Moving Inventory for Profit

Lower inventories. Better ability to deliver. Those goals are easier to set than to meet. The material inventory that companies store in their warehouses and manage with ERP systems is often so large that it’s difficult to obtain an overview of it all, let alone optimize it – especially in midsize companies. CEOs ask where they should take action to lower inventories without putting the company’s ability to deliver in danger. For plant managers, it’s important to know when production materials run out. And MRP planners must decide which notifications from an MRP run they have to address first.
Two new add-on programs for inventory optimization in SAP R/3 and SAP R/3 Enterprise help companies deal with these issues. The tools were developed by Steeb Anwendungssysteme GmbH and help companies implement the appropriate optimization efforts. The solution, named Steeb Be-Opt, consists of an analysis tool and an optimization tool that works in two steps. The first step uses an analysis add-on programmed in ABAP and SAP data to determine the areas in which inventory can be lowered and what opportunities exist for savings. In the second step, an optimization tool integrated into the ERP solution helps MRP planners analyze the results of an MRP run in SAP R/3 according to special questions.

How long will supplies last?

Steeb Be-Opt is designed especially for small and midsize SAP users and can be used industrially and in wholesale situations for better procurement logistics – regardless of the industry in which a company operates. A design that examines the range of coverage is the foundation. Procurement actions are triggered only when inventories are lowered, for example, by a production order.
The prerequisite for the analysis in Steeb Be-Opt are inventories that are clearly structured for their value to the company, such as those in a three-level ABC classification. After all, the material inventory required to guarantee an optimal ability to deliver varies from company to company and is often a question of the company’s philosophy. Data from benchmarks in comparable companies enables a differentiated consideration of warehouse handling and range of coverage. That’s why Steeb complements its software offering with consulting and application training.

Where’s the dormant optimization potential?

The basis of the calculations comes from the logistics components of SAP R/3: sales & distribution, materials management, production planning, quality management, and plant maintenance. To deliver meaningful data, the ERP solution must be broken in – meaning that it has been productive for a least a year. From the ERP system, the analysis add-on extracts logistics data, such as consumption and requirements numbers, inventories, or prices, and transfers them to a PC. In the process, an ABAP report writes the data to an application server, and an additional program transfers the data to a PC as text files where it is loaded into a Microsoft Access database. In this manner, the analysis can occur independently of access to SAP R/3. Users can quickly adjust parameters for simulations without having to change SAP master data. The extraction considers various customer-defined parameters, such as the classification of the inventory or the number of consumption and requirements periods involved in the analysis.
The data is then evaluated according to benchmark rules. Key figures are calculated for the range of coverage of the current inventory. The analysis add-on displays how long inventory will last – listed by individual material. The calculation includes all inflows and outflows, such as those that occur because of ordering materials or production orders. This way, CEOs receive a strategic overview of inventory range of coverage and can more easily see where they can intervene to optimize the ranges. And users can use the analysis tool to simulate a lower inventory level or a more limited level, thus finding opportunities for savings.

Focus on critical situations

The optimization tool displays which materials will develop a critical situation in the short term – the next few days or weeks. The program also determines how much money is tied up in individual inventories.
Data from SAP R/3 is analyzed according to various questions for this determination. What does the current inventory situation look like? Which materials did we buy too much or too little of? What’s the current range of coverage? How do the master data parameters influence the range of coverage? For the calculations, users can work with five easy-to-use SAP transactions. The analysis is based upon the MRP run in the SAP production planning component. The ABAP program accesses SAP data directly without having to change it. If changes are necessary, the user can branch to a standard transaction.

A perspective: thanks to a graphical display

The optimization tool analyzes data according to the range-of-coverage design and shows MRP planners which problems require a solution in the short term. At a glance, a graphical display shows which individual materials will last for a long time, which means that the stocks of these materials might be too high. The MRP planner can use the data in SAP R/3 item by item to see if the inventory range of coverage is justified (for parts with long lead times, for example), if an error in master data is present, or simply if too much was ordered.
To solve the problem, users can branch from Steeb Be-Opt to the corresponding SAP application (MRP scheduling, purchasing, or sales) with a click of the mouse. Once there, they can check to see if they can cancel the unnecessary order. Exceptions can thus be handled more easily and more effectively.
Currently, Steeb Be-Opt is running at a pilot client, where employees are saving 10% of their normal work times.

Winfried Mergenthaler