SCM Expert - 28 Points You Need to Know About SAP WM Implementation

http://www.scmexpertonline.com/article.cfm?id=1527[17/04/2011 1:53:20]

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Inventory management, Manufacturing, Master data, Planning and forecasting, SCM, Warehousemanagement

28 Points You Need to Know About SAP WMImplementation

by Vijay Garg, Senior SAP SCM Consultant, ICM America • October 1, 2003

Companies sometimes fail to integrate R/3 Warehouse Management with other R/3 logistics

modules as well as they could. This results in inefficiencies and perhaps an expensive fix on a live

system. We show you the points you need to consider to make WM work well with the rest of your

R/3 logistics system and avoid potential problems.

With greater emphasis on shipping efficiently and cost-effectively, it is important to have a successfuland easy-to-work warehouse. This is why more companies are implementing the SAP R/3 WarehouseManagement (WM) module. In my experience, however, some companies are not achieving all thepossible 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 areexecuted inefficiently.

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

WM vs. IM

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

WM functions take place a level below IM. The significance here is that WM has nothing to do withaccounting documents. WM allows you to manage stocks of materials at the bin level, which is below theplant and storage location level. If you are able to manage material stocks at the plant and storagelocation level, you do not need WM; IM does the job. With the huge monolithic warehouse structures inmost large businesses, however, managing materials at the bin level — and consequently WM — is anecessity. The sidebar, “7 Most Important Features of WM,” provides more details on the module'scapabilities, and the sidebar, “9 Questions to Ask Before Implementing WM,” helps you decide if WM isright 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 howto avoid them.

Warehouse Design

1. Incorrect number of storage types. The storage types must reflect the areas where the materialsare actually stocked. You must have a judicious number, neither too many nor too few. Divide the wholewarehouse 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.

About the ExpertVijay Garg is an SAP professionalfocused on logistics and supply chainmanagement. He has more than 14years of SAP experience in the SCMand Logistics Execution area. Hisrecent experience relates to projectimplementations globally in Fortune500 companies. He has been

involved in multiple implementations in the Hi-Tech,Chemicals, CPG, and Engineering industries. He hashelped many clients achieve cost effective solutions tocomplex issues. He has been involved with SupplyChain Planning and Optimization with SCM modules andachieved efficiency in demand and supply planning incomplex supply chain networks. His well-thought-outand unique designs have helped customers optimizesupply chains and achieve high KPIs. He has beeninvolved in warehouse design and optimization includingradio-frequency (RF) implementation across multiplesupply chain areas, leading to cost savings and dataintegrity. He specialized in SAP project implementationand management leading to project delivery within costand time budgets. He has constantly delivered a highlevel of customer satisfaction and high ROIs. Vijay has amaster's degree in engineering design and is a CertifiedSupply Chain Professional (CSCP) and ProjectManagement Professional (PMP). Vijay is a partner atEnowa Consulting and based out of New Jersey.

"Focus on delivering value, efficiency, and costeffectiveness to customers' supply chain managementimplementation projects. Deep involvement is aprerequisite to achieving success in customers' SAPimplementation projects. Your efforts will be wellrewarded through customer recognition for highprofessionalism. There can be no better satisfactionthan contributing to a customer's bottom line thoroughyour professional involvement."

View Vijay's Profile

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SCM Expert - 28 Points You Need to Know About SAP WM Implementation

http://www.scmexpertonline.com/article.cfm?id=1527[17/04/2011 1:53:20]

2. Design complexity in storage types. Each storage type design should be based on considerations ofconfirmation 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 removalstrategies, need for change of destination bin at confirmation, negative stock allowed in bins, and mixedstock. 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 pieceseach. 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 availablebin,” “first in, first out,” and “partial pallets.” If you are convinced that standard strategies do not meetyour requirements, then resort to custom strategies only through user exits. Standard strategies meetmost of the common requirements and work efficiently. Note that custom strategies require a strictdefinition of rules and are difficult to implement. Many companies that choose custom strategies laterswitch to standard ones.

5. Mixed storage/addition to stock. Take into account whether different materials and batches will beallowed 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. Youmay define by weight, quantity, or palletization. This is another area where WM's rules are strict. Capacitychecks make the system slow and operations restrictive.

7. Negative stocks. You need to be careful when allowing negative stocks for any storage type. It mightlook like an attractive option, but it causes serious interference in warehouse operations. Users forget tomove stocks to balance negative stocks. For example, it might be more beneficial to work through transaction COGI (Failed Goods Movements) than to allow negativestocks in production bins.Tip! Use the simplest possible configuration design that will meet the business requirements.Demonstrate the complexities involved in each of the above design factors to everyone involved duringthe design phase and get acceptance for the design at the highest level. I've seen this factor ignored toooften. Inevitably, someone is unhappy with the result, and the company spends thousands of dollars tofix a live system.

Warehouse Operational Considerations

8. Types of TOs to be confirmed by separate transactions. You can simplify the steps involved inwarehouse operations by allowing automatic confirmations of TOs. The rule should be: “If you provide thebin information at TO creation, confirm it immediately.” Look and cash in on all opportunities of automaticTO 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 WMtransactions. Will they have enough time to do these transactions in addition to their other warehouseresponsibilities? Estimate the total transactions and anticipate growth of warehouse operations.

11. Unacceptable number of transactions/steps in WM operations. This factor is usually ignoreduntil after go-live. Understand that if you have 5,000 goods receipts from purchase orders in a monthsand you make TO creation and confirmation separate steps, warehouse operators/users will need to do10,000 transactions. Is this justified? Discuss and question each requirement, as it is a drain on scarceuser resources.

WM Master Data

SCM Expert - 28 Points You Need to Know About SAP WM Implementation

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

Figure 2 Base, alternative, and WM UOM: base unit = piece, sales unit = carton (four pieces), WMunit = three cartons (12 pieces), and palletization = four boxes (48 pieces)

13. Palletization data. Within WM, movements are done in palletized units. This considerably simplifiesthe number of TO items and subsequent handling of these units in the warehouse. This is another area ofneglect; palletization data needs to be well defined and implemented to conserve on warehouse effortboth physically and transaction-wise. In Figure 2, if a pallet is stocked in the warehouse, it is one pallet offour 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 UOMlead to interruptions in warehouse operations as the quantities within the TO have to match to threedecimal places. For example, if the base UOM is kilograms and the sales and WM UOM is PC with aconversion of 333 PCs = 10,000 kg, it will result in an unfavorable conversion factor within SAP leadingto a recurring value of 3.003003003003. The TO can never be confirmed, as the system is looking forexactly three decimal places. Simplify the conversion formula to 33,333 PCs = 999,999 kg, and you havea 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 ofmanual intervention will be required to add decimal fractions in bins to enable picking. This is anotherproblem 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 morewarehouse personnel. You can automate IM processes — e.g., goods receipt for purchase and productionorders or stock transport orders — so that the system selects bins for putaway based on putawaystrategies. Likewise, goods issued to process/production orders and PM orders should be automated sothat the system selects bins according to picking strategies. Stock transfers between plant and storagelocations within the supply chain can also be automated — a significant benefit where large quantities ofmaterials move between plants.

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

WM Interface with PP

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

Pick-order parts: materials staged per production/process order

Release-order parts: materials staged for multiple process/production orders depending onmaterial 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

SCM Expert - 28 Points You Need to Know About SAP WM Implementation

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receipts from orders. This makes the consumption of materials transparent to users and savesconsiderable time and effort. Figure 3 shows the typical material staging and consumption process inprocess 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 backflushedfrom 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 fromspecific bins. It is possible to manage material movement at a level below the bin level by using storageunit (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 structureconsists of multiple storage types, storage sections, and storage bins. Each bin has a key “storagetype/storage section/storage bin.” A storage type divides the entire warehouse by organizational, storagetechnique, or even geographical considerations. Examples are “high racks,” “raw materials,” or “building51.” A storage section is a necessary evil. You need at least one, as a storage section allows grouping ofstorage bins in sections. This improves bin management. Examples are “fast-moving” or “south racks.” Astorage bin is the smallest addressable location within a warehouse. There could be any number of binswith any names you want. Simple names help with manual data entry, but naming does not matter if youuse mobile data entry with RF or bar-code scanners. The Figure shows a typical warehouse structure inWM.

Warehouse structure as represented in WM

4. No affect on the general ledger. WM uses movement types similar to those in the IM module, butnot exactly the same. Movement types in IM involve accounting documents, but those in WM do not. WMmovement 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) orposting 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 froma purchase order creates a TR, telling the warehouse to place the received material in a bin. Dependingon the business process requirements, TR, TO, and TO confirmation processes can be automated. For instance, TOs can be automatically confirmed when created.

SCM Expert - 28 Points You Need to Know About SAP WM Implementation

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6. Master-data sensitive. For instance, you can restrict placement/removal in/from storage types in thewarehouse. Also, bin capacities can be defined. This is important in some business situations, such aswhen only four pallets can be placed in a bin. The capacity may be in terms of weight (say, 2,000pounds), neutral number (say, 25 against a bin capacity of 100), and so on. Specific rules or practicesshould be important considerations, but these tend to be restrictive. For example, you might restrict eachbin to four pallets, each representing a number 25 against a bin capacity of 100. Once bin capacity isdefined, you should not expect to place six pallets in a bin as this would require a change in the masterdata (for bin capacity).Tip! Do not use such restrictions unless they are absolutely necessary for yourwarehouse process. This rule is often violated.

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

9 Questions to Ask Before Implementing WM

If you are considering whether to implement WM, the following factors will help you in your decisionmaking. You may assign different weights to various factors according to your specific requirements.

1. Does your warehouse handle a large number of materials? The greater the number of materials,the more likely it is that you need WM. You should certainly consider WM if your warehouse manages2,000 different materials or more. You can easily manage just finished goods in WM and have rawmaterials, packaging materials, tank farm materials, or works-in-progress managed within IM.

2. Are your materials batch-managed? Each batch of a material adds complexity to materialmanagement in a warehouse. If you have multiple batches for each material, it will be more difficult tomanage materials without WM.

3. Are the materials in your warehouse randomly placed in bins? The ability to place materialrandomly helps you use the available warehouse more efficiently, as any material may be placed in anyavailable location. If materials in your warehouse are managed by a fixed bin for each material, you canmanage materials within IM and may not need WM.

4. Are your materials already managed in bins by a legacy system? This could be an importantoverriding factor in favor of WM. If materials are already managed using some warehouse procedures andtechniques in a legacy system, then WM needs to be implemented.

5. Do you find it difficult to locate material batches in your warehouse? Since batch numbersallow management of the same material with different characteristics under one material number, say 10batches for a material, WM can be a big asset here. Are you typically hunting for materials to be issuedto customer orders/production in your warehouse? You need the specific material batch, and differentbatches could be in different bins in the warehouse.

6. Do you wish to eliminate manual processes and automatically select bins for putaway(goods receipts) and pick (goods issues) materials from bins? WM is your only option to achievethis within SAP.

7. Do you need to identify specific pallets or containers? For example, you might have large binsizes, or a customer or production needs a specific pallet reserved. This is only feasible using the storageunit (SU) management functionality within WM. Each SU has a unique ID.

8. Do you have clearly defined rules or warehouse practices? This is extremely important, as thedesign will revolve around the rules. WM's rules are unforgiving. Once set, rules can be changed only witha lot of effort through design reconfiguration and possibly master data.

9. Do you wish to use RF or bar-code scanners to automate putaway or picking from bins? RFand bar-code scanning eliminates manual data entry, which is error-prone. It improves data integrity andefficiency.

WM Interface with Shipping

19. Delivery Monitor. The Delivery Monitor acts as a delivery cockpit from which you can monitor thesales 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/stocktransport order deliveries with automated printing of pick lists must be encouraged, because runningsingle pick lists is time-consuming. Figure 4 shows the process for single and collective processing ofpick lists (TOs) for deliveries.

SCM Expert - 28 Points You Need to Know About SAP WM Implementation

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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 asingle delivery. This saves material-handling effort within the warehouse, shipping charges, and handlingcosts.

22. Wave picks. If it is feasible to run deliveries at set times during the day — say, every hour — it willconserve 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, theinformation can be directly passed to an order-tracking system for your customers. Many shippers andcarriers allow customers to track orders through the Web. Making this visible through your customerinterface 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 tounrestricted stock, blocked stock, or scrap. It uses IM movement types. Remember that with the QMinterface, 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 oftenmisunderstood. Think of them as an equivalent of a transfer requirement. Wherever batch numbers ormaterial numbers are changed in logistic processes, a PCN is generated. The processing of PCNs into a TOis slightly different. It should be largely automated through the process of TO creation in the backgroundand 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 donethrough the QM interface by placing the material in the quality stock through the process of manualinspection 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 preventivemaintenance 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 orderissues. 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 conflictingbusiness requirements using SAP standard functionality. Avoid pitfalls in the early design stages and keepup on maintenance during the project design and implementation phases. There is no substitute fordemos or walk-throughs with different options that simulate how the system works in a live warehouseenvironment. They will help provide an acceptable warehouse design that is efficient and effective.

SCM Expert - 28 Points You Need to Know About SAP WM Implementation

http://www.scmexpertonline.com/article.cfm?id=1527[17/04/2011 1:53:20]

Vijay Garg is a senior SAP Supply Chain Management (SCM) consultant for ICM America. He has overeight years of SAP implementation experience with Fortune 100 companies in the chemicals,pharmaceutical, high-tech, and electronics industries, working with various R/3 logistics modules inaddition to APO. He also has vast experience in the engineering industry as well as software developmentand applications.

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