Inventory record: Difference between revisions
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Inventory is a difficult [[resource]] to control. They are located in warehouses and production areas. It often happens that they are after the expiration date or are not there. To reduce the [[risk]] of such situations, we use control systems to make it less likely that the units and costs would be incorrect. | Inventory is a difficult [[resource]] to control. They are located in warehouses and production areas. It often happens that they are after the expiration date or are not there. To reduce the [[risk]] of such situations, we use control systems to make it less likely that the units and costs would be incorrect. | ||
"When dealing with inventory, one should be concerned about three issues: (1) the physical quantity of goods in stock and (2) the cost at which they are valued, as well as (3) the proper billing of shipped goods. An inventory control system should be based on these issues"<ref>S.M. Bragg 2005, p.35</ref>. | |||
''[[Inventory in transit|Inventory in Transit]]'' - this is an area ignored by designers of control systems. This is due to the fact that they only think about on-site inventory. Identifying [[transport]] inventories is a very important issue. | ''[[Inventory in transit|Inventory in Transit]]'' - this is an area ignored by designers of control systems. This is due to the fact that they only think about on-site inventory. Identifying [[transport]] inventories is a very important issue. | ||
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==The value of inventory record== | ==The value of inventory record== | ||
The chosen [[method]] has a significant impact on the level of income. The company that records inventory must decide which form to choose in order to be the most profitable for them. For the [[valuation method]] to [[work]], computer programs are needed where purchased stocks are registered. There are several costing methods from which to choose. | The chosen [[method]] has a significant impact on the level of income. The company that records inventory must decide which form to choose in order to be the most profitable for them. For the [[valuation method]] to [[work]], computer programs are needed where purchased stocks are registered. There are several costing methods from which to choose. | ||
* FIFO | * FIFO - (First-In, First-Out) | ||
* LIFO | * LIFO - (Last-In, First-Out) | ||
* Weighted-Average | * Weighted-Average | ||
'''FIFO''' | '''FIFO''' | ||
Latest revision as of 23:18, 17 November 2023
The inventory record is a document that shows the inventory status, data on each stock item, sets out the rules for order quantity and lead time. It also records transactions performed for parts, assemblies and components. The MRP (Material Requirements Planning) system utilizes the procedure to upgrade data. The inventory record can reflect[1]:
- The state of the stock, in this existing stock and in-transit stock,
- Plans and quantities of future orders,
- Net demand and gross demand for each item.
Inventory record in the MRP system
One of the major input to an MRP system is an inventory record of transactions. MRP (Material Requirements Planning) system plays a very important role in many companies. The main purpose is to control the production process. Material planning in MRP is coordinated centrally. The starting point is (independent) demand for the final product. The main production schedule (MPS) contains information about what quantities of each final product will be produced at what time (order issue date) in the planning horizon. Also includes current inventory status and Bill of Materials (BOM). Using MRP, enterprises are able to meet current and future customer demand at the lowest possible cost. The inventory record includes both from fabricating inside an organization and from acquiring things from extermal providers. Recording inventory transactions promptly and accurately is a critical component of an effective MRP system[2].
Inventory Control System
Inventory is a difficult resource to control. They are located in warehouses and production areas. It often happens that they are after the expiration date or are not there. To reduce the risk of such situations, we use control systems to make it less likely that the units and costs would be incorrect.
"When dealing with inventory, one should be concerned about three issues: (1) the physical quantity of goods in stock and (2) the cost at which they are valued, as well as (3) the proper billing of shipped goods. An inventory control system should be based on these issues"[3].
Inventory in Transit - this is an area ignored by designers of control systems. This is due to the fact that they only think about on-site inventory. Identifying transport inventories is a very important issue.
Inventory Stocking - the initial determination of the inventory level is crucial for the proper functioning of the company. It is important that everyone who picks up the goods put them into the system.
Inventory Storage - a lot of controls are present at this stage. They are designed to secure inventory in the warehouse. Such a system is to protect the warehouse against theft.
Off-Site Inventory Storage - this alternative is needed by the company when the main warehouse is not enough. Usually, other warehouses or storage trailers are rented. In this case, the security system is less reliable because we do not have full control[4].
The value of inventory record
The chosen method has a significant impact on the level of income. The company that records inventory must decide which form to choose in order to be the most profitable for them. For the valuation method to work, computer programs are needed where purchased stocks are registered. There are several costing methods from which to choose.
- FIFO - (First-In, First-Out)
- LIFO - (Last-In, First-Out)
- Weighted-Average
FIFO
This method assumes that the oldest products are used first. This means that old costs are associated with them. We use this method when there is a rapid rotation of goods in the warehouse.
LIFO
This method assumes that the newest products deliveries are issued first. This means that the inventory is issued in the value of the last received item. It works best when there is inflation.
Weighted-Average
This method accordance with its name is based on weighted average calculation cost of inventory. When products are released from the warehouse are recorded at the same average cost. We need to remember that every time when new delivery is receiving we must calculate weighted average value again.
Examples of Inventory record
- Item/Part Number: This is used to identify the item or part being tracked. It is typically a unique identifier that is used by the system to accurately track transactions.
- Description: This is a brief description of the item or part.
- Unit of Measure: This is the unit of measure used to track the item or part (e.g. each, dozen, pallet, etc.).
- Quantity on Hand: This is the current quantity of the item or part that is available in the inventory.
- Reorder Quantity/Reorder Point: This is the quantity that needs to be reordered when the stock quantity falls below a certain level.
- Minimum Order Quantity: This is the minimum quantity that can be ordered when the item or part is reordered.
- Lead Time: This is the amount of time that it takes for the item or part to be delivered from the supplier.
- Cost: This is the cost of the item or part.
- Date Last Ordered: This is the date that the item or part was last ordered.
- Date Last Received: This is the date that the item or part was last received.
- Location: This is the physical location of the item or part in the inventory.
Advantages of Inventory record
The inventory record is a document that shows the inventory status, data on each stock item, sets out the rules for order quantity and lead time. It also records transactions performed for parts, assemblies and components. The MRP (Material Requirements Planning) system utilizes the procedure to upgrade data. The inventory record offers a number of advantages, including:
- It helps to inform the business of its current stock levels, allowing them to manage their inventory efficiently and make timely decisions about reordering.
- It assists in providing information to enable accurate and timely pricing of stock items.
- It helps to identify slow-moving or obsolete stock, enabling the business to liquidate or manage these items in an appropriate way.
- It enables the business to accurately track and monitor the cost of goods sold and the cost of goods purchased.
- It assists in providing accurate and timely stock replenishment when required, avoiding stock-outs or overstocking.
- It helps to minimise paperwork and streamline the inventory management process.
Limitations of Inventory record
The inventory record is a document that shows the inventory status, data on each stock item, sets out the rules for order quantity and lead time. It also records transactions performed for parts, assemblies and components. The MRP (Material Requirements Planning) system utilizes the procedure to upgrade data. However, there are some limitations to the inventory record which include:
- Unavailability of real-time updates: The inventory record does not provide real-time updates, which leads to inaccurate data.
- Inability to track demand: The inventory record does not track changes in consumer demand, which can lead to significant losses in sales.
- Inaccurate forecasting: The inventory record is unable to accurately forecast stock levels and thus, can lead to miscalculations in the number of items being ordered.
- Poor visibility: The inventory record does not provide visibility into the supply chain, which can result in poor planning and inaccurate forecasting.
- Vulnerability to theft and damage: The inventory record does not have any security measures in place, making it vulnerable to theft and damage.
An inventory record is a document that reflects the status of inventory, data on each stock item, sets out the rules for order quantity and lead time and records transactions performed for parts, assemblies and components. Other approaches related to inventory records include:
- Cycle counting which is an inventory auditing process where a small subset of inventory, in a specific location, is counted on a specified day.
- Re-order point system which allows for inventory to be replenished before it is completely used up.
- Just-in-time (JIT) inventory management which is a system for ordering and receiving inventory in a timely manner.
- Barcoding which is a system that uses barcodes to track products throughout the supply chain.
In summary, an inventory record is a document which reflects the status of inventory and records transactions. Other approaches related to inventory records include cycle counting, re-order point system, just-in-time inventory management, and barcoding.
Footnotes
| Inventory record — recommended articles |
| Bin card — Order point — Cycle stock — Merchandise inventory — Inventory adjustments — Stock register — Maximum stock level — Ordering cost — Inventory value |
References
- Boyer K., Verma R. (2009), Operations and Supply Chain Management for the 21st Century, Cengage Learning, Inc., South-Western
- Bragg S.M. (2005), Inventory Accounting: A Comprehensive Guide, John Wiley & Sons, Inc., Hoboken, New Jersey
- Heisig G. (2012), Planning Stability in Material Requirements Planning Systems , Springer, Berlin, Heidelberg
- Wee H. (2011), Inventory Systems Modeling and Research Methods, Nova Science Publishers, Inc., New York
Author: Monika Wójcik
