Operating supplies

Operating supplies are "consumed" by the company during operations such as production, distribution and transmission (for example supplies used by machinery). They might be seen similar to convenience goods but they do not become final product or its part. Usually operating supplies include stationery, oil, lubricant, petrol, grease, tools, gaskets, waste, hose, laps, packaging, distilled water, furnitures. They are characterized by:

• Short life,
• Low price,
• After using they loose value immediately,
• Can be purchased with minimum effort,
• Availability on the market,
• Frequent purchases,
• Low quantities in purchases.

Marketing point of view of operating supplies

From marketing perspective operating supplies has below characteristics:

• Many producers producing the same goods (the same operating supplies),
• Producers mainly compete on price as buyer decision is based mainly on the lowest price,
• Almost all producers needs operating supplies,
• Selling of operational supplies is usually done by network of wholesales,
• Operational supplies are delivered to many users.

Accounting operating supplies

From accounting perspective there are two ways of handling operating supplies. Each of them is defining slightly different the point of recognition of expense:

1. Purchase method: expense is calculated when product is purchased,
2. Consumption method: expense is calculated when product is used.

List of operating supplies and services

Below as example are listed operating supplies and services accounted by Michigan State University:

• Books and subscriptions,
• Business entertainment and meetings (food, beverage, alcohol, non food),
• Furniture,
• Laundry,
• Maintenance (equipment, building, hardware),
• Printing and copying,
• Renting (equipment),
• Services (consultations, technology, personal, cloud technology, contractual),
• Supplies (computer, technology, software, medical, other, offices),
• Telephones,
• Tuitions and fees (paid to other institutions, application, license, parking, conference, speaker, credit/debit cards, administrative, membership, health),
• Utilities (electricity, natural gas),
• Waste removal.

Examples of Operating supplies

• Machinery Oil: Machinery oil is a lubricant used to reduce friction and wear of moving parts in machines. In industrial settings, machinery oil is used to ensure that the machinery operates smoothly and effectively.
• Cleaning Supplies: Cleaning supplies include items such as detergents, polishes, degreasers, and other products used to maintain the cleanliness of a facility or workspace.
• Replacement Parts: Replacement parts are used to repair or replace broken parts in machinery and equipment. Examples include gears, bearings, motors, and other mechanical components.
• Hardware and Fasteners: Hardware and fasteners are used to assemble and secure parts of a machine or structure. Examples include screws, bolts, nuts, washers, and other small parts.
• Packaging and Shipping Materials: Packaging and shipping materials are used to safely transport goods from one place to another. Examples include boxes, tape, bubble wrap, and other protective materials.
• Adhesives: Adhesives are used to bond two surfaces together. Examples include glue, epoxy, and other chemical adhesives.
• Safety Equipment: Safety equipment is used to protect employees and customers from potential hazards. Examples include gloves, hardhats, goggles, and other protective gear.

Advantages of Operating supplies

Operating supplies provide a number of advantages to a company, including:

• Increased efficiency of operations: Operating supplies can increase the efficiency of operations by ensuring that machinery runs smoothly and that tasks are completed with minimal delay.
• Reduced costs: Operating supplies can help to reduce operational costs by eliminating the need to purchase additional or replacement parts and tools.
• Improved safety: Operating supplies can help to improve safety in the workplace by providing workers with the necessary items to complete their tasks safely.
• Enhanced productivity: Operating supplies can enhance productivity by providing workers with the necessary tools to complete their tasks quickly and efficiently.
• Improved customer service: Operating supplies can help to improve customer service by providing a more efficient and reliable service.

Limitations of Operating supplies

Operating supplies are essential for running a business but they can also become a limitation when not managed properly. Below are some of the limitations associated with operating supplies:

• Insufficient supply: When a company does not have enough of the necessary supplies, it can lead to delays in production and/or delivery, decreased customer satisfaction, and potential financial losses.
• High costs: Operating costs can quickly become expensive, and even though they are necessary for production, they can quickly add up and put financial strain on a company.
• Quality: Poor quality supplies can lead to a decrease in the quality of the products or services the company produces, leading to dissatisfied customers and potential losses.
• Limited availability: Depending on the type of supplies needed, it can be difficult to find them in desired quantities or of the desired quality, leading to delays in production and potentially lost customers.

Other approaches related to Operating supplies

Operating supplies are necessary to maintain efficient operations in any company. There are a few approaches to managing operating supplies that can help keep inventory levels in check and help ensure the smooth running of operations. These include:

• Just-in-time inventory: This approach involves only ordering the right amount of supplies when they are needed. This helps to avoid inventory costs and minimizes the risk of stock-outs.
• Kanban: This is a system of ordering supplies based on the inventory levels of an organization. As supplies are used up, more are ordered from the supplier. This helps to ensure that there are always enough supplies on hand to support the activities of the organization.
• Vendor-managed inventory: This approach involves the supplier managing the inventory levels of the organization. The supplier will monitor the inventory levels and order supplies as needed. This helps to ensure that the organization always has the supplies it needs, and eliminates the need to monitor inventory levels.

In summary, there are a few approaches to managing operating supplies that can help keep inventory in check and ensure the smooth running of operations. These include just-in-time inventory, Kanban and vendor-managed inventory.

Footnotes

Operating supplies — recommended articles

Indirect material — Optimization of the production run-length — Buffer inventory — Storage and handling infrastructure — Overproduction — Receiving area — Merchandise inventory — 7 wastes of lean — Maximum stock level

References

• Balla D. (2012), CLEP Financial Accounting w/ Online Practice Exams, Research & Education Assoc.
• Haas M. J., McAloon A. J., Yee W. C., Foglia T. A. (2006), A process model to estimate biodiesel production costs in "Bioresource Technology 97", US Department of Agriculture, USA
• Joshi M. (2012), Essentials of Marketing. Strategy. Product. Marketing., Bookboon
• Operating Supplies and Services -- DROP DOWN LIST (access: 2019), Michigan State University, USA
• Office of The Federal Register (2017), 2017 CFR Annual Print Title 18 Conservation of Power and Water Resources Parts 1 to 399, IntraWEB, LLC and Claitor's Law Publishing
• Pemsel A., Long D. (2003), The Future of Maintenance, Repair and Operating Supplies (MRO), Conference Proceedings
• United States. Office of the Federal Register (2003), L.S.A., List of C.F.R. Sections Affected, Uniwersytet Michigan

Author: Dominika Kaczmarczyk