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This blog explains physical inventory process at Inventory Management.
Physical Inventory:
Physical Inventory is a business process in which physical stock is matched with book (system) stock. It is legal requirement to carry out physical inventory at least once in a year.   Physical inventory can be carried out both for a company’s own stock (Unrestricted, Quality, Blocked Stock) and for special stocks (Customer Consignment stock, Vendor consignment stock from vendor, Returnable packaging). This inventory is carried out separately for both type of stocks.
Physical Inventory Processes:
Several inventory processes available for physical inventory which includes as follow:
1. Periodic Physical Inventory
o     All stocks of the company are physically counted on the balance sheet key date
o     Every material must be counted
o     Entire warehouse must be blocked for material movements during count.
2. Continuous Physical Inventory
o     Stocks are counted continuously during the entire fiscal year.
o     It is important to ensure that every material is physically counted at least once during the year.
3. Cycle Counting
o      In this method of physical inventory, inventory is counted at regular intervals within a fiscal year.
o     These intervals (or cycles) depend on the cycle counting indicator set for the material in Material Master record as CC indicator in plant view data.
o     With this Cycle Counting Method of Physical Inventory allows fast-moving items to be counted more frequently than slow-moving items.
4. Inventory Sampling
o     Randomly selected stocks of the company are physically counted on the balance sheet key date.
o     If found not much variance between the counted stock and the book book stock, it is presumed that the book inventory balances for the other stocks are correct.
Physical Inventory Process Cycle Flow
1.     Creation of physical inventory document
– Physical inventory document(s) is created individually or using the batch program, click for more information
– The transaction codes for creation physical inventory are as follow
** Individual Inventory documetion creation MI01
– Individual physical inventory creation MIS1
– Inventory Sampling document creation MICN
– Cycle count inventory document creation
** Collective Inventory document creation MI31
– Own stock without spcial stock MIK1 – Vendor consignment MIQ1 – Project stock MIM1 – Returnable Transporation material MIW1 – Customer Consignment stock MIV1 – Returnable material with customer MIO1 – Material provided to Vendor (Subcontracting material)
2.     Print physical inventory document
– Physical Inventory document can be printed based on the physical inventory document status and or item status
– Transaction code MI21 is used to print the inventory document where print default value can be populated
3.     Count the physical stock
– Based on the inventory doucmen printout, the warehouse person will check the stock of material physically and note that on print out. This is completely physical process.
4.     Enter count in system
– On completion of physical count, the count result is needs to be entered in the system. This can be with reference (using Tcode MI04) or without reference (using Tcode MI04) to the physical inventory document.
– If count quantity for that material is ZERO then select ZC (zero count) column instead of putting 0 in qty field. If 0 is used for zero count then systm will consider that as “not counted”
5.     Analyze difference
– Once count is posted in the sytem, difference analysis can be carried out using trasnaction MI20
– The output gives information based on the input criteria i.e. physical inventory document, plant, material etc.
– The output gives information about the book quantity, Counted quantity, difference in quantity and value.
– From this output list, you can carry out further process ie initiate recount, change count quantity, post difference
6.     Initiate recount and follow the steps 3,4,5
– If found unacceptable difference, recount is initiated using directly from difference analysis list (transaction code MI20) or using transaction code MI11.
– New inventory document will be created for selected items or for entire document
– The original document items will be deactivated once recount is initiated so original document will not be available for further process.
– On initiating recount, you need to process same as for new count document.
7.     Post the difference
– Several options are available for posting difference
– Post difference after count is posted using transaction code MI07
– Posting the count and inventory differences using transaction code MI08, here you have created physical inventory but not counted so with this you can count and post difference in sinle step.
– Entering the count without a document reference using transaction code MI10, with this you can create inventory document, enter the count and post difference in single step.
some more points for posting difference
– Posting period must be open to post inventory difference.
– The fiscal year is set by specifying a planned count date when creating a physical inventory document.
– Tolerence to crear difference per user group can be set in customization.
– The system will generate material document for the difference qty and post the value to appropriate account (for valuated stock)
– The movement type in material document will be 701 or 702 based on gain or loss of material.
Serial Numbers in Physical Inventory
If material is managed with serial number then it is possible to carry out physical inventory for material with serial number. There are some pre-requisite before you carry out physical inventory for serialized materials.
– Serial number profile must be maintained in the material master.
– the serialization procedure MMSL (maintaining goods receipt and goods issue documents) has to be assigned to serial number profile.
– The stock check indicator in the serial number profile should be configured.
– Maintain basic settings for the serial numbers in customization for Serial Number Profile.
– Configure serial number management for physical inventory in the Settings for Physical Inventory step in Customizing for Inventory Management.
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  1. Udo Werner
    Hi Arif, good overview!
    One Addition of a less well-known feature:
    From a cost controlling point of view, the posting of the costs of physical inventory differences is often felt as unsatisfying.
    Therefore in ERP in the CO-PC module the distribution of usage variances was introduced.
    In that process the posted differences from physical inventory are redistributed to other receivers like production orders.
    The use case for that is when consumptions of a production material are posted with theoretical values, e.g. from the Bill of Materials, and after a certain time a difference between theoretical stock and physical stock is counted and posted. Instead of leaving the costs on the physical inventory account it is preffered to see the costs of extra consumptio on the production orders.

    best regards,

    1. Anonymous
      Hello Udo,

      Good point to add here. This price (cost) distribution will be applicable when Material Ledger is active.

      Regards.. Arif

  2. Mario Lozano
    We are doing “Continuos Physical Inv.” on an application with Warehouse Management (WMS) and we use Trx. LI11N to load the counts but we need to enter the material information for each material/bin; is there a way that we can just call the Physical Inv. Document and for the system to display a grid with all of the materiales/bins in that document so that we can only input the quantities?

    Any help is appreciated.

    Mario Lozano 

    1. Anonymous
      Hello Mario,

      Please open thread for this query in MM forum so we can discuss over there. You are very welcome to comment/suggest on this blog.


      Mohammad Arif Mansuri

  3. Ad van Uden
    Physical counting in SAP is often not used because the counting levels are to detailed. There’s to much input necessary. There should be a possibility the count first on a higher (material)level. Only If differences exist, counting should be excecuted again for the material on a lower level, batches and or bin level.


  4. Archana Sirsi
    Hi Mohammed,

      Found this blog very interesting,and the way in which it is presented is very good.It also gave a very good insight on physical inventory processes.


  5. Marco Antonio Romero Sanchez
    Hello Arif,

    I have the following scenario:
    This is the current process, we have the counts in a manual way and analyze the result in excel.
    1.- People have printed forms in blank (tickets)
    2.- then go to the location and counts the found materials,
    3.- then people capture that counts in excel,
    4.- FI analize the results in excel and prepare a file to be upload into SAP
    5.- and finaly we use the MI10 with a batch input to load the differences and zero stocks.
    (Not use the standard SAP txns for physical inventory IM like MI01, MI21, MI04, MI20 , MI07)

    Now we want to eliminate the “excel” process and have it in SAP, I mean, it is possible to generate a range of physical inventory documents in blank for a specific storage location (without material), then they go to SAP and capture the material number counted, then have a transaction to check the differences and then post them?.


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