By explaining how period closing generally works on the supply chain side, I will help you to develop your own process based on your company's specific business practices. I'll begin by elaborating on period close, present a sample checklist, and, finally, ex- plain some of these activities in more detail.

What Is Period Close?

Period close is performed in three stages:

1. Preclose: The period coming to an end is temporarily closed. Ending period subledgers are permanently closed. The new period is opened to allow postings for regular activities. This ensures that all subledger entries, including inventory, vendor, and customer transactions, have reached their logical conclusion and have been posted to the general ledger (G/L). Entries can be posted to the old or new period in this stage. Materials Management (MM) subledger entries for the previous period are reconciled with Financial Accounting (FI).

2. Managerial close: Reassignment of costs across various departments using the controlling functionality in FI. This involves allocation of costs from one department to another in Controlling (CO). It also accounts for entering adjustment entries in FI for the old period.

3. Financial close: Financial postings of costs assigned in earlier stages are executed. This results in the final close of the old period and generation of reports for the old period.

Most of the supply chain activities occur primarily in the preclose stage, so that stage will be the focus of this article.

Table 1 shows a sample checklist of supply chain activities during the preclose stage.

Key Steps

A few of the important steps in Table 1 are explained below, to help the reader to understand and implement the process. The remainder is self-explanatory.

Step 1. Open new MM posting period. This allows inventory specialists to close one or more past periods for posting and allow posting to one or more current or future posting periods. At any time, there would be two open periods in MM. The prior period is open for any adjustments to be passed at period-end and the new period is open for daily postings. Use transaction MMPV to execute this activity (or use menu path Logistics>Materials Management>Material Master>Other> Close period).

Figure 1 illustrates how the period 04, 1998 is opened for the company shown as 0001. Periods 03, 1998 and 04, 1998 remain open and 02, 1998 is closed.

Figure 1

Opening the period 04, 1998

Step 2. Control posting to the old MM period. Once the new MM posting period has been opened, SAP allows you to control posting in the old period using transaction MMRV (or use menu path Logistics>Materials Management> Material Master>Other>Allow posting to previous period).

In Figure 2, you can see that the Allow posting to previous per. indicator was checked automatically for the previous period 03, 1998 for company 0001. If you don't want R/3 to set this indicator automatically, you can check Disallow backposting generally.

Figure 2

Allow posting to a previous per. is checked automatically

Step 4. Verify that all post-goods issues have been invoiced. Use transaction VF04 (billing due list) to track all goods issues that have not been invoiced. Figure 3 shows how to use the Maintain Billing Due List screen for the old period for sample Sales Organization 0001, Billing Type FP, and billing date range from 03/01/1998 to 03/31/1998. This could generate either an individual billing document or collective billing document, according to your business requirements.

Figure 3

Billing due list for the old period

Step 6. Execute any pending vendor invoices. When invoices are sent from one system to another target system, an invoice is parked in the target system using a setting maintained in transaction OLMR (or use menu path Logistics>LIV>EDI> Enter Program Parameters) for each sending system. After a parked invoice is flagged for background verification, run the program RMBABG00 to validate pending, parked invoices against goods receipts and post the invoice. Figure 4 shows how to create Logistics Invoice Verification (LIV) documents. If the setting maintained in step 2 does not allow for posting in the old period, then program RMBABG00 allows posting to a new period using posting date determination indicator 1 and an alternative posting date, which is 04/01/1998 in the example.

Figure 4

Create LIV documents

Step 7. Perform inventory valuation. Inventory specialists in a typical company's finance group evaluate the price of the material. A material is valuated at standard price based on raw material cost, labor cost, and administrative overheads. At period-end, the product development team evaluates the standard price and performs valuation. Use transaction MR21 (or menu path Logistics> Materials Management>Valuation> Valuation>Price Determination>Change price) for manual price changes to material. In Figure 5, you can see how to change prices manually for a material 602-4216 by entering a new value. Once a price is changed, inventory stock is valued with a new price.

Figure 5

Manual material price change

Step 8. Verify the balance of GR/IR. GR/IR clearing is an open item managed account and must be maintained, including reconciliation prior to period-end. This involves transactions for which material has been received in stock but has not been invoiced, material not received but invoiced, and material received and invoiced but not cleared.

Maintain the account using transaction MR11 (or use menu path Logistics> MaterialsManagement>Invoice Verification>Furtherprocessing>Maintain GR/IR acct). As indicated in Figure 6, you can display a list of GR/IR documents for a given Posting Date, Vendor, Purchasing Organization, and Purchase Order Dates.

Figure 6

Maintain the GR/IR clearing account

Figure 7

Check GR/IR balances

Step 9. Reconcile warehouse stock with SAP stock. At period-end, inventory specialists must reconcile actual warehouse stock with book stock. This involves counting physical stock, validating against book stock, and passing stock adjustment entries in MM and posting them to FI. You may create cycle count documents periodically based on the class of material (A, B, or C) and pass accounting entries to FI. Table 2 indicates activities performed during physical inventory processing and their transaction codes.

Additional Tips

• How do you define stock in-transit at period-end? From an inventory perspective, a store would consider stock received at a warehouse as actual stock and stock dispatched from other warehouses but not received as stock-in-transit. From an FI perspective, stock-in-transit is also considered as stock in terms of accounting and is recorded as an asset on the balance sheet.

• How do you define vendor liability? When a vendor invoice is received against materials not received in the warehouse, you must validate whether it needs to be treated as liability. Either the invoice is parked in MM or posted to FI. If it is parked in MM, there is no accounting impact.

• How do you value stock? When stock is valued at period-end, implications of booking stock using first in, first out (FIFO), last in, first out (LIFO), or a weighted average need to be taken into consideration.

• What do you treat as customer receivable? You must define whether goods shipped or billed invoices are receivables.

• How do you define accruals? For some logistics items such as freight, the finance group needs to pass accrual entries to take these into books prior to period-end and reverse once the new period has been opened. All such entries have to be identified and passed at period-end.