Inventory Valuation Report : Amiad Use Case

Overview

Organization – Amiad Water Systems

Sector – Industrial Machinery Manufacturing

Problem – High inventory costs

Solution – Using InsightSAP the company has created a new automated raw materials supply process. Significantly decreasing the amount of time the production floor waits for materials, resulting in increased efficiency.

Summary

With 8 sites worldwide and 135,000 items in inventory, Amiad had a lot of inventory. The company managers struggled in making decisions regarding inventory since they did not have the full picture. 

The company wanted to identify both material items that presently exceed the desired thresholds, as well as to identify in advance material items that are forecasted to exceed thresholds in the near future. Identification of the latter could trigger preventive measures, such as reduction of stock replenishment.

Using InsightSAP the company was able to create an inventory valuation report. Based on past Z reports that were imported into InsightSAP, the company could create a new inventory report. In addition, columns with formulas were added to calculate the expected consumption of inventory items. 

Now, the company’s managers had a far more founded way to make inventory decisions, finally being able to decrease their inventory expenses.

Full

Inventory valuation is the cost associated with an entity’s inventory at the end of a reporting period, and can also be used as collateral for loans. This valuation appears as a current asset on the entity’s balance sheet.

Amiad Water Systems Ltd. (‘Amiad’), a global leader in water treatment and filtration solutions, made a strategic decision to reduce inventory cost worldwide.  Although inventory is managed within SAP ERP, it was challenging to produce an updated operational report, which reflected real-time data and 6-month forecast of inventory value. The company wished to have reports by site (Amiad operates 8 sites worldwide) and by material item.

A one-time one-day work effort with InsightSAP replaced a 5-day labor needed whenever a new report was required. As a result, the ability of the mid-level managers to make the right decisions based on the accurate information has dramatically increased, and the company’s inventory forecasting unlocked saving potentials as a result of adjusting planning of replenishment orders when they seemed to surpass the defined thresholds.

PAIN POINT: 

Amiad launched various projects aimed at reducing the inventory levels, but the ability to monitor the outcomes of the projects, given the availability of 135,000 material items across 8 different sites worldwide, has been challenging. The company wanted to identify both material items that presently exceed the desired thresholds, as well as to identify in advance material items that are forecasted to exceed thresholds in the near future. Identification of the latter could trigger preventive measures, such as reduction of stock replenishment.

Up until now, In order to produce a Global Inventory Valuation monitoring report, users needed to download to a spreadsheet data from 4 different tables and apply many complex formulas. Since there are 135,000 material numbers across 8 different sites, the running time of creating such a report was very long. Each one of the 8 sites required nearly a day to create a single inventory valuation report – about 5 working days for all 8 sites combined. The outcome (an excel spreadsheet) was extremely heavy and opening the file was tedious. As a result, as much as necessary the Inventory Valuation Report was, it was not produced regularly. Even then, the file size required the users to split data and any additional analysis or modification in the structure of the report translated into further investments. Hence, the Operational Managers were semi-blind when trying to execute upon the corporate guidance related to the reduction of Inventory Value.

ACTION: 

The Company has taken a Z-Report that was using SAP MRP data (based on a Logical Database DBM), and uploaded it to InsightSAP as the baseline report. This table displays MRP data such as inventory levels at a specified moment, movement inventory data (move-in, move-out) and other relevant inventory control data.

Having the Z-Report as a baseline, thanks to Insight SAP, various Data fields from SAP MARC Plant Data (MARC table – ‘Material Connection Disclosure’) and from SAP MARA (‘General Material Data’) were added as new additional columns within minutes to the Z-Report baseline. Other columns were added as well to the report from SAP MB52 table (Display Warehouse Stocks).

Once the structure of the data was combined into one single view, as described above, the data was organized, within Insight SAP, by Material Item (by Site) and by Month (6-rolling months forward). The data was aggregated by Material Number, and displayed as the summary of inventory level and value by material item (with drill down to the granular Material item’s movement information).

Next, the company calculated the desired safety stock level and maximum stock level by Material Item. As a result, each material item had a clear acceptable inventory level range. Thanks to the ‘Stock Value per Unit’ column (added to the report with Insight SAP), a simple formula calculation within Insight has now provided the customer minimum and maximum stock value per Material Item, and consequently the Acceptable Stock Value Range per Material Item.

Using conditional formatting, the aggregated monthly data (displayed on 6-rolling months forward forecast) was color-coded with formulas, as following:

  • GREEN: Inventory value within the acceptable range
  • ORANGE: Inventory value consistently outside the acceptable inventory range
  • RED: Anticipated changes of inventory slipped outside the acceptable range
  • YELLOW: Inventory Value in a risky position with respect to the acceptable range

At the following illustration, a sample of the Material Items associated with site #1300 (one of Amiad’s 8 sites), specifies the movement list accessible through the ‘Records’ column (far left column):

Finally, by using Insight SAP’s Suite Publisher Module, Amiad could send automated email alerts to the Inventory Manager at each site. Each Inventory manager receives notification emails, with all necessary details, outlining the problematic Material Items for his attention. From within the email, the Inventory Manager could drill down to the material item data on the transactional level, subject to his SAP authorization clearance. In addition, any Inventory Manager at any site could now run the Inventory Valuation Report at any time in order to further analyze the data and for any other purpose.

Another task was to consolidate top issues in every site, all displayed on the same pre-scheduled email, sent regularly to Amiad’s COO and Global Head of Inventory. This will enable them to take actions as they will have a global and by site views – as well as to report progress related to Company’s Guidance of lowering the Inventory Value. 

RESULT: 

From a process that lasted over 5 days of manual labor, delivered outdated information (as data was exported to a spreadsheet), and with various limitations as a result of Big Data and other technical matters – Amiad’s managers could move from a defensive to a proactive mode. The Company now has a complete and clear picture of current and forecasted inventory stock levels and costs on a global level, site level and by Material item and month. Thus, Amiad managers could now reach data-based decisions and to take corrective measures when needed.

All of the above was made available within a one-time one-day of work effort, without development, which is equivalent to the time invested previously per the production of a less-capable report of one single sight. 

Furthermore, few end-users were technically capable of creating the Inventory Valuation report as opposed to today – that each person with the right SAP authorization level could address his personalized needs by a single mouse-click.

Before using Insight SAP, which enables the creation of this report without development and On Production (hence, eliminates the need to put in place a development requirement document and then pursue an ABAP development path), it was alternatively planned to execute the Inventory Valuation Report through standard ABAP development – a painful, long, tedious and invested process that would have ended up with a Z-Report, that amongst other matters is ultimately unsupported by SAP.

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