Inventory record: Difference between revisions
(Infobox update) |
(LinkTitles) |
||
| Line 36: | Line 36: | ||
==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 – (First-In, First-Out) | * FIFO – (First-In, First-Out) | ||
* LIFO – (Last-In, First-Out) | * LIFO – (Last-In, First-Out) | ||
Revision as of 23:28, 22 May 2020
| Inventory record |
|---|
| See also |
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.
Footnotes
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
