Smoother supply chain management requires monitoring critical inventory management key performance indicators,...
By submitting your personal information, you agree that TechTarget and its partners may contact you regarding relevant content, products and special offers.
and then making sure that the materials planning approach supports those inventory KPIs.
Despite the plethora of inventory reports and analyses that are available in SAP ERP Central Component (ECC), just one type of analysis, ABC analysis, is available to help monitor inventory KPIs.
ABC analysis captures two important inventory KPIs -- the usage value and the consumption value. The usage value evaluates the historical usage of a group of materials to segregate materials of high, medium or low values consumed over a given period. The consumption value evaluates which groups of materials have high, medium or low consumption values, and directly relates those values to how much capital tie up is expected when these materials arrive in the warehouse, for which the company will need to pay the vendors.
Although ABC analysis is important, planners typically need more analyses to stay on top of inventory KPIs. In those cases, companies can turn to SAP MRP Monitor, an SAP add-on developed by SAP SE for on-premises ECC.
SAP MRP Monitor can provide invaluable details on critical inventory KPIs, and also offers the function to mass change the materials planning data to ensure a closed-loop and end-to-end approach to inventory management and materials planning.
Here are five inventory KPIs that MRP Monitor can help track and evaluate.
XYZ analysis provides information on the consumption predictability of materials, with X being the most predictable and Z being the least.
In MRP Monitor, ABC/XYZ analysis is contained in one dashboard and brings these two KPIs together to show how ABC materials stack up to their consumption patterns. This analysis shows the slow-movers and nonmovers, enabling material and inventory planners to decide how best to manage them in the future, such as getting rid of any safety stock maintained for slow-movers or scrapping the dead stock (nonmovers) to make space for fast-moving products.
EFG analysis evaluates the lead time for procured materials. The E denotes the shortest lead time, while the G represents the longest.
Materials that fall in the G category need the most attention for timely replenishment. It makes sense to evaluate EFG data with the range of coverage profile, which stipulates how many days the current stock will be able to meet the average consumption of materials, as well as if the lead time will ensure timely replenishment or not.
In UVW analysis, the materials are grouped based on valuation price, with U being the most expensive materials and W being the least expensive. The valuation price together with the available stock determines the inventory value.
With UVW analysis, the inventory planner can evaluate the high, medium or low value contributors to the overall inventory value.
LMN analysis categorizes materials based on the size or volume of the individual materials, with L having the largest footprint or size and N being the smallest, and thus occupying the least amount of warehouse space.
LMN analysis only shows reliable results when correct gross and net weight and volume data is maintained in the Basic data 1 tab of the material master of each material.
LRODI analysis covers the lifecycle of the product -- with L being a new (or just launched) product and I being the dead stock (or dying stock).
In between L and I are groupings of materials to denote various other lifecycle stages, such as regular, slow-movers and obsolete. This analysis helps to identify which materials must move out of the warehouse to make room for fast-moving or regular products.
Like in all analyses and reporting features available in ECC, MRP Monitor enables the materials or inventory planner to define parameters on the initial selection screen so that the system brings up only the relevant results.
How the internet of things can be used in inventory management
Distribution requirements planning can enable better inventory management
How to create a distribution inventory management plan
Dig Deeper on SAP SCM software
Related Q&A from Jawad Akhtar
Setting up demand-driven metrics and using analytics to monitor them can provide benefits such as helping to reduce working capital commitments and ...continue reading
The recurring inspection functionality available in the SAP Quality Management component can help effectively maintain materials that are managed in ...continue reading
A logical extension of the Sales and Distribution component, and part of Business Suite, SAP CRM has components to tackle sales, marketing, service ...continue reading
Have a question for an expert?
Please add a title for your question
Get answers from a TechTarget expert on whatever's puzzling you.