1. SAP IM vs. WM: How to Choose, Use, and Optimize
Gavin Klaus
Catalyst International, Inc.

2. What We’ll Cover … Understanding the difference between WM and IM
Choosing between WM and IM
Optimizing and overcoming limitations with IM and WM

3. Inventory Management (IM)
Key features/strengths
Inventory management by quantity
Visibility of on-hand quantity by storage location
Management of special stocks
Entry and documentation of all material movements
Real-time updates of inventory
Documentation of all receipts, issues and transfers
Physical inventory
Carry out physical inventory at the material level
Perform inventory adjustments

4. R/3 Inventory Management (IM) (cont.)
Key features/strengths (cont.):
Inventory management by value
Postings update account assignments for cost accounting
Updates G/L account for financial accounting
Key integration points
Integrates directly with MRP, purchasing and invoice
verification
Provides information for MRP, updates PO; used to check
conformity during invoice verification
Real-time updates
When transactions are entered, the results the stock
updates real time to reflect actual changes

5. Organizational Structure at the IM Level
SAP Organizational Structure
Company
SLoc
Client
Plant

6. Challenges with Inventory Management
Lack of detailed visibility to material flow
e.g. When the delivery pick list is generated, the delivery’s “actual pick quantity” is updated prior to actual picking
Requires manual updates when quantities differ
Inability to assign incoming materials to outbound demand to avoid multiple material handling
continued...

7. Challenges with Inventory Management (cont.)
Immediate update of inventory receipts and issues
System inventory and status NOT representative of the
physical process
Limited visibility to locations of materials
Only possible to assign a single fixed bin location per
storage location
Bin location is “text” only; no strategies are available

8. Solution: R/3 Warehouse Management
Initially released with R/2 as an Extension of IM
IM-WM integration is real-time and automatic
Enables granular traceability and control
Ability to synchronize the system and material flow
Simple-to-complex placement and removal strategies
Assignment of inbound orders to outbound deliveries
Allocation of storage bins
Processing of all stock movements valid for WM
Receipts, issues, transfers
Utilizes stock placement and removal strategies
e.g. Next empty bin, addition to stock, FIFO, LG/SM qtys.

9. Solution: R/3 Warehouse Management (cont.)
Infancy to maturity
Functionality considerably expanded with 4.6x and higher
Two-step picking, two-step confirmation, managing multiple
storage locations with a single warehouse
Extension set 2.0 for Enterprise to include Cross Docking,
Yard Management, Value Added Services

10. WM Picks Up Where IM Leaves Off
Company
Plant 1
Plant 2
IM Level
Stor. Location 1
Stor. Location 2
Location 1
WM Level
Warehouse1
Warehouse 2
Stor. Type 1
Stor. Type 2
Stor. Type 3
Stor. Type 1
Typical assignment is one storage location to one warehouse
It is possible to have multiple storage locations managed by a single warehouse
Bin 1
Bin 2
Quant
Quant
Quant
Quant

11. Key WM Features Management of materials Value-added services
Provides bin-level tracking
Inventory management functions
Various placement and removal strategies
Value-added services
e.g. Special handling requirements (labeling, packaging)
Powerful picking control
Two-step picking, wave picking
FIFO, LIFO, large/small quantity picking strategies

12. Key WM Features (cont.) Warehouse activity monitors Cross-docking
WAM, RF Monitor, outbound delivery monitor, wave picking
monitor, TRM Monitor, Yard Management Cockpit, Cross-
Docking Monitor
Cross-docking
Management of inbound and outbound movements
Yard Management
Appointment scheduling, check in and check out,
assignment of dock doors, loading/unloading activities
Task Resource Management
Enhances WM by breaking work down into distinct task

13. WM Integration With Other Key R/3 Modules (cont.)
Fully Integrated with the other SAP Applications
Features:
Flexible Warehouse Structures
Goods Movements
Control
Inventory
Source: SAP WM [LO530]

14. WM Integration With Other Key R/3 Modules (cont.)
IM-WM
Processing of all material movements
Automated communication with configurable processing
SD-WM
Two-step picking with SD-WM integration
Wave picking opportunities
Processing individual deliveries
PP-WM
Production support with PP-WM integration
Supplying materials to the shop floor
Internal and external automated replenishment options

15. WM Integration With Other Key R/3 Modules (cont.)
QM-WM
Handling of inventory samples
Inspection lot is maintained with the material data
Hand-held terminals-WM
Processing of transfer requirements
Processing of transfer orders
Bin and material inquiries

16. Benefits of WM Benefits Better control of inventory
More accurate inventory
Able to maintain lower inventory levels
Better control of information
Visibility to picking and put away status
Reduced cycle time
Gartner: 16-25% Picking Productivity Improvement
Better manage work and workforce to gain efficiencies
Tools to balance and optimize resources
Increased picking / shipping accuracy
11-25% Reduction in Customer Returns

17. Benefits of WM (cont.) Measurable benefits
16-25% Picking Productivity Improvement
11-25% Reduction in Customer Returns
10-25% Savings in Material Handling Labor
10-40% Space Utilization Improvement
13-30% Reduction in Scrap
8-15% Reduction in Carrying Costs
Source: Gartner Report

18. What We’ll Cover … Understanding the difference between WM and IM
Choosing between WM and IM
Optimizing and overcoming limitations with IM and WM

19. When Is Inventory Management the Answer?
IM is great when...
Small facility
Lower levels of inventory on hand
Simplistic material handling processes
Lower volume of activity
Outsourced warehouse operations
Only need storage location or bucket of inventory visibility

20. Key Elements With IM Required data for IM Relevant data for IM IM menu
Plant, valuation and storage location data
Relevant data for IM
Work scheduling, accounting, materials planning, purchasing, classification, storage and quality management
IM menu
Goods movements
Material documents
Reservations
Environment
Focused on reporting, lists and LIS

21. When is Warehouse Management the Answer?
WM is great when
Larger facilities
Large number of materials on hand
Higher volume or flow through
Traceability and visibility is critical
Track material flow, status, inventory levels
Complex processes
Automated systems, wide spread site

22. Key Elements With WM Extend material master Define warehouse structure
Warehouse management view
No required data
Define warehouse structure
Minimize the number of storage types
Define based on similar and different rules for storing materials
Mixed stock, Storage or Handling Unit Management
Define the WM Processes
Automatic, semi-automatic and manual processing
Transfer order creation, confirmation, posting changes

23. Evaluating IM vs. WM 1 – Define business processes
2 – Evaluate ROI of a WMS solution
3 – Consider RF functionality
4 – Training resources and schedule
5 – Focus on optimization opportunities

24. Step 1 - Define Business Processes
Start with receiving, inventory and pick/ship first
Create and evaluate process flow charts
Look at process improvement opportunities
Score the level of complexity
Target areas for improvement
Reduce travel time
Inventory accuracy
Reduce material handling
Map improvements to IM and WM functionality

25. 1 - Define Business Processes (cont.)
“The level of functionality that customers need in a WMS is completely dependent upon their environment. Customers have to define their needs before they can realistically look for a WMS.”
Source: Integrated Solutions

26. Step 2 - Evaluate ROI of a WMS Solution
Measure productivity and accuracy before and after the WMS installation
Review and analyze picking operations
Key area of improvement
Review and analyze inventory accuracy
When supported with RF, accuracy can reach >98%

27. 2 - Evaluate ROI of a WMS Solution (cont.)
“There is no ‘right’ time for paying back a WMS, but typical paybacks are within six to 18 months, depending on the inefficiencies of the current operation and how much safety stock was needed to cover daily operations.”
Source: Total Supply Chain

28. Step 3 - Consider RF Functionality
RF supports improves warehouse bin accuracy
Bin accuracy >98% is possible
Reduces order fill process cycle time
RF projects often have a 1 year or less payback period
Source: Intermec
Compare current receipt process to the time saved when the task is aided by automatic data collection (ADC)

29. 3 - Consider RF Functionality: Example
As-is
1,000 pallets at five minutes / pallet = 5,000 minutes
With two minutes saved per pallet
2 minutes * 1,000 pallets = 2,000 minutes
2,000 / 480 minutes worked by each receiver per day =
4.16 receivers saved from the pallet receiving process

30. Step 4 - Training Resources and Schedule
Resources to evaluate, guide and support a WM solution
A full-time, dedicated WM resource is critical
This may or may not be the same IM resource
Training schedule
A WM solution will require a certain level of IM training
WM training will vary based on the degree of functionality
Support resources
Consider a single resource for IM and WM if possible

31. 5 - Optimization Opportunities
Picking operations and inventory accuracy
What are your baseline requirements
What is the volume of activity
Evaluate picking paths and demand
Look at your accuracy numbers over a period of time
Perhaps monthly, quarterly, annually
Material handling labor costs
Space utilization improvements
Packing tasks
Can you benefit from packing while picking

32. What is the BEST Stock Management Solution?
1 - Inventory Management
2 - Lean Warehouse Management
3 - Full Warehouse Management
4 - Decentralized Warehouse Management

33. Option #1 - Inventory Management
Pro’s
Simplistic
Key receipt, issue or transfer in a single step transaction
Immediate update of inventory
Requires less training commitment
Fewer transactions to document and present
Trace-ability of all material postings into SAP R/3
Date, user, material, quantity, storage location
Real-time update of accounting information

34. 1 - Inventory Management (cont.)
Con’s
Does not handle complex warehouses operations well
Unable to monitor activities
Lacks tools to manage resources and tasks
Lacks functionality to optimize key processes (picking)
Inaccurate system inventory
Inventory updated before the physical movement
Requires additional work if there are discrepancies
Limited trace-ability
Only visibility is when the system posting took place
No visibility to the follow on physical activities

35. Option #2 - “Lean” Warehouse Management
Use of very small portion of WM capabilities
You do not process goods receipts or issues as a
subsequent process in WM,
No storage bins are managed in the WM application
Evolved from SD pick list
Put-away and pick from 1 or more fixed bins
Bin is hard assigned on material master
TO’s are created for picks and put away, and pick list is
created from TO’s

36. 2 - “Lean” Warehouse Management (cont.)
Pro’s
Requires less configuration than full WM
Reduced number of steps in the process
Use of transfer orders as pick lists
Confirmation is not required
Additional processing options
Confirm put-away, picking, over-deliveries, shortages,
batches
Print transfer orders
Integration to HR
Additional picking functionality
Wave picking is possible with Lean WM

37. 2 - “Lean” Warehouse Management (cont.)
Con’s
Must have a fixed bin assigned for all materials
Random storage is not possible
Inventory is still under IM functionality only
Inventory options are at the storage location
Stock differences can only be processed in MM-IM
Lacks additional optimization opportunities
Picking, packing, bin accuracy
No strategies are used
Lack of picking and put away strategies

38. Option #3 - Full Warehouse Management
Pro’s
Optimization opportunities
Picking - Two step picking
Packing - Pick and pack in a single step
Cross-docking - Inbound, outbound, prod. materials
Monitoring and real time visibility to process status
Visual queues at the detailed steps
Open tasks, completed tasks
Additional inventory methods (annual, zero stock)
The module is FREE with the purchase of SAP

39. 3 - Full Warehouse Management (cont.)
Con’s
Inventory counting interferes with operations without RF
Prior to 4.7 extension set 2.0
Initial overhead to set up depending on design
Master data
Capacity checking, control cycles
Configuration requirements
Designing the warehouse layout and set up
Potential for additional steps to support processing
Confirmations
Clearing differences
Processing posting changes

40. Option #4 - Decentralized Warehouse Management
Use of SAP as a standalone WMS
With SAP or other ERP/host as the core system
Core system and decentralized WM run on separate machines
Communication is through BAPI’s for transactions and
IDOC’s for master data
Goods movements done through delivery notes to the
stand-alone SAP WM system

41. 4 - Decentralized Warehouse Management (cont.)
Pro’s
On a separate machine
Decreases criticality of down time
24x7 operation
Can leverage newer SAP R/3 releases
Even if core system is on an older release
Can add additional warehouses without impact to the
core system
Can communicate to multiple core ERP systems

42. 4 - Decentralized Warehouse Management (cont.)
Con’s
Core system is not 24x7 operation
IDOC and/or BAPI errors
IDOC failures
Human intervention is required to work the error queue
IDOC overhead
IDOC’s do not offer all of the available field options that a
user may or may not use with the PC transaction
Must modify the IDOC
SAPConsole has to be set up in the decentralized system
and in the core system

43. Scaling the Solution TRM Decentralized WM WM Lean WM IM Only
Transaction Volume
Lean WM
IM Only
Operational Complexity

44. What We’ll Cover … Understanding the difference between WM and IM
Choosing between WM and IM
Optimizing and overcoming limitations with IM and WM

45. Optimizing and Overcoming Limitations With IM and WM
1 - Physical Inventory tips
2 - Enhance visibility of material flow and locations
3 - Automate picking and put-away
4 - Automatically replenish fixed bins
5 - Consolidate your picking activities
6 - Overcome bottlenecks with RF

46. 1 - Physical Inventory Tips (IM)
Only possible if the storage location data has been
maintained
Solution: Activate automatic storage location for
movement types that receive material into the plant
Avoids the need to create storage data manually
For materials with multiple storage location reqmts.
Use the mass creation option for entering all valid storage
locations at one time into a single entry screen
Transaction code = MMSC

47. 2 - Enhance Visibility of Material Flow and Locations (IM)
Use fixed bin assignment to gain additional visibility
Material master storage location view
Two-step transfers vs. one-step movements
Storage location-to-storage location (movements 313, 315)
Plant-to-plant (movements 303, 305, 351, 352)
Outbound delivery monitor
Use to view outbound deliveries, shipments and loading
activities

48. 3 - Automate Picking and Put-away (WM)
Define a picking strategy per storage type
A - Partial quantity management
If picking results in partial quantities, pick from here first to
avoid breaking new pallets
M - Large/small quantities included
Use to facilitate larger quantity picks from bulk areas and
smaller quantity picks from rack areas
P - Fixed bin from material master
For fast moving items, assign a dedication location toward
the front of the warehouse
Use replenishment to enough maintain stock for demand

49. 3 - Automate Picking and Put-away (WM) (cont.)
Define a put away strategy per storage type
AVOID manual put away practices
C - Open storage
Use for large items that don’t require a specific bin
assignment
I - Addition to existing stock
Useful for consolidating receipts of the same material upon
put-away
Caution: Since only one quant resides in a bin, all materials in the bin adopt the same receipt date (unless batch or storage unit managed)

50. 3 - Automate Picking and Put-away (WM) (cont.)
Define a picking strategy per storage type (cont.)
L - Next empty bin
Great fit for high rack storage; whereby a standard rack
section can hold 2-3 units of storage
Useful for storing pallets of material; one pallet per bin
location

51. 4 - Automatically Replenish Fwd. Picking Locations (WM)
Batch program
A scheduled job to read fixed bin data and generate
replenishment transfer orders
2 required programs
RLLNACH1
RLAUTA10
“Upon transfer order confirmation” option
Creates an automatic replenishment TO when a pick
confirmation drives the fixed bin location below the min.
stock level

52. 5 - Consolidate Your Picking Activities (WM)
Two-step picking
Based on selection criteria, relevant deliveries are read
and like material requests are collected
This collection results in a single aggregated picking
order and task for each like material (first step)
TO splitting can be leveraged to distribute large picks
The second step is the re-allocation procedure
This is the process of “re-assigning” the specific materials
and quantities back to the original requirement
Reduces duplicate picking efforts
Cuts order fulfillment cycles

53. 6 - Overcoming WM Performance Bottlenecks with RF
Potential bottlenecks and solutions
More detailed operations require more transactional steps
Leverage RF to reduce the data entry requirements
Leverage RF to consolidate/combine transactions
Physical inventory blocking
Leverage RF to reduce the time a bin is blocked
In R/3 Enterprise, inventory can be processed if an open
transfer order exists
Pick and pack in a single step with RF
Incorporate RF to pick into a handling unit to avoid the need
to perform packing as a separate task

54. Resources “How to Select a WMS”
By Christopher Trunk, TotalSupplyChain.com,
“Warehouse Management Systems, Defining Your
Business Needs”
by Doug Campbell, Integrated Solutions, January 2000
Gartner Report TU
Supply Chain Forum White Paper
By John Hill, ESYNC, Logistics Execution System Perspective

55. 7 Key Points to Take Home
Evaluate your business processes to determine the
BEST inventory management tool
Inventory management strengths focuses on managing
stock at the quantity and value levels
Inventory management offers a single bin assignment
per material per storage location; no strategies
Lean WM offers transfer order functionality to support
receiving/put away and picking for deliveries
continued…

56. 7 Key Points to Take Home (cont.)
Warehouse management offers additional areas of
functionality not available with IM
Cross docking, Inventory methods and more!
Decentralized WM offers functionality that will work with
SAP and other ERP solutions
Implement RF to increase accuracy, speed, real time
inventory and status updates with any solution