In this section, we will look at the fundamentals of warehouse logistics and inventory management, explain their significance to industrial management, and examine the systems and requirements for mapping logistics processes.
J. Kappauf et al.,Logistic Core Operations with SAP,
DOI 10.1007/978-3-642-18202-0_3,#Springer-Verlag Berlin Heidelberg 2012
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3.1.1 Management-Related Significance
Warehouse logistics involves the storage and maintenance of goods in warehouses.
Warehouse management, or warehousing, is a realm of materials management.
From a business and management point of view, the warehouse equipment of such a “structural unit” takes up space and ties up fixed assets. In addition, warehouse inventory ties up liquid asset capital. Nevertheless, there are several management- related reasons for creating inventory and maintaining it accordingly (see Table3.1).
As a rule, a logistics chain contains several warehouses between a raw materials source and the end customer. Thus, on each individual level of the logistics network, stock is established to strike a balance between fluctuating requirements and inward goods movement times, or due to insecurity about future requirements in order to secure material availability.
With the aid of stock procurement, a disconnection between materials procure- ment and materials use in production or distribution processes is achieved.
Stockkeeping fulfills the primary goal of ensuring material availability and represents a reaction to any insecurities in the materials procurement and produc- tion planning processes. From a production logistics point of view, stockkeeping enables a streamlining of production by building up warehouse stock in times of low demand and reducing it in times of increased demand.
Against the backdrop of the logistics core function of a warehouse – bridging time – we can identify two central reasons for stockkeeping:
• The establishment of inventory to guarantee ability to deliver
• To offset fluctuations in delivery and demand
Securing the ability to deliver is thus often achieved by maintaining a higher stock level and, consequently, higher capital commitment. Especially with a view to cost pressure, in addition to operative warehouse functions and the modern tasks of warehouse logistics, it is important to reduce a significant driver of inventory – lead times. Among the major factors for success are modern, IT-supported ware- house management systems.
Table 3.1 Reasons for stockkeeping
Procurement logistics Distribution logistics Largely
warehouse- free concepts
Procurement from case to case, which triggers the procurement procedure through the occurrence of a requirement
Order-related production for which a customer order triggers production Production- and usage-synchronous
procurement: “Just in time”
Just-in-time production Stockkeeping Stock procurement (for the receiving storage
location)
Make-to-stock production (sales stock)
3.1.2 Systems and Applications
Early software for warehouse logistics and inventory management appeared in the early 1970s. In those days, people around the world referred to systems for warehouse management in their native tongues. It was only in the course of increased functionality and the implementation of optimization algorithms that the English termwarehouse management systemfound widespread usage.
Originally, warehouse systems were pure stock management systems, whose goal it was to maintain quantities and locations within a warehouse and their relation to one another. The quantity refers to the amount of materials stored, while the location means the respective bin location. Additional functions can include the maintenance of transportation systems.
In contrast, modernwarehouse management systems(WMS) are capable of not only supervising complex warehouse and distribution centers, but also controlling and – with regard to the reduction of internal stock – optimizing them.Warehouse managementin general thus refers to the control, supervision and optimization of complex warehouse and distribution systems. In addition to the elementary functions of warehouse management, such as quantity and location management, conveyance control and planning, warehouse management also includes compre- hensive means and methods for supervising system conditions (with software and automation technology) and a selection of business and optimization strategies.
The task of a WMS is thus the operation and optimization of internal warehouse systems.
In the meantime, we not only expect a high-performance warehouse manage- ment system to accomplish the operative maintenance of materials and their bin locations, but to also provide continual optimizing control and supervision of material flow, equipment and staff, from goods receipt through all warehouse and processing steps, right up to goods issue. In this regard, most companies need to master the following core processes with the support of a warehouse management system:
• Unloading the means of transport and furnishing the materials in the goods receipt area
• Goods receipt monitoring
• Deconsolidation through the dissolution of loading units and formation of storage units
• Provision for placement into stock
• Putaway, storage, withdrawal
• Picking
• Packing, formation of loading units and loading
In business practice, especially due to its rationalization and optimization poten- tial, the strategic significance of the warehouse has been steadily increasing. As a result, the processes and tasks taking place in a warehouse are also changing. In the past, it often sufficed to manually post goods receipts and issues and place goods,
3.1 The Fundamentals of Warehouse Logistics 101
usually in a chaotic fashion. Today, the tasks of warehouse management are considerably more complex and rely on the support of an intelligent IT system.
RFID technology (radio frequency identification), automated rack systems and operation technology, route optimization, pick-by-voice and robotics are trends that extend far beyond traditional warehouse processes and must be supported by a modern warehouse system.
The performance and efficiency of a logistics chain depend largely on the optimal interplay of the ERP and warehouse management systems employed.
That is why warehouse management systems are often integrated or closely linked to an existing ERP system.
In an SAP system environment, we differentiate between pureinventory man- agement and warehouse management. Inventory management and evaluation is generally the task of an ERP system. Within materials management, inventory management provides information on what total quantity of a material is in stock.
It enables the precise indication of the exact location of a certain material quantity in the warehouse, and also tells us whether this amount is idle and situated in its location or in movement.
Inventory management and warehouse management
An SAP system differentiates between inventory and warehouse management.
– Inventory management
The primary task of inventory management is the management of stock with regard to its quantity and value. Inventory management is executed regardless of the warehouse management utilized in SAP ERP.
– Warehouse management
Warehouse management concerns the spatial division of a warehouse, the assignment of warehouse bin locations and the processes within a ware- house. Warehouse management is either executed with integration to SAP ERP or decentrally, either on the basis of an ERP system (SAP LES) or using SAP Extended Warehouse Management (EWM), an SAP SCM component.
The administration of and transparency regarding existing materials is essential to making precise statements about the availability of a material. Goods movements are usually caused by procurement, distribution and the associated goods receipts and issues, or through stock transfer.
SAP has been providing warehouse management functions since the release of SAP R/3 2.0. Thus, it can look back on more than 16 years of experience in warehouse management and countless successful implementations. Ever since the first SAP R/3-based versions and leading right up to the current SAP SCM- based systems, functionality has been continually expanded and adjusted accord- ingly to customer demands. In addition toWarehouse Management(WM) as part of SAP ERP, in 2005 the considerably more efficient SAP Extended Warehouse
Management(SAP EWM) was introduced, which is based on SAP Supply Chain Management (SAP SCM).
Originally a part of SAP Spare Parts Management, today SAP EWM is an independent application that can be used in any warehouse environment. SAP EWM was developed for complex warehouse and distribution centers with several different products and a high document volume, and in contrast to WM, it offers many new and expanded functions. SAP EWM does not replace ERP-based ware- house management, but supplements it with a decentralized warehouse system.
In this chapter, we will thus discuss WM (SAP ERP) as well as SAP EWM (SAP SCM), focusing on the respective mapping and integration of logistics core pro- cesses. Since both SAP systems partially overlap with regard to existing functions, we will describe the corresponding processes for the system in which the last functional expansion took place (generally SAP EWM). This especially applies to auxiliary logistics services, such as cross-docking. Although both are also possible in SAP ERP, EWM offers considerably more functions.
The selection of a warehouse management system and the associated system architecture is a central issue in every project pertaining to warehouse management.
While discussion in recent years has concentrated on whether or not a central or decentral system should be implemented and how to integrate it into an existing warehouse automation system, the focus is now shifting.
Economic issues have not only changed due to the introduction of an EWM system, which is vastly expanded in comparison to an ERP-based management system. While in the past primarily technical influencing factors were examined, such as degree of automation and system performance, it is currently economic factors that have come under scrutiny and are decisive when selecting a product. A sweeping answer is not available for finding solutions to these issues, yet there are certain points of reference and relationships that can indicate a certain direction and possibly exclude certain architectures. Degree of automation continues to be a very important technical as well as economic influencing factor that greatly affects such a decision.
If the connection of warehouse and conveyor technology is a central issue for a project, the new SAP EWM has considerable advantages over the old solution.
Starting from Release 5.1, EWM offers in its component Material Flow System (MFS) a fully integrated material flow calculator with which warehouse and conveyor elements can be connected and controlled in real time. SAP EWM also allows you to connectprogrammable logic controllers(PLCs) as well as to map checkpoints, rack feeders or conveyor segments using a standard configuration.
In addition to the degree of automation, there is a series of other influencing factors for determining the system architecture, each of which must be adjusted to the specific demands of a company.
3.1.3 Organizational Structures and Master Data
Organizational structures play a significant role in the control of logistics processes and the operative administration of material and its corresponding quantities.
3.1 The Fundamentals of Warehouse Logistics 103
Furthermore, technical system integration of decentral warehouse management with SAP EWM is based on the allocation of SAP ERP and SAP SCM organiza- tional units, that is, on whether or not the decentral system is responsible for warehouse execution.
A central organizational element is the warehouse number. The number, based on subordinate warehouse structures and, as the technical and organizational unit of a warehouse management system, represents a warehouse’s complex spatial struc- ture and circumstances. In operational practice, the warehouse number corresponds to a warehouse complex or an individual warehouse building. It also serves as the central element under which warehouse-specific material master data, such as information on palleting, picking and placing, is stored.
Warehouse numbers can be assigned to a specific plant/storage location combi- nation (see Fig.3.1). This assignment represents a link between inventory manage- ment and warehouse management, and enables the use of warehouse management functions with SAP ERP or SAP EWM (see also Volume 1, Chap. 3, “Organiza- tional Structures and Master Data”).
Organizational structures and allocation
Figure3.1shows the plant structure of a company with two production sites:
New York and Philadelphia. The plants are allocated to different storage locations, which in turn are assigned a specific WM warehouse number.
The subordinate warehouse structures of the warehouse numbers Central Warehouse 1 and Central Warehouse 2 are mapped in SAP ERP. The warehouse Airport, which is allocated to storage locations NY-South and PH-North, is a decentral warehouse that is used by both production sites.
The warehouse numberAirport is identified as a decentral warehouse and linked to a SAP EWM warehouse number.
Plant (New-York) Storage Location
(NY-Central)
Storage Location (NY-North)
WM Warehouse Number (Airport) WM Warehouse Number
(Central-Warehouse 1)
Storage Location (NY-South)
Storage Location (PH-North)
Plant (Philadelphia)
Storage Location (PH-South) WM Warehouse No.
(Central-Warehouse 2) SAP ERP Org. Structure
SAP SCM Org. Structure
EWM Warehouse Number (Airport)
SAP ERP Warehouse Structure SAP ERP Warehouse
Structure Decentral
Warehouse Management
SAP EWM Warehouse Structure
Fig. 3.1 Organizational structures in warehouse management
The materials stored in an EWM warehouse are maintained with reference to quantity at the warehouse level. To achieve this, SAP EWM is seamlessly integrated with the Inventory Management of SAP ERP. Integration is done via the direct assignment of an ERP warehouse to an EWM warehouse number and a system setting that specifically identifies the assigned ERP number as a decentral warehouse. The SAP EWM warehouse number has a similar function as those used in SAP ERP. Although EWM is not functionally related toSAP ERP Warehouse Management, the EWM warehouse number also indicates the physical location in which material is stored and maintained. The actual structuring of the warehouse and the allocation of warehouse numbers to warehouse structure elements depend on the respective warehouse management system, and will be explained in the sections below along with the system-specific warehouse processes and their integration.
Both WM and EWM useSAP ERP Inventory Management (IM) to maintain quantity- and value-based inventory. Thus, we will initially discuss the basics of Inventory Management in SAP ERP before turning to the most important differences between warehouse structuring and management with SAP ERP and SAP EWM.