term expertise in Logistics and Supply Chain, harnessing her top-notch writing and research skills to bring incredibly valuable content. Whether you're a small startup or a well-established enterprise, Ngoc Lee is here to equip you with the essential knowledge of e-commerce, fulfillment, and all things business-related.