Valuation 

Use

In retailing it is common practice to record the retail price of inventory (retail method). Since it is extremely time-consuming to determine all the costs associated with the procurement of an article without the use of modern IT systems, it is all the more difficult to determine the delivered cost of merchandise. In view of this, the delivered cost of an article is usually taken as an average price calculated on the basis of the retail value.

●      Valuating inventory at delivered prices (cost inventory method)

You can only apply this method if you can ensure that all changes involving an article can be accurately recorded. What is known in the trade as the “cost inventory method” or the “cost method” involves valuating stocks at delivered prices and assigning costs to individual articles.

●      Valuating inventory at retail (retail inventory method)

What is known in the trade as the “retail inventory method” or the “retail method” involves valuating stocks at retail, often aggregated at merchandise category or departmental level. Stock is updated at retail for every merchandise category and department. For balance sheet valuation purposes on the balance sheet key date, the delivered cost of the stock is worked out based on a gross margin between cost and retail. What is known in the trade as the “cost inventory method” or the “cost method” involves valuating stocks at delivered prices and assigning costs to individual articles.

Both the cost method and the retail method can be used in SAP Retail.

The following describes how you can valuate stocks at retail using the retail method. For more information on stock valuation at cost, see MM Materials Management Material Valuation.

●      Valuation at RMA

The Retail Method of Accounting (RMA) is a retailing valuation method that is applied to the calculation and tracking of stock information. The warehouse stock is managed at an aggregated level, for example, the level of the material group hierarchy. The current stock is calculated regularly at the end of a period, for example, a month. The RMA run takes place in SAP Business Intelligence.

Note that you can only use RMA in certain countries.

For more information, see Retail Method of Accounting.

●      Valuation at ERMA

Extended or hybrid Retail Method of Accounting (ERMA) is a valuation method with which the stocks are held, analyzed and planned at retail.

The stock valuation at cost and the valuation of cost of goods sold is based on the moving average price, although markdowns are included here which may affect the cost value. The stock valuation level is the article in the plant. Valuation at ERMA takes place in SAP Business Intelligence.

For more information, see ERMA Stock Ledger.

Prerequisites

You can only use the "retail method" with inventory management that is not on an article basis (value-only inventory management) if you are using SAP Retail. For more information, see Inventory Management at Value-Only Article Level.

●      In SAP Retail, the valuation area must always correspond to a site.

Integration

●      Site

In the site master you assign a valuation area to every site. You can activate valuation at retail here if required. When valuation at retail is active, you must enter a control profile for revaluations at retail. This defines, for example, whether revaluations are to affect margins or not.

●      Retail Pricing

If you re-calculate sales prices in Pricing, you usually have to revaluate the inventory at retail. In the case of inventory management on an exact-article basis, you can automate this revaluation by scheduling it as a batch job.

If, however, you hold stocks on a value-basis, the quantities of the individual articles are not known in the system. You must therefore first count the stock to be revalued. As a support for this stock count, you can create count lists for this purpose. For more information, see Automatic Revaluation When Calculating New Sales Prices.

●      Inventory Management and Physical Inventory

The retail value for every article is managed at valuation area. In SAP Retail, every site has its own valuation area. This is also the case when inventory is managed on a value-only basis. In this case, a value-only article is used to represent the individual articles.

If valuation at retail is active, the system automatically valuates all goods movements at retail. It also posts physical inventory differences at retail. With inventory management on a quantity basis, you can hold promotion stocks separately from the regular stock and also value it separately. For further information, see Promotion: Split Valuation for Promotion Merchandise.