Careers Business Ownership Inventory Management, Using the SAP System Share PINTEREST Email Print Jetta Productions/Blend Images/Getty Images Business Ownership Operations & Success Supply Chain Management Sustainable Businesses Operations & Technology Marketing Market Research Business Law & Taxes Business Insurance Business Finance Accounting Industries Becoming an Owner By Martin Murray Martin Murray Twitter Martin Murray is a former writer for The Balance Small Business, and the author of eight books on supply chain management and enterprise resource planning. Learn about our Editorial Process Updated on 09/27/18 Inventory management is the process of efficiently monitoring the flow of products into and out of an existing inventory in the warehouse. This process involves controlling the receipt of products to prevent the inventory from becoming too high where items are stored at an unnecessary cost, or too low where it can cause a stock-out and production could be halted due to lack of raw materials. In SAP, the inventory management functionality revolves around the movement of materials in and out of the storage facility and the physical count of those items at regular intervals. Organizational Structure In the SAP system, each storage facility is part of an organizational structure created in the system. For inventory management, there are two organizational levels which are required to be created; the plant, and the storage location. Plant: This is a physical location in the organization where some processes take place. Sometimes these processes involve stored material, sometimes maintenance or sometimes production. For inventory management, a plant will be created to represent a location that receives stores, and issues materials. Storage Location: This describes a designated area within a plant. A storage location can be a site where inventory is held. The physical location can be a room, a row of shelves, a racking system, a refrigerated cabinet, a trailer or a space in the plant that is identified by painted lines on the shop floor. The inventory can be materials that are used in the production process, finished goods or maintenance items. The storage location is the lowest inventory level in the inventory management function. Movement of Goods There are a number of goods movements in the SAP system, and they can be either inbound from suppliers or the production department, outbound to customers, a transfer of stock from another plant within the company, or an internal movement within the same plant. Goods Receipt: This process can be either inbound from a supplier or can be from a company's own production process. A goods receipt can be performed so that the materials are immediately available for use, or they can be placed in a quality inspection hold so that the quality department can perform tests on the items to ensure that they are within specifications before releasing them to stock. Sometimes the goods can be placed in a blocked stock state where the company does not accept financial liability for the materials as they were not ordered, or incorrect. In that case, the material is not available for use. Goods Issue: The items in the warehouse can either be used in the production process or sold to a customer. In either scenario, the items are issued to a production order or sales order which causes the stock level at the plant to be reduced. In some instances, the material can be issued to scrap if it is deemed unusable by the quality department, past its shelf life, or damaged. Internal Movements: Material in the plant can be moved from one storage location to another before it is used in production or delivered to a customer. There is a goods movement so that the material is moved from the main storage area to a staging location close to where the production or delivery area is located. Sometimes the material is moved to another plant if they need the material sooner. In that instance, there is a plant to plant transfer of materials. One other internal movement is the transfer posting, where a material is logically changed within the system. For example, a material that has been received as material requiring quality inspection can be changed to material that is available for use, by performing a transfer posting. Optimizing your supply chain means delivering to your customers what they want when they want it and executing that by spending as little money as possible. By using SAP to optimize your inventory management, you can move one step closer to an optimized supply chain. This article about the SAP inventory management functionality has been updated by The Balance Supply Chain and Logistics Expert Gary W. Marion.