Cycle Counting in SAP MM

Document Objective
The main objective of this document is to explain the cycle counting process in SAP. A brief explanation
about Physical inventory types and ABC analysis is also covered here along with reasons for conducting
Physical Inventory.

Document Detail
Physical Inventory:
Physical inventory is a process where a business physically counts its entire
inventory. A physical inventory may be mandated by financial accounting rules or
the tax regulations to place an accurate value on the inventory, or the business may
need to count inventory so component parts or raw materials can be restocked.

Types:

There are three types of physical inventories.

1) As Required:

As required inventories are usually conducted by direction of the States Property

Manager (PM) or a Departmental Property Officer (DPO). An As Required inventory
is just that--it is not normally scheduled, and is generally conducted in response to a
given situation or loss. As required inventories are limited in scope and are often
conducted when a change in Property Custodian, or responsible hand receipt holder
occurs.

2) Cyclic:

Cyclic inventories are a type of periodic inventory. They are conducted monthly,
quarterly, or semi-annually, in place of an annual inventory. When using a cyclic
inventory method, the DPO notifies the Property Custodian as to which specific items
to inventory in a given period. The objective of this type of procedure is to have a
100 percent inventory of all items completed by the end of each fiscal year. In most
cases, the State requires an annual inventory, but this may not be practical for all
departments.

3) Annual:

Annual inventories are conducted during a specified time window during each fiscal
year and involve a 100 percent inventory of all items within a department. Annual
inventories require a greater time resource and more coordination than cyclic
inventories, but have less total disruptions on operations because they occur only
once each fiscal year.

Reasons for Conducting Physical Inventory

There are four important reasons why a department conducts a physical inventory:
Cycle Counting in SAP MM

To verify or ascertain the physical count, condition, and location of an inventory

item and to ensure that it is properly documented

To identify, document, and add items to its inventory list that are on-hand and
meet qualifying criteria, but are not currently shown as part of the inventory

To ensure that legitimately transferred or disposed of items are no longer carried

on the inventory listing; and finally

To identify any missing or damaged items that need to be located, repaired, or

replaced.

What is ABC Analysis?

ABC analysis is a business term used to define an inventory categorization technique

often used in materials management. It is also known as Selective Inventory Control.

ABC analysis provides a mechanism for identifying items that will have a significant
impact on overall inventory cost, while also providing a mechanism for identifying
different categories of stock that will require different management and controls.

When carrying out an ABC analysis, inventory items are valued (item cost multiplied
by quantity issued/consumed in period) with the results then ranked. The results are
then grouped typically into three bands. These bands are called ABC codes.
ABC codes
1. "A class" inventory will typically contain items that account for 80% of total
value, or 20% of total items.

2. "B class" inventory will have around 15% of total value, or 30% of total items.

3. "C class" inventory will account for the remaining 5%, or 50% of total items.

ABC Analysis is similar to the Pareto principle in that the "A class" group will typically
account for a large proportion of the overall value but a small percentage of the
overall volume of inventory.

Another recommended breakdown of ABC classes:

1. "A" approximately 10% of items or 66.6% of value

2. "B" approximately 20% of items or 23.3% of value

3. "C" approximately 70% of items or 10.1% of value

Cycle Counting in SAP MM
Cycle Counting Inventory in SAP

Purpose

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.

Prerequisites

You have used the cycle counting indicator to define material classes and
corresponding inventory cycles in customizing.

You have assigned every material to be inventoried using cycle counting to a

material class. You make these assignments by setting the Cycle Counting
indicator in the Storage view in the material master.

Customization:
Cycle Counting in SAP MM

Physical inventory indicator for cycle counting

This indicates that the given material is subject to the cycle counting method of
inventory. The indicator also defines at which time intervals a physical inventory is to
be carried out for the material. This indicator groups the materials together into
various cycle counting categories. Usually, these categories correspond to the ABC
analysis of the materials. However, they can be defined at the user's discretion in
Customizing for Inventory Management.

No. of phys. inventories per fiscal year for cycle counting

Specifies how often during the fiscal year a physical inventory is to be carried out
for a material subject to cycle counting. The system uses this specification to convert
the count interval into workdays.

Physical inventory interval (in workdays) for cycle counting

Specifies after how many workdays following the last inventory count another
physical inventory has to be carried out for a given material. The count interval is
determined automatically on the basis of the number of physical inventories
specified for the fiscal year.

Float time (in workdays) for cycle counting

Indicates the number of workdays by which the planned count date may vary from
the current date.

Percentage of performance measure for cycle counting indicator

This specifies the percentage allocation of the materials to the individual cycle
counting categories. The percentage value is used for automatic assignment of the
cycle counting indicator.
Cycle Counting in SAP MM

Material Master Settings:

Physical inventory indicator for cycle counting

This indicates that the given material is subject to the cycle counting method of
inventory. The indicator also defines at which time intervals a physical inventory is
to be carried out for the material. This indicator groups the materials together into
various cycle counting categories. Usually, these categories correspond to the ABC
analysis of the materials. However, they can be defined at the user's discretion in
Customizing for Inventory Management.

Enter an indicator if the material is to be subject to cycle counting. This indicator

can also later be updated automatically by the system using report RMCBIN00 (MIBC
T.Code).

CC indicator is fixed

This specifies that the cycle counting indicator cannot be changed for cycle
counting by an ABC analysis. The only way to change this indicator is through
manual maintenance of the material master record. Set this indicator if the material
is always to remain in the specified cycle counting category.

How to set Cycle count indicator automatically?

Cycle Counting in SAP MM
Set the cycle count indicator automatically using T.Code MIBC.

Based on the selection parameter, for a plant and selected material types, system
selects material.
Cycle Counting in SAP MM

You can click on counting effort indicator to know the counting effort

Create Physical Inventory Documents using T.Code MICN

Cycle Counting in SAP MM

Batch input will be created for selected materials.

Cycle Counting in SAP MM

Use SM35 T.Code to process the session

Physical Inventory cocument will be created. You can print this document and enter the count. Differences
can be posted and stock will be adjusted accordingly.
Cycle Counting in SAP MM