Physical Inventory in SAP MM: MI01, MI04, MI07
Olivia Turner
⚡ Smart Summary
SAP Physical Inventory reconciles the stock recorded in the SAP system with the quantities physically present in the warehouse. This tutorial walks through transactions MI01, MI02, MI04, and MI07 to create documents, enter counts, and post differences accurately.
What is Physical Inventory?
Physical inventory is the process of determining whether stock quantities recorded in SAP match the quantities physically present in the warehouse. Once the physical inventory is complete, the SAP system balances and the actual physical stock should agree.
It is mandatory for legal reasons and, in most cases, is conducted once a year.
To simplify the process, the diagram below shows the most common steps for a physical inventory cycle (not only in SAP ERP).
Beyond legal compliance, having correct stock quantities in the system that match the physical stock is extremely valuable. Management gains accurate information about the value of stock materials, ATP for sales reflects reality, and MRP runs with the correct input parameters.
Without correct stock levels, the opposite happens. Management sees a misleading financial picture of stock on hand, ATP uses bad data (sales may not be able to sell something physically present, or the system may allow selling something missing from the warehouse), and MRP becomes inaccurate, causing production planning and procurement problems that depend on stock levels.
Clearly, accurate stock levels are critical for many company processes. The following sections show how physical inventory is performed in the MM module.
Types Of Physical Inventory
SAP supports the following physical-inventory procedures.
- Periodic inventory
- Continuous inventory
- Cycle counting
- Inventory sampling
Periodic inventory. Most companies use this approach. It is typically done once a year and is called annual physical inventory. Stock is counted once a year, most often at the end of the financial year or after a season ends (for seasonal industries).
Continuous inventory. Every material is counted at some point during the year, on any chosen day. One material may be counted in February, another in April, and so on, but a single material is counted only on a single date. This approach is mainly used in warehouse-managed warehouses, though it can also be applied in inventory management.
Cycle counting. A regular interval is set for physical inventory at the material level. A fast-moving high-value material may be counted four times a year, while a slow-moving low-value material may be counted once a year. The indicator is set in the Material Master, Plant/Storage Location 1 View, in the field CC phys. Inv. Ind.
Inventory sampling. Only a number of randomly selected materials are counted on the balance-sheet key date. If those samples show small enough differences, the remaining materials are also considered to have correct stock levels. This is essentially an approximation and is used rarely.
The next sections explore the most common method — annual periodic inventory.
Creating Physical Inventory Document
With the inventory method chosen, the next step is to create the physical inventory document that will hold the counting plan and results.
Step 1)
- Execute transaction MI01.
- Enter the document date and planned counting date (leave the default for today).
- Enter Plant, Storage Location, and Special Stock Indicator.
- Choose whether you want Posting Block (enable this if someone might post a movement while inventory is in progress), Freeze Book Inventory (the current book balance is recorded in the document when enabled), and whether to count batches with the deletion flag. Press Enter.
Step 2)
- Enter the material number(s) to include in this physical inventory document.
- Save the transaction data.
SAP confirms with the newly created physical inventory document number.
Step 3) Optional
- Execute transaction MI02 to make changes to the document if needed.
- Double-click an item to check whether counting has already been done.
- If the document is no longer needed, you can set the deletion indicator.
Step 4) Optional
- At the item level, the material status shows that it has not yet been counted.
Step 5) Optional
- At the header level, you can edit the data entered during the creation of the physical inventory document.
You are now finished creating and changing the physical inventory document. You can display the document anytime using transaction MI03.
Entering the Counting Results
Once the document is in place, the next phase is recording the actual counted quantities. The process is straightforward but must be executed accurately, because errors here cause poor stock balances downstream. Both counting and data entry need to be precise.
Step 1)
- Execute transaction code MI04.
- Enter the physical inventory document number and fiscal year.
- Enter the counting date if it differs from the suggested one.
- Enter the variance percentage. For example, if 100 pieces were on stock before inventory and you enter 107 pieces as the counting result, the system shows a warning message about the difference between previous stock and counted quantity. Press Enter.
Step 2)
- Enter the counted quantity for this material.
- Press Enter.
If a difference of 20 pieces is detected and the entry is correct, press Enter to bypass the warning. If the entry was a typing mistake, correct it (to 124 pieces in this example) and press Enter again.
If you suspect a counting error rather than a typing error, recount and correct the result (transaction MI05, and MI11 if needed). After correcting the entry to 124 pieces, save the transaction data.
Posting the Differences
After possible recounts and corrections, the final step is to post the differences using transaction MI07.
Step 1)
- Execute transaction MI07.
- Enter the physical inventory document and fiscal year.
- Enter the posting date. Goods posting is performed on this date. Many companies use 31 December as the annual physical inventory date, the last day of the fiscal year.
- You can set a threshold value to define the maximum allowed difference in local currency. Leave it blank for no limit. The material must have a standard or variable price maintained for this option to work.
- Press Enter.
Step 2)
- The difference quantity is shown. In this example, four more pieces were found than the system had recorded.
- No value is displayed because the controlling/accounting team has not yet released prices for this material. In production, this is mandatory — you cannot post a four-piece difference with a value of 0.00 EUR.
The posting is now complete and a material document such as 4900547510 is generated.
Step 3) Optional
You can verify the material document in MB03.
- The quantity of four pieces is visible in the material document.
- Movement type 701 is used for the goods receipt resulting from the physical inventory difference.
This adds four pieces to the inventory.
Movement Types for Physical Inventory
For reference, the table below lists the standard SAP movement types used in physical inventory postings.
| Movement Type | Purpose |
|---|---|
| 701 | Goods Receipt for unrestricted stock |
| 702 | Goods Issue for unrestricted stock |
| 703 | Goods Receipt for quality inspection stock |
| 704 | Goods Issue for quality inspection stock |
| 707 | Goods Receipt for blocked stock |
| 708 | Goods Issue for blocked stock |
The physical inventory cycle is now complete and the warehouse can resume regular activities.
