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Author's profile photo Oscar Del Castillo

Why cycle counting is not for everyone – Continuous inventory without WMS

My users regularly say “I have to cycle count today” without truly understanding the difference between cycle counting and physical inventory. Not knowing the difference between both concepts has overly complicated the process to do physical inventory in my company. If you are facing the exact same problem as I am, please read below.

As you might already know, there are multiple procedures for doing physical inventory. Here is SAP’s explanation of the standard physical inventory procedures:  https://help.sap.com/viewer/bab68c42544946a99ef795ef35775e21/6.00.31/en-US/1e61bd534f22b44ce10000000a174cb4.html

Here is a quick summary:

  • Periodic physical inventory : You must count everything on the balance sheet key date
  • Continuous Inventory: You count everything once a year – but you spread the counts throughout the year.
  • Cycle counting:  Allows you to count some materials more frequently than others. It uses the last count date and your ABC physical inventory indicator to determine when the material should be counted next.
  • Inventory sampling: You can count only a fraction of your warehouse.

Most of the documentation around continuous inventory is only focused on the functionality of Extended Warehouse Management (which we don’t have), so some users believed that it is not possible to do continuous inventory without it, and they end up doing either periodic physical inventory or cycle counting instead.

My particular case – Count once a month

In my particular case, my users just want to count all materials once a year. They want to be able to distribute the counts in 12 documents and only count materials once a month.

The scenario above is perfect for continuous inventory. However, back in 1999 cycle counting became the official method to do physical inventory. All areas were forced to do adopt it ,even if they only needed to count materials once a year.

Here is what my users needed to understand:

“There is no value  in using cycle counting if you are only going to count the material once a year. You can implement  your own version of continuous inventory even if you don’t have Warehouse Management.”

Why not use cycle counting if you only need to count material once a year?

As mentioned before, cycle counting takes the last count date of the material and it adds however many days are configured in the Physical inventory ABC indicator populated on the material master record. If you are not counting frequently enough and start missing count dates, this can cause multiple problems. Below is a list of real-life problems I had to solve when users were trying to make cycle counting work:

  • One coordinator had his people running around different sections of the storeroom and could not find a way to count just one area of the warehouse each month.
  • A different coordinator decided to do a full physical inventory in December. The next year, he kept trying to use the planned count dates in MICN to determine what he needed to count next and couldn’t find any results.
  • A material handler complained repeatedly because SAP kept “telling him” that he had to count the yard during winter days.
  • A coordinator didn’t count some material for years, because the ABC physical inventory indicator was never populated on the MM record.
  • Others storeroom owners, just though physical inventory was just really hard, so they would not follow the standard process. Instead of going through the standard process. they would just print an inventory report – like MB5B – count different sections of the storeroom and do 201 and 202 movements to manually adjust inventory quantities whenever they found differences. Depending on how reports for inventory accuracy were executed, users in this last group could get a perfect  (and quite deceiving) 100% inventory accuracy!

Why simplify the process using continuous inventory by creating variants in MI31 instead of cycle counting?

You can ditch cycle counting and just do continuous inventory creating variants in MI31. Here is why I recommend this approach over cycle counting if you are only counting materials once a year:

  • Users decide how they want to distribute the counts throughout the year. They do this according to different factors – How long it takes to count a material, where the material is located, how much time they have each month, etc.
  • When a new material is created, they can easily decide when they want to count it  by just adding it to the variant (if the selection screen is done using materials) or just by typing in a valid bin location (if the selection screen is done using bin location).
  • Flexibility is needed and future counts won’t be affected – A storeroom supervisor might want to do more counts in July because he has enough staff, or delay the August count because he is short staffed. Whatever decisions he makes will not affect his counts for the next year because the last counted date on the material is no longer relevant.
  • MI31 is just easier to use than M1CN because you can create the documents directly on the transaction. There’s no need to execute a batch session.
  • If you are using batch management and your batches are in stock for a period which is less than what is established in your physical inventory indicator, you might never count the material.
    • SAP will determine the count date for each batch and not for the overall material, so if you have batches in stock for only 10 days, and the material is set up to be counted every 30 days, none batches for the material might show up in MICN.

How to get it done? 

Getting this done is extremely straight forward.

All you have to do is decide how you want to break your counts, and then just create variants in MI31.

You can use different fields to segregate the material (material master, bin, storage location, material group, etc.)

In the example below, the material # and storage locations are used

The storeroom supervisor for storage location TBGS created all variants for the rest of the year.

In December to make sure he’ll count everything that has not been counted, the material number selection will be blank. This will bring in all materials which were not counted for the year.

In December, he will also identify material which should be counted in a different month and just add it to that month’s variant.

If you want to know more about how the overall physical inventory process take a look at Jürgen’s blogs about physical inventory. He clearly explains the implications of the overall process from a business perspective.  https://blogs.sap.com/2013/06/17/physical-inventory-is-more-than-just-sap/

If you want to know more about which steps to follow after creating the physical inventory documents, here is another brief description of the process.  https://blogs.sap.com/2007/05/04/physical-inventory-in-material-management/

Do you have any physical inventory horror or success stories? Please include those in the comments.

If you have questions about how to improve your physical inventory processes ask the community for help https://answers.sap.com/tags/477297786799213261950044802925335

It’s always great to know what others are doing !

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