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SAP WM- Process, Functionality, Scope, Benefits, Advantages, Disadvantage-Complete Reference-Part 14 (Physical Inventory Process in WM- IM-HU Location)

Please refer for Previous SAP WM Articles/Blog

Every company/Client I have worked were faced/facing with the scary task of conducting a physical inventory. Although there are many reasons for conducting a physical inventory, the main purpose is to determine what you actually have in stock and adjust your records to reflect this. This is the main consideration.  🙂 Frankly telling Physical Inventory in Indian organization is like a scheduled function before SAP and other automated S/W packages came into existence. Employees were informed to assemble in the Warehouse/ Stores (Storage location early in the morning and Managers/Supervisors triggered to conduct stock taking and employees feel relax on the end of the Inventory stock talking or what we have called in traditional SAP – PI Process. SAP significantly reduced the time, saves cost & Human efforts – Nowadays Organization planning for cost reduction and system Managed PI Process significantly satisfies the requirement. 🙂 🙂

No Client likes or ready to spend time counting parts. Likewise, not many employees enjoy this Work/ task, but it has to be done. The trick is to make the physical inventory process as painless as possible and simple in nature, while still providing the results you need. In Short companies or clients likes to spend little money and faster/speedier Process with less employees – Here automation in Inevitable and in case of big warehouses PI is more pre-dominant and usage of SAP WM Physical Inventory with Cyclic counting is more Important. I can say a successful physical inventory is well planned. Planning should begin about three months before the count date and should address the following issues:

  • Set the count date(s)- More Important. Estimate the amount of time you will need for counting and reconciliation activities, and give everyone plenty of notice. If you have several locations but limited management personnel available to supervise the counting process, consider counting each location on a different date. PI Process will require more precise and accurate and employees often need proper break before they engaged in next location PI.

  • Determine who will count. It is best to count the parts using teams of two people. Ideally, you should pair an experienced employee with someone with less knowledge of the material. The experienced person counts the material while the inexperienced person records the quantity. Forming count teams allows you to best utilize the talents of your most experienced personnel, while allowing inexperienced employees to gain valuable product knowledge. (Always Organization should keep in mind- Too many cooks spoil the dish..:) 🙂 🙂 but here a team of experienced and less or newly joined employee should get involved so that he will get an exposure how PI process is important and how it helps to forecast companies good will, balance sheet and many other forecast to public and media. We can get a bunch of  information on “Eliyahu M. Goldratt’s book- “THE GOAL”. I would recommend to go through the book. I can say it is the master guide on handling Inventories, PI Procedures, SCM process and Controlling Operating Inventory Cost.

  • Order the necessary supplies. Determine what supplies you will need to conduct your inventory count. Order these supplies far enough in advance to assure everything is available when the counts begin. Difference between the excess and actual requirement should be monitored always- s that we can avoid wastages and unnecessary count which are not required for actual forecast.

  • Clean up your warehouse. If all of the material in your warehouse is in its proper location, you will be able to conduct a faster, more accurate physical inventory. Don’t forget to clean out the returned goods area. Every item in that area should either be returned to its proper location, returned to the vendor, repaired or thrown out.:

information applies to non serialized parts only

Within SAP different functionality is provided for physical inventory and cycle counting depending whether a material is managed within IM (inventory management) WM (warehouse Management) or managed as an HU (Handling Unit).   In general IM will be used for materials within a manufacturing floor or other areas where specific row, rack, bin information is not used.   Warehouse management will generally apply to materials within a warehouse where the location is specified by a row, rack, and bin.   Handling Unit management will be applicable to “nested” materials outside of a warehouse such as a drive bomber. The information below describes the SAP functionality that will be used for physical inventory and cycle counting. Other methods exist such as inventory sampling which are not detailed and will not be used.

Any cycle counting/ physical inventory within SAP requires reconciliation of the material number and location. Handling Units may either be reconciled as a whole or by its contents.

SAP give the option of setting a posting block Indicates that no goods movements involving the materials listed in the physical inventory document can be posted for the duration of a physical inventory count. The indicator is set for the affected stocks in each case. The blocking indicator can be set as part of the inventory document creation or at later time.   The reason for setting at a later time is if the actual count does not occur immediately after creating the count document.

In addition to blocking SAP also provides the option to freeze book inventory. This indicator has the effect that the current book inventory balance is recorded in the physical inventory document. The system compares the counted stock with the frozen book inventory balance to determine any inventory differences. If the count results are not entered immediately after the stock has been counted, it is useful to set this indicator so that any goods movements which may take place in the meantime will not change the book inventory balance relevant to the physical inventory. Freezing book inventory is allowed storage location by storage location.

As part of the reconciliation process, tolerances may be defined by user group which controls the level of adjustment. Two tolerances are possible, maximum amount per physical inventory document; maximum amount per document item, if a document exceeds the document tolerance defined for the user group, the user is not allowed to post any inventory differences for this document. If the total value of the document lies below the document tolerance but some items exceed the maximum amount per item, the user may not post the differences for these items. The user can process the other items.

For warehouse management the following options are available by storage type and warehouse:

  • Printing of material data on count document (material number, material description, plant, batch, special stock indicator, special stock number, stock category and quant number

  • Display storage bin during entry of counted results. Controls the display of storage bins when you enter the inventory counted results, storage bins are either displayed or not during the entry of counts

  • Display material during entry count. . Controls the display of material when you enter the inventory counted results, material numbers are either displayed or not during the entry of counts

  • Input method for inventory counts. This indicator defines how the inventory count results are to be entered in the system

  • Deviation between book inventory and counted inventory. Value for the relative difference between the book amount and the counted quantity. When you enter the counted results, the system will issue a warning message if the value entered here is exceeded. If you start any recounts, the bins/quants will be proposed for recounting on the basis of this value. The value is based on a percentage

  • Inventory Method. The possible selections are no inventory, continuous inventory or annual inventory

  • Activation of Continuous inventory upon placement into stock. This means If stock is placed into an empty storage bin, inventory should be taken at the bin. This functionality will not be activated

  • Continuous inventory based on zero stock check.       Inventory is to be taken for storage bins in this storage type when the remaining quantity is removed from a bin. This functionality will be activated

  • Zero Stock Check. This indicator specifies that if a storage bin becomes empty after a stock removal, a zero stock check should be carried out.       If a zero stock check is made, the storage bin can only be used for stock placements again when the zero stock check is completed and confirmed.

  • Inventory through Cycle Counting. Based on their CC classes in the Storage view of the material master record (for example, A, B, C…), some materials are recommended for inventory more often than others during the fiscal year.

Zero Stock check will be used as well as inventory through cycle counting. 

SAP inventory procedures for Inventory Management

Cycle Counting

Cycle counting is a method of physical inventory where inventory is counted at regular intervals within a fiscal year. These intervals (or cycles) depend on the cycle counting indicator set for the materials. The Cycle Counting Method of Physical Inventory allows fast-moving items to be counted more frequently than slow-moving items.

SAP inventory procedures for Warehouse Management

Cycle counting


In cycle counting inventory, you enter your material stocks physically at regular intervals within a fiscal year. By dividing materials into various classes (for example, A, B, C, D, and so on), you specify for those materials at which intervals or cycles the inventory is to be performed. This allows you to inventory fast-moving materials in your warehouse more often than slow-moving materials. Cycle counting with WM is similar to IM only a different set of transactions are used and counts executed on bins instead of within storage locations

Zero stock check

A zero stock check is used to verify that a bin contains no stock after a complete removal.   It is used as a supplemental inventory process along with cycle counting. Users validate the bin is empty typically after a removal of stock

SAP procedures for handling units within Inventory Management


SAP limits the ability to count handling units within Inventory Management. These handling units are subject to a separate process for performing physical inventory. Counts are based on specifying a plant and storage location

Master data supporting cycle counting

Cycle count indicator is maintained on the material master

  • Inventory items will be designated as either A, B, or C items, etc.

  • Indicator can be determined by SAP which uses information maintained in configuration to determine which items are A, B, C, etc. This is based on consumption history not value. For EMC cycle count indicators will be determined manually instead of automatically

  • A,B, C indicator can be different for each plant and storage location

  • Counting frequencies can be different by plant and storage location

  • Cycle count indicator within configuration determines how often a material is counted (i.e. monthly, quarterly, yearly).

Inventory Execution

  • Inventory takes places within a Storage       location for inventory management and for handling units. Inventory takes place by bin for warehouse management.

  • Stock returns and the stock-in-transfer cannot be inventoried

  • Once counts are entered SAP allows the ability to execute recounts as require

  • Reconciliation within SAP corrects inventory balances as well as posting the necessary financial transactions

What will be counted?

SAP Cycle counting and physical inventory will not be used for any WIP stock or serialized materials.   WIP stock is defined as anything issued to a production order as part of the MTS process (this may also apply to ESS, pending a decision to use production orders); the stock will be available again upon completing all assembly and test steps and made available or if a failure occurs during the MTS process.   This means in general that physical inventory will cover unassembled materials and those materials that have completed the make to stock process or failed, but not materials moving throughout the factory floor.

During final assembly, components will be consumed as part of the production process and no longer available within inventory management for cycle counting. This means that inventory validation will occur only for the fully built system and not the components.

Only non serialized materials within the warehouse will be subject to cycle counting/physical inventory. Cycle counting / physical inventory will also extend as needed to any third party location or vendor site containing EMC owned stock.

Generating documents

  • Documents will be generated based on cycle count indicator for non serialized materials. As an alternative the plant may generate count documents using transaction MICN. This transaction allows a user to specify plant, storage location, material numbers, material type, and material group.       The major input for this transaction will be the list of materials which may be uploaded into the SAP selection criteria. Each plant will have responsibility for creating their documents.

  • Physical inventory document for WM will be generated using transaction using LX26. This transaction allows a user to specify a warehouse number, storage type, bins, and materials

  • Physical inventory documents for Handling Units will be generated using transaction HUINV01. This transaction allows a user to specify handling unit, packaging material, material, plant and storage locations.

IM transaction =MICN for creating physical inventory documents

WM transaction = LX26 for creating physical inventory documents.

HU transaction = HUINV01 for creating physical inventory document

Collecting Data / Executing/Entering Counts

Once the area and materials to be counted has been determined the actual count will take place.

On paper count tickets provided as export from SAP to be keyed in physically at the completion of the count.

For counts of non serialized materials, SAP will need to know the material number, location, and quantity. SAP counts are considered blind in that the book quantities as well as serial numbers are not provided on the count documents. SAP also provides methods to block stock movements as well as determine book quantity based on when documents were created.

  • IM transaction for entering counts = MI04

  • HU transaction for entering counts =HUINV03

  • WM transaction for entering counts =LI11N

SAP screen for entering count data.

Sample of form generated from ECC for counting by storage location


  • After counts are completed, count data versus book data is compared.   The business will need to make a decision as to when recounts are to be performed and at what level versus accepting differences. As previously mentioned count verification occurs at the storage location / bin level HUINV04 List of differences for HU.

HUINV04 List of differences for HU.

Counting and reconciliation occurs at the storage location level. Storage locations for each plant will be defined in Enterprise Structure

For warehouse management the procedure for physical inventory and cycle count are controlled by storage type.   A decision is made for inventory method which may be none, continuous inventory, or physical inventory. A combination of the following may also be activated:

  • Continuous inventory during put away

  • Continuous zero stock check

  • Zero stock check,

  • Inventory through cycle counting. All of these are considered continuous inventory. For EMC the process of zero stock check and inventory through cycle counting will be utilized. Zero stock check means that after a bin quantity is set to “0” because of a withdrawal SAP will ask that the bin be verified as empty





1 Warehouse In Charge/ Officer LI01N ECC Create Physical inventory document manually
1 Warehouse In Charge/ Officer LX15 ECC Physical inventory
1 Warehouse In Charge/ Officer LX26 ECC Cycle Counting
1 Warehouse In Charge/ Officer LICC ECC Cycle Counting by Quant
1 Warehouse In Charge/ Officer LI02N ECC Change physical inventory document
1 Warehouse In Charge/ Officer LI03N ECC Display physical inventory document
2 Warehouse In Charge/ Officer LI04 ECC Print warehouse inventory list
3 Warehouse In Charge/ Officer LI06 ECC Block Storage Type
4 Warehouse In Charge/ Officer LI11N ECC Enter counts
4 Warehouse In Charge/ Officer LI12N ECC Change count
5 Warehouse In Charge/ Officer LI13N ECC Display count results
6 Warehouse In Charge/ Officer LI14 ECC Recount
7 Warehouse In Charge/ Officer LI20 ECC Clear differences warehouse management
8 Warehouse In Charge/ Officer LI21 ECC Clear differences inventory management

Reports on SAP WM Physical Inventory Process

  Warehouse In Charge/ Officer LX22 ECC Report – Inventory Overview
  Warehouse In Charge/ Officer LX23 ECC Report – Stock Comparison WM vs IM

Physical Inventory Process in Handling Unit Managed Location

1 Warehouse In Charge/ Officer HUINV01 ECC

Select HUs and create physical inventory documents



2 Warehouse In Charge/ Officer HUINV02 ECC Change physical inventory documents for HU’s
3 Warehouse In Charge/ Officer HUINV07 ECC Display physical inventory documents
4 Warehouse In Charge/ Officer HUINV03 ECC Enter counts for physical inventory documents for HU’s
5 Warehouse In Charge/ Officer HUINV04 ECC Analysis of differences HUs
6 Warehouse In Charge/ Officer HUINV05 ECC Clear differences for HUs
6 Warehouse In Charge/ Officer HUINV06 ECC Delete inventoried status for HUs

Physical Inventory Process in Pure Inventory Managed storage location

1 Warehouse In Charge/ Officer MICN ECC Create Physical inventory documents
1 Warehouse In Charge/ Officer MI01 ECC Create Physical Inventory Document
1 Warehouse In Charge/ Officer MI02 ECC Change Physical Inventory Document
1 Warehouse In Charge/ Officer MI03 ECC Display Physical Inventory Document
2 Warehouse In Charge/ Officer MI21 ECC Print Physical Inventory Document
3 Warehouse In Charge/ Officer MI32 ECC Job – Block Material
3 Warehouse In Charge/ Officer MI33 ECC Job – Freeze Book Inventory
4 Warehouse In Charge/ Officer MI04 ECC Enter inventory count
4 Warehouse In Charge/ Officer MI05 ECC Change inventory count
5 Warehouse In Charge/ Officer MI08 ECC Count / Difference Physical inventory
5 Warehouse In Charge/ Officer MI06 ECC Display inventory count
5 Warehouse In Charge/ Officer MI20 ECC Difference List
6 Warehouse In Charge/ Officer MI11 ECC Recount Physical Inventory Document
7 Warehouse In Charge/ Officer MI07 ECC Post inventory differences

Reporting in SAP Inventory Managed Location



Warehouse In Charge/ Officer MI22 ECC Report – Physical Inventory Document for Materials
Warehouse In Charge/ Officer MI23 ECC Report – Physical inventory Data for materials
Warehouse In Charge/ Officer MI24 ECC Report – Physical inventory list
Warehouse In Charge/ Officer MB51 ECC Report -Material documents for material
Warehouse In Charge/ Officer MIDO ECC Report – Physical Inventory Overview

inventory adjustments for handling units

Define movement type for inventory adjustment postings

Logistics General > Handling Unit Management > Basics > Define movement type for inventory adjustment postings

Allow Freezing of Book Inventory Balance in Storage Location

Materials Management > Inventory Management and Physical Inventory > Physical Inventory > Allow Freezing of Book Inventory Balance in Storage Location.

Check “Freeze book in inv”

Default Values for Batch Input

Materials Management > Inventory Management and Physical Inventory > Physical Inventory > Default Values for Batch Input.

The only programs that require configuration are:

  • RM07ICN1   Batch Input: Create Physical Inventory Documents For Cycle Counting

  • RM07II31     Batch Input: Create Physical Inventory Documents for Normal Stock

  • RM07II32     Batch input: Block material for physical inventory

  • RM07II37     Batch Input: Post Differences


We need to adopt cost Saving/ Time effective Methods to bring success in PI Process. Normally PI Process will bring success in Management Inventories. We can see the important in handling Inventories effectively- Eliyahu M. Goldratt’s book- “THE GOAL”. I would recommend to go through the book. I can say it is the master guide on handling Inventories, PI Procedures, SCM process and Controlling Operating Inventory Cost. I hope below information will well suit whatever Warehouse it may be and will be more likable by Warehouse Experts.

  1. Split-up the overall counting process into a series of smaller counts. Counting thousands of parts is a formidable task. However, if you can split up this total into a number of subtotals, employees will not be as overwhelmed or discouraged. Smaller, manageable count quantities also help to prevent aisles, bins and remote storage areas from being missed. 😉

  2. Create a drawing layout of the warehouse. This drawing layout should include every shelf, pallet rack and all other places where material is stored. Such a map is helpful for inexperienced employees but can also be a useful refresher to seasoned warehouse personnel.  🙂

  3. Divide the counters by specific area so they can be held accountable.  🙂

  4. Count as many parts as possible prior to the scheduled count date. Parts in remote, slow moving areas can be counted in advance as long as there will be no transactions prior to the physical inventory. Pre-counted parts need to be marked to avoid double counting. 🙂

    Ship everything you can before the physical begins—you don’t have to count what is not in the warehouse. Do not move material while you count. Record “misplaced” material where it lies, and mark it so it can be moved as soon as the inventory is completed. 🙂

  5. Do not fill orders or receive material during the count process. If you must ship an “emergency” order while your inventory is underway, an auditor must determine how this affects the physical count and make the necessary adjustments. 🙂

  6. Audit while people are still counting. As soon as counters are finished with a small section of bins or shelves in their assigned areas, auditors should verify some of the counts. If an auditor finds several counting errors in an area, the count team assigned should recount the entire section. 🙂

  7. Print and review discrepancy reports. These reports should list any item with a significant difference between the on-hand balance in the computer (before the physical) and the counted quantity. 🙂

  8. Review Organization successes and record your procedures. Sit down with everyone who participated in the physical inventory and find out what worked well, and what did not, so improvements can be made before the next physical inventory.  🙂

  9. A physical inventory is just like any other process in every or your client’s organization 🙂

Here I like to say we can use SAP PI Process steps to clear the Inconsistency- when we have Inconsistency between SN Data and MM Data, MM-IM, SN, HU & WM Data and bring the Material back to Stock (This is very Important usage other than normal Physical Inventory process in SAP). we have so many reports to check the Inconsistency in IM, WM,SN & HU Data. (e.g. RIMMSF00)


I hope the Physical Inventory process discussed here would help a person to understand the day to day process in PI in real time environment. it is not simple but SAP makes it simple and handy. Thanks to SAP. 🙂 🙂 🙂

If interested to read SAP WM Articles/ Blog Please use my below link

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