With greater emphasis on shipping efficiently and cost-effectively, it is important to have a successful and easy-to-work warehouse. This is why more companies are implementing the SAP R/3 Warehouse Management (WM) module. In my experience, however, some companies are not achieving all the possible benefits that WM can provide.

The problem is that companies often do not integrate WM well with other R/3 logistics modules — Inventory Management (IM), Production Planning (PP), Sales and Distribution (SD), Quality Management (QM), and Plant Maintenance (PM). Consequently, the functions that WM was designed to perform are executed inefficiently.

Achieving those benefits requires that business managers, SAP project managers, WM design and implementation teams, and logistics module teams understand the touch-points and other factors that affect the interaction among various modules and provide integration tips. I will describe those factors and also provide a list of common implementation mistakes and tell you how to avoid them. If you've already implemented WM, then the information presented here might give you ideas for improving its operation.

WM vs. IM

You might be wondering what WM can do that IM can't. IM, which resides within the Materials Management (MM) module, lets you manage your inventories at the plant and storage location level. The materials may be batch-managed. All transactions such as goods receipts, goods issues, and stock transfers/transfer postings involve creation of material documents with accounting documents. Accounting documents have all the General Ledger items and further actions such as accounts receivable or accounts payable.

WM functions take place a level below IM. The significance here is that WM has nothing to do with accounting documents. WM allows you to manage stocks of materials at the bin level, which is below the plant and storage location level. If you are able to manage material stocks at the plant and storage location level, you do not need WM; IM does the job. With the huge monolithic warehouse structures in most large businesses, however, managing materials at the bin level — and consequently WM — is a necessity. The sidebar, “7 Most Important Features of WM,” provides more details on the module's capabilities, and the sidebar, “9 Questions to Ask Before Implementing WM,” helps you decide if WM is right for your organization.

The WM implementation process presents four distinct key areas:

• Warehouse design
• Warehouse operations
• WM master data
• Interfaces with other R/3 modules

I will list the most common pitfalls and considerations for each of these areas and provide advice on how to avoid them.

Warehouse Design

1. Incorrect number of storage types. The storage types must reflect the areas where the materials are actually stocked. You must have a judicious number, neither too many nor too few. Divide the whole warehouse into clearly distinguished storage types such as finished goods, raw materials, solvents, chemicals, or south room. Understand that major configuration works at the storage type level, — e.g., capacity checks, confirmation requirements, and so on.

2. Design complexity in storage types. Each storage type design should be based on considerations of confirmation requirements for putaway and picking, and on automatic confirmation of transfer orders (TOs) on creation itself or in a separate step (Figure 1). Important features are placement and removal strategies, need for change of destination bin at confirmation, negative stock allowed in bins, and mixed stock. Too many WM implementations fail due to lack of clear understanding in this area.

Figure 1

Storage type design defines important features such as placement and removal strategies, inventory methods and hazardous material

3. Palletization. Can the material be
palletized for putaway? One pallet might have four boxes, each containing three cartons with four pieces each. Different pallet types can be used for different types of materials handled in warehouses.

4. Stock putaway and picking strategies. SAP provides standard strategies such as “next available bin,” “first in, first out,” and “partial pallets.” If you are convinced that standard strategies do not meet your requirements, then resort to custom strategies only through user exits. Standard strategies meet most of the common requirements and work efficiently. Note that custom strategies require a strict definition of rules and are difficult to implement. Many companies that choose custom strategies later switch to standard ones.

5. Mixed storage/addition to stock. Take into account whether different materials and batches will be allowed and whether stock will be added to the same material batch present in bins.

6. Capacity checks in bins. Bin capacities need to be defined at storage type to automate putaway. You may define by weight, quantity, or palletization. This is another area where WM's rules are strict. Capacity checks make the system slow and operations restrictive.

7. Negative stocks. You need to be careful when allowing negative stocks for any storage type. It might look like an attractive option, but it causes serious interference in warehouse operations. Users forget to move stocks to balance negative stocks. For example, it might
be more beneficial to work through transaction COGI (Failed Goods Movements) than to allow negative stocks in production bins.

Warehouse Operational Considerations

8. Types of TOs to be confirmed by separate transactions. You can simplify the steps involved in warehouse operations by allowing automatic confirmations of TOs. The rule should be: “If you provide the bin information at TO creation, confirm it immediately.” Look and cash in on all opportunities of automatic TO confirmation — PCNs, for example.

9. Type of TOs to print. Select a limited number of types for only required TOs — e.g., picklists, putaways for goods receipts from purchase orders, and process/production orders.

10. Who performs the transactions. Identify the operators/users who will be carrying out WM transactions. Will they have enough time to do these transactions in addition to their other warehouse responsibilities? Estimate the total transactions and anticipate growth of warehouse operations.

11. Unacceptable number of transactions/steps in WM operations. This factor is usually ignored until after go-live. Understand that if you have 5,000 goods receipts from purchase orders in a months and you make TO creation and confirmation separate steps, warehouse operators/users will need to do 10,000 transactions. Is this justified? Discuss and question each requirement, as it is a drain on scarce user resources.

WM Master Data

12. Warehouse units of measure (UOM). Follow the SAP recommendations on selection and use of the various UOM shown in Figure 2 — base UOM and WM UOM. The warehouse operations should be done in WM UOM, since it is a larger unit (case, pallet, drum). Strict rules need to be observed for WM UOM. The importance of WM UOM is often underestimated.

Figure 2

Base, alternative, and WM UOM: base unit = piece, sales unit = carton (four pieces), WM unit = three cartons (12 pieces), and palletization = four boxes (48 pieces)

13. Palletization data. Within WM, movements are done in palletized units. This considerably simplifies the number of TO items and subsequent handling of these units in the warehouse. This is another area of neglect; palletization data needs to be well defined and implemented to conserve on warehouse effort both physically and transaction-wise. In Figure 2, if a pallet is stocked in the warehouse, it is one pallet of four boxes, or 48 pieces, where the base UOM = PC and WM UOM = pallet.

14. Inaccurate conversion factors. Inaccurate UOM conversions between the base and alternate UOM lead to interruptions in warehouse operations as the quantities within the TO have to match to three decimal places. For example, if the base UOM is kilograms and the sales and WM UOM is PC with a conversion of 333 PCs = 10,000 kg, it will result in an unfavorable conversion factor within SAP leading to a recurring value of 3.003003003003. The TO can never be confirmed, as the system is looking for exactly three decimal places. Simplify the conversion formula to 33,333 PCs = 999,999 kg, and you have a perfect answer. Another problematic conversion is pounds to kilograms, which affects almost all U.S. implementations. If you don't address these UOM conversion issues, you will end up with “decimal dust” in bins, which interferes with picking and putaways, particularly if you use capacity checks. A lot of manual intervention will be required to add decimal fractions in bins to enable picking. This is another problem that companies spend a lot of money on to fix after going live.

WM Interface with IM

15. IM process automation. Manual processes are time-consuming, inefficient, and require more warehouse personnel. You can automate IM processes — e.g., goods receipt for purchase and production orders or stock transport orders — so that the system selects bins for putaway based on putaway strategies. Likewise, goods issued to process/production orders and PM orders should be automated so that the system selects bins according to picking strategies. Stock transfers between plant and storage locations within the supply chain can also be automated — a significant benefit where large quantities of materials move between plants.

16. WM movement types and links with IM movement types. The automation of various WM movements is achieved through the IM-WM Interface, which links the actions under the different processes. If need be, design multiple WM movement types to link with one IM movement type using special movement indicators. Remember that it is much easier to copy WM movement types than to create new ones. Also, designing these movement types is much simpler than designing IM movement types within MM.

WM Interface with PP

17. Staging of materials to production supply areas (PSAs) and methods of staging. Select different staging methods carefully. Remember that items within bills of material (BOMs) can have different methods of staging.

• Pick-order parts: materials staged per production/process order
• Release-order parts: materials staged for multiple process/production orders depending on material stocks in production bins
• Crate parts: common-use materials staged independent of process/production orders

Do not default to using only one method.

18. Backflushing. Clear consumed materials from PSAs by backflushing to simplify the interface. Integrate this step during production order/process order confirmations along with automatic goods receipts from orders. This makes the consumption of materials transparent to users and saves considerable time and effort. Figure 3 shows the typical material staging and consumption process in process industry. The process orders for bulk and finished goods materials are staged to the “Bulk” and “Finish” PSAs from where the backflushing takes place at time of process-order confirmation.

Figure 3

Material staging and consumption process in the process industry; materials are backflushed from IM and WM storage locations

7 Most Important Features of WM

1. Management of stocks at bin level. This provides a capability to put away and pick materials from specific bins. It is possible to manage material movement at a level below the bin level by using storage unit (SU) management, but this adds a level of complexity.

2. Downstream management of material movement. The movement in WM is usually initiated in IM, and WM manages actions downstream of placement/removal of materials from bins.

3. Represent multiple plants or storage locations within one warehouse. The WM structure consists of multiple storage types, storage sections, and storage bins. Each bin has a key “storage type/storage section/storage bin.” A storage type divides the entire warehouse by organizational, storage technique, or even geographical considerations. Examples are “high racks,” “raw materials,” or “building 51.” A storage section is a necessary evil. You need at least one, as a storage section allows grouping of storage bins in sections. This improves bin management. Examples are “fast-moving” or “south racks.” A storage bin is the smallest addressable location within a warehouse. There could be any number of bins with any names you want. Simple names help with manual data entry, but naming does not matter if you use mobile data entry with RF or bar-code scanners. The Figure shows a typical warehouse structure in WM.

Warehouse structure as represented in WM

4. No affect on the general ledger. WM uses movement types similar to those in the IM module, but not exactly the same. Movement types in IM involve accounting documents, but those in WM do not. WM movement types link with IM movement types, however, and are used within other modules: SD, QM, PM, etc.

5. Automation of confirmation processes. WM uses a mechanism of transfer requirement (TR) or posting change notice (PCN), transfer order (TO), and TO confirmation for actual movement of materials. TRs are usually created automatically as a result of actions within IM. For instance, a goods receipt from a purchase order creates a TR, telling the warehouse to place the received material in a bin. Depending on the business process requirements, TR, TO, and TO confirmation processes can be automated.
For instance, TOs can be automatically confirmed when created.

6. Master-data sensitive. For instance, you can restrict placement/removal in/from storage types in the warehouse. Also, bin capacities can be defined. This is important in some business situations, such as when only four pallets can be placed in a bin. The capacity may be in terms of weight (say, 2,000 pounds), neutral number (say, 25 against a bin capacity of 100), and so on. Specific rules or practices should be important considerations, but these tend to be restrictive. For example, you might restrict each bin to four pallets, each representing a number 25 against a bin capacity of 100. Once bin capacity is defined, you should not expect to place six pallets in a bin as this would require a change in the master data (for bin capacity).

Do not use such restrictions unless they are absolutely necessary for your warehouse process. This rule is often violated.

7. Automation of bin selection. WM provides automation in bin selection using various SAP-standard and custom putaway and picking strategies. It is possible to specify that different materials be placed in or removed from specified storage types in a particular sequence.

WM Interface with Shipping

19. Delivery Monitor. The Delivery Monitor acts as a delivery cockpit from which you can monitor the sales and stock transport orders to be picked, picking confirmation, goods issues, and invoicing. Encourage use of this functionality to monitor the outbound delivery processing.

20. Pick lists for sales orders/stock transport orders. Collective processing of sales order/stock transport order deliveries with automated printing of pick lists must be encouraged, because running single pick lists is time-consuming. Figure 4 shows the process for single and collective processing of pick lists (TOs) for deliveries.

Figure 4

Delivery monitor with single and multiple processing of deliveries

21. Delivery processing for shipping (full/partial). To make picking processes more efficient, warehouses must be encouraged to run deliveries at set intervals by combining multiple sales orders in a single delivery. This saves material-handling effort within the warehouse, shipping charges, and handling costs.

22. Wave picks. If it is feasible to run deliveries at set times during the day — say, every hour — it will conserve shipping effort, as all picking for a bin for different deliveries can be combined. This is called “wave picking,” and it is particularly attractive in big, mechanized warehouses.

23. Customer manifesting, order tracking/express ship. After the picking is confirmed, the information can be directly passed to an order-tracking system for your customers. Many shippers and carriers allow customers to track orders through the Web. Making this visible through your customer interface requires programming, but it is highly rewarding in terms of customer satisfaction.

WM Interface with QM

24. Usage decisions. The usage decision functionality allows you to set stock movements to unrestricted stock, blocked stock, or scrap. It uses IM movement types. Remember that with the QM interface, the movement is only allowed through QM usage decisions to maintain integrity.

25. Posting change notices (PCNs). Material movements through QM use PCNs, which are often misunderstood. Think of them as an equivalent of a transfer requirement. Wherever batch numbers or material numbers are changed in logistic processes, a PCN is generated. The processing of PCNs into a TO is slightly different. It should be largely automated through the process of TO creation in the background and during confirmation. This makes the process transparent to users.

26. Rework. The materials may need to be reworked due to quantity problems, and this can be done through the QM interface by placing the material in the quality stock through the process of manual inspection lot creation. The movement invokes a PCN and the usual processing. On completion of rework, the material may move back into the warehouse if it is declared as unrestricted stock.

WM Interface with PM and PS

27. PM orders/PS orders. The PM orders are created within PM as a result of planned preventive maintenance schedules. The PS orders are created as a result of a project's work breakdown structure (WBS) elements. The pick lists supply materials for both order types from the warehouse.

28. Pick lists for PM orders. The picking is created in the same manner as it is with production order issues. PM orders must be automated to ensure timely goods issues.

As you can see, it is feasible to have an easy-to-use WM implementation designed to meet conflicting business requirements using SAP standard functionality. Avoid pitfalls in the early design stages and keep up on maintenance during the project design and implementation phases. There is no substitute for demos or walk-throughs with different options that simulate how the system works in a live warehouse environment. They will help provide an acceptable warehouse design that is efficient and effective.

Vijay Garg

Vijay Garg, PMP, has more than 14 years of SAP project management and implementation experience with Fortune 500 companies in the high-tech, chemicals, CPG, and engineering industries using various SAP Business Suite applications as well as SAP APO. Prior to working in SAP, he had vast experience in the engineering industry, including software development and applications.

You may contact the author at vgarg@crestron.com.

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