Plant Vs. Storage Location: Best practices and the decision matrix
Introduction: During the business blueprint phase, project teams often brainstorm about making a location as a plant or storage location within a plant (especially when there is outside storage or overflow storage within a few miles from the main plant). In this blog, I will demonstrate the critical difference between plant and storage locations, best practices, and decision matrix to help the project team to make the right decision.
Let’s follow the basic standard SAP definition for the plant and storage location.
- A plant is an operational facility within a company code.
- A plant is an organizational unit within logistics that subdivides an enterprise from the viewpoints of production, procurement, plant maintenance, and materials planning.
- The plant serves as a valuation area.
- A plant is defined in the system by a four-character alphanumeric key unique to the client and assigned to the company code.
- The plant has an address.
- A plant may represent a variety of entities within a firm, such as:
- Production facility
- Regional sales office
- Corporate Headquarters
- Maintenance location
- A storage location is an organizational unit that facilitates the differentiation of stocks of materials within a plant.
- Inventory management on a quantity basis is carried out in the plant at the storage location level.
- The physical inventory is also carried out at this level.
- A four-character alphanumeric key defines a storage location. The key is unique within a plant.
- Storage location also has an address.
- The storage location can be IM managed or WM/EWM (that’s warehouse) managed.
Note: Since the plant and storage location both have an address, the storage location address has high priority over the plant address. Suppose the plant and storage location has a different address. In that case, while creating a purchase order, the storage location address has high priority over the plant address. The purchase order will show the storage location address as the delivery address.
Since we now understand the definition, let us closely examine the difference.
|Customer Demand/Forecast||If a location/facility is getting customer orders or forecasts, creating a plant makes sense.||SAP can’t handle forecasts at the storage location level.||If our customer order is fulfilled from that outside storage location, it makes sense to create an outside storage/overflow location as a plant.|
|Material Requirement Planning||MRP gets carried out at the plant level, and the buyer is actively going to manage purchase requisition to purchase order OR planned order to production/process order conversion.||MRP Area must be configured to run MRP at a storage location.||If a buyer is actively managing the procurement of materials directly delivered to this outside storage facility, it makes sense to create a plant. On the other hand, if the product always arrives at the main plant and, because of storage constraints, push out to an external storage facility, it makes sense to create a storage location within the main plant.|
|Master Data Maintenance||Going with the plant will add a lot of master data maintenance like Material Creation/Extension, Purchasing info record creation, BOM, Routing, Production Version, etc. Most of the master data in the SAP are at the plant level.||Storage location within a plant is comparatively easy as there is less master data maintenance.||A storage location within a plant is a massive benefit for limiting master data creation.|
|Material Valuation||Material Valuation is at the plant level.||Valuation can’t be at the storage location level.||If the material’s value is different between both locations (i.e., main plant and overflow or outside storage place), it makes sense to create outside storage as a plant.|
|Stock Transfer Order||The plant-to-plant stock transfer is possible via a stock transfer order, so the packing slip and BOL can be printed. In addition, freight costs can be captured in STO.||Plant (from storage location) to storage location transfer is also possible via stock transfer order, so packing slip and BOL can be printed. However, it can be challenging to capture freight costs as the valuation area is at the plant.||If freight cost needs to be added when the product moves from the main plant/storage location to the outside storage plant, then it makes sense to create outside storage as the plant else goes with the storage location.|
|Period End Closing||All the period-end closing steps are at the plant.||Period-end closing at the storage location is not possible.|
|Operation Responsibilities||Buyers are actively managing materials moving from one plant to another by creating an STO (material master has a special procurement key).||The warehouse is typically responsible for managing the space and material movement if it’s a storage location.||Choose plant vs. storage location based on which team is responsible for managing inventory move and space.|
|Product Costing||Yes, at the plant level.||Not possible.||It can be another criterion for deciding plant vs. storage location.|
Note: Apart from the above, physical inventory, cycle counting, or tax jurisdiction requirements can be considered for the decision matrix.
Here is the high-level decision matrix which can be used:
- Plant Vs. Storage location is an essential organizational element, and an incorrect decision can lead to process inefficiency and manual workaround.
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Thanks for sharing. This blog will definitely help MM consultants in finalizing enterprise structure during business blueprint phase.
I would like to add one more point here which is Profitability. If organization wants to determine profitability of a unit then it must be treated as plant and not storage location.
Very good point. Thank you !!!
Thank you for providing detailed explanation,This is very helpful.
Thank you !!!
Simply explained, useful blog.
Thank you for your appreciation.
Thank you for the sharing. This will help consultants and clients to make a better decision on plant Vs storage location
I appreciate it !!
Hatts off for trying to shed some light on what to consider when having to decide how to reflect in the system a given location (or many locations into to 1 Plant/Sto Loc...).
If I may, one conclusion could also be something like: in many cases there´s no right/wrong decision, it´s a case of understanding the pros and cons to either go for Plant or Storage Location. A decision that favours the operation (logistics) might not be ideal for backend processes (AP, CO, etc...) and vice versa, so the set up decision should coordinated, or visible, to the whole group of colleagues.
Thank you, and Yes, I completely agree with the comments that there is no right/wrong decision. All the parties need to be onboarded.