Efficiently Reconcile MM and FI Inventory Values

  • by Akhilesh Mittal, Lead Consultant, Infosys Technologies Ltd.
  • November 4, 2009
Understand the reasons that cause inventory value discrepancies in materials management (MM) and FI. Learn how to avoid these discrepancies by means of adequate master data and configuration checks. Understand how to identify and resolve MM and FI inventory value discrepancies.
Key Concept

Material movements originate in materials management (MM) and denote physical movement of materials. Material movements affect inventory quantities. Inventory quantities have a value and any change in inventory quantity also results in a change in inventory value. All the material movements are not relevant for valuation. The material inventory value is maintained in both FI and MM.

For a manufacturing organization, the inventory value of a material is the cost of manufacturing the material. For retailers and traders, it is the same as the procurement cost. Inventory value is a current asset that is reported on the balance sheet to satisfy legal requirements.

Inaccuracy in inventory values may arise due to incorrect inventory quantities or inventory valuation issues in your SAP system. Organizations follow the cycle count process to physically count the inventory quantities and reconcile them in the SAP system. Incorrect valuation is a system issue and arises due to incorrect configuration settings and incorrect transaction postings in the SAP system. The difference in inventory value between materials management (MM) and FI is an indicator of incorrect valuation.

I’ll show you how to:

  • Understand the reasons leading to inventory value differences in MM and FI
  • Implement preventive checks and measures to reduce MM and FI inventory value differences
  • Identify and reconcile MM and FI inventory value differences
Note
The article is applicable to both SAP ERP Central Component (SAP ECC) and SAP R/3 systems. As a result, it applies to both the SAP General Ledger (formerly called the new G/L) and the classic General Ledger.
Note
For related material, see Rohana Gunawardena’s article “Are Your Stock Balances Correct?”

Reasons Leading to MM and FI Inventory Value Differences

The MM inventory value in the SAP system includes valuated material movements and revaluation postings due to a change in the material standard price. The FI inventory value includes only those postings that have been posted to the inventory account. Four main reasons may lead to inventory value differences in MM and FI:

  • Direct FI postings to the inventory General Ledger account: You can make direct FI postings using transaction FB01 or by using a custom utility program. The direct FI postings originate in FI and do not have a corresponding document in MM, resulting in differences. It is both an accounting and an SAP best practice to not allow direct FI postings to the inventory General Ledger account. Use transaction FS00 to manually maintain the inventory General Ledger account master data to allow only automatic postings to the account (Figure 1).

Figure 1
Inventory account — Post automatically only

  • Incorrect MM account determination: MM account determination is done using transaction OBYC. The MM inventory value is updated only by the transaction key BSX, which is for inventory posting. MM and FI inventory value differences arise if price difference transaction key PRD or revaluation transaction key UMB is mapped to the inventory account.
  • Material documents missing the required follow-on FI document: Standard SAP program code makes use of a COMMIT WORK statement to ensure synchronized execution of tasks. You can add custom code to your SAP system via user exit, customer exit, or Business Add-In (BAdI) for customer-specific requirements. Additional COMMIT WORK statements in the custom code result in inconsistencies and may not ensure synchronization of tasks. This may result in the creation of an MM document without validating the creation of a follow-on FI document.
  • FI document missing a source materials document: Similar to the COMMIT WORK statement, the SAP system uses a ROLLBACK WORK statement to cancel requests relevant for synchronized execution of tasks. You should accompany the ROLLBACK WORK statement by a program termination. The customer code not following the program termination with a ROLLBACK WORK may lead to creation of an FI document without an MM document. This happens when regeneration of an MM document is not possible after the creation of an FI document.

Preventive Checks and Measures to Reduce MM and FI Inventory Value Differences 

Resolving inventory value differences between MM and FI is a painstaking exercise. You may need to analyze each and every material document to determine the source of the issue and then take corrective actions to resolve them. It is better to use the preventive checks and measures to avoid inventory value differences. I’ll discuss four primary checks that can reduce the occurrence of MM and FI inventory value differences.

  • Inconsistency tool MBFIRSTS: SAP provides the inconsistency tool program MBFIRSTS as of SAP ERP Central Component (SAP ECC) 6.0, which you can execute via transaction SE38. Prior to SAP ECC 6.0, the inconsistency tool was available for installation via SAP Note 32236. The inconsistency tool is used to analyze data inconsistency problems after they have occurred in the SAP system. However, you can use it to identify sources of data inconsistency beforehand by using it as a preventive tool. MBFIRSTS requires the company code and the plant as an input parameter to be executed. MBFIRSTS helps identify and raise an alert for negative stocks allowed and issues with inventory accounts.

    The SAP system allows negative stock quantities to be maintained in MM. However, if negative stock is allowed, it creates a risk for incorrect valuation in FI, because inventory valuation in FI can never be less than zero. MBFIRSTS provides an alert if negative stock is allowed for the plant (Figure 2).

Figure 2
Negative stock alert in MBFIRSTS

If this is not an intended configuration for the plant then you should rectify it using transaction code OMJ1 by deselecting the Neg. (negative) stocks allowed indicator for the plant (Figure 3).


Figure 3
Negative stocks allowed for the plant

The inconsistency tool displays the inventory account associated with transaction key BSX in transaction code OBYC (Figure 4). It then checks for any inconsistency associated with the inventory account master data and reports it. The reason for the STOP alert in the illustration (Figure 4) is because the inventory account master data allows manual postings. You can rectify this by using transaction code FS02 to allow only automatic postings to the inventory account (Figure 1).


Figure 4
Inventory account alert in MBFIRSTS

  • Where-used list (program RM07C030) for inventory account: Use of inventory account for transaction keys other than BSX lead to inventory value difference between MM and FI. Program RM07C030 provides a list of all the General Ledger accounts used for material movements in a specific plant. You can execute this program by using transaction code SE38. Confirm the use of the inventory account in the program output and ensure that it is assigned only to transaction key BSX. The program output shows that the inventory account INVACC1 is configured for valuation class 3000 and transaction key BSX (Figure 5).

Figure 5
General Ledger account where-used list

  • Guidelines and approval process for customization: Customization using substitution rule, custom utility program, user exits, customer exits, and BAdIs may create inventory account differences by incorrect use of inventory account. Improper use of COMMIT WORK and ROLLBACK WORK also leads to inventory account differences. It is essential to have customization guidelines and review and approval process of custom code.

  • Hold off archiving FI and MM documents: If MM and FI inventory value differences arise, ensure that MM and FI documents are not archived from the SAP system. MM and FI documents are needed to identify the cause for differences. You can use archiving objects FI_DOCUMNT and MM_MATBEL to archive FI and MM documents, respectively. You should exclude these archiving objects from archiving until document review and analysis of differences is complete.

Identify and Reconcile MM and FI Inventory Value Differences

You can take certain precautions to help prevent inventory value differences from arising. It is important to understand the tools that you can use to identify and resolve the source of discrepancy, in a scenario when differences occur. I have discussed the various reports that you can use in a sequential manner to isolate the sources of discrepancies.

1. MM/FI Balance Comparison using RM07MMFI

Use transaction code SE38 to execute program RM07MMFI. Alternatively, use transaction code S_P6B_12000136. RM07MMFI is a relatively new report and has been included as standard since SAP R/3 4.6C. You should execute this report as part of the period-close process after moving to the new period. While executing this report for the current period, keep in mind that transaction data may be updating the MM and FI stock values in real time and that may also result in discrepancies. If it is necessary to execute the report for the current period, select a quiet time during which most of the business users are offline. This report provides an overview of the MM stock value (i.e., what is in the Value of materials column) and FI stock value (i.e., what is in the Value of G/L account column) without providing the capability to drill down to a material level (Figure 6). This is a reporting limitation, but the same limitation makes the execution time for this report fast from a performance perspective.


Figure 6
MM/FI balance comparison using RM07MMFI

The program RM07MMFI is a good starting point to analyze if differences between MM and FI inventory values exist. You can drill down to provide information at the plant and valuation class level (Figure 7). This is useful because you can assign multiple plants to the same company code in the SAP system. You can use this information to identify the plants having inventory value discrepancies at a valuation class level. This information is sufficient to determine if a stock value discrepancy exists and if you need to analyze the data further. In my example a discrepancy exists, so I need to analyze the data further to identify the source of discrepancy.


Figure 7
Drill-down report output for RM07MMFI

2. MM/FI Balance Comparison Using Transaction MB5L

Use transaction MB5L to see the stock balance report. This report is similar to RM07MMFI, but it is worse from a system performance perspective because it provides report output at a material level.

Note
MB5L and RM07MMFI should not be considered as reporting alternatives, but as complements.

Figure 8
MM/FI balance comparison using transaction MB5L

You can execute the MB5L report for a specific plant. However, you should execute this report at company code level because multiple plants may be assigned to a company code. Restricting the report selection by plant in this scenario automatically leads to differences because material balances are displayed for a specific plant and the General Ledger balance is displayed at company code level. It has drill-down reporting capabilities at material level in the report output. The initial report output looks similar to RM07MMFI and provides the same information (Figure 8). Place your cursor on the General Ledger account and follow menu path Environment > Display Stocks to view the drill-down report (Figure 9).


Figure 9
MM/FI balance comparison by material

The drill-down report format provides information for MM stock value. Although it displays the General Ledger account in the report output, the stock value provided is the MM stock value and not the inventory account balance.

3. Detailed Document Analysis

Use transaction FBL3N to get the line item details of the inventory account. The transaction FBL3N report output includes material and plant information. You can summarize the transaction FBL3N report output by material and plant (Figure 10). If the stock value is the same as the MM stock value from the MB5L report, then you can exclude all such materials from further analysis.


Figure 10
Inventory account balance by material

The inventory account balance by material in the illustration shows that you need to carry out your analysis further for both the materials. For a detailed analysis, you use transaction MB51 to get the material document list and transaction MR51 to get the accounting documents for the materials. I’ll show you further analysis for only one material, AKTEST, in the illustration. You can extend the analysis methodology to the rest of the materials.


Figure 11
Material document list

The material document list displays all the documents posted in MM for the specific material (Figure 11). You can navigate to the FI document from the MM document. Furthermore, the FI document retains the link with the MM document via the Reference Key field (BKPF-AWKEY). The Reference Key field for the accounting document contains the concatenated value of the MM document number and the year.


Figure 12
Accounting documents for material

Transaction MR51 provides a list of all the accounting documents for the material in FI. All the valuated MM documents (Figure 11) should have a corresponding FI document. You can identify the valuated MM documents using the movement type on the MM document. The document type PR is created when the standard price of the material is changed. This results in revaluation of the inventory value according to the new standard price. PR documents are created only in FI and do not have a corresponding MM documents. Exclude document type PR from any further analysis. Prepare a list of all those documents that don’t have a corresponding document in the MM or FI document list. These are the sources of discrepancy that need to be rectified.

A comparison of the display of the screens in Figures 10 and 12 show that there are documents in MM or FI only, which is causing the discrepancy. Include such documents in the list for further analysis.

4. Analyze the Accounting Documents

Use transaction FB03 to view and analyze the accounting documents individually or use transaction FBL3N by document numbers for analysis (Figure 13). This detailed analysis shows different inventory accounts, indicating that the inventory account was changed in transaction OBYC configuration. This value is still reported in the MM stock value but is excluded from the FI stock value. You also see document type SA, which doesn’t have a corresponding MM document in transaction MB51. This indicates that a manual posting has been posted to the inventory account.


Figure 13
Line item display of accounting documents

Both these reasons together account for the discrepancy in value between the MM and FI inventory values. This is a tedious and manual analysis process to identify the discrepancies. It is essential that basic analysis using RM07MMFI is carried out at least on a periodic basis. If discrepancies arise between MM and FI stock values then it is easy to identify and resolve them because of the availability of data and the ability to restrict the analysis at worst to one period.

 

Akhilesh Mittal

Akhilesh Mittal is a lead SAP consultant at Infosys Technologies Ltd. with eight years of consulting and industry experience. He has experience in FI and CO along with exposure to SD. Akhilesh is currently a consultant in the SAP space for a leading organization in the high technology domain. He has a degree in electronics and communication engineering from IIT Guwahati and an MBA in finance and systems from IIM Lucknow.

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You may contact the author at akhileshmittal@yahoo.com.

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Comments

3/31/2014 3:49:48 PM
Carol Tucker

HI
I was just wondering how you to reconcile the inventory when there are multiple currencies - the reports display company code currency but what about LC2 currency? thanks

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